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What is Abandonment Value?
The Abandonment Value is the salvage value left if a capital project is stopped short at an unknown time. Authors Robichek and Van Horne (1967) offered a very concise argument for the importance of including an Abandonment Value in the calculations leading to a company decision to undertake a long-term capital project. The calculation is useful for risk assessment, and tries to find the value at which project assets could be liquidated if the project could not be continued for some reason. Continue reading...
What is a protective put?
A protective put is an option contract that hedges against losses in a long stock position, by allowing the investor to sell the underlying security at a specific price. Sometime investors will seek to limit possible losses in a stock that they hold by purchasing a put option at a price below the current market price. This allows the investor to sell their stock at a set price if it takes a dive for any reason. Let’s assume that you have 100 shares of company ABC, which is trading at $100/share. Continue reading...
What Payout Options Do I Have?
Payout options in the realm of annuities tend to be guaranteed by the insurance company providing the annuity, and may come in many forms depending on the investor’s preference. Annuities can pay income to the annuitant in a few ways. One of the ways is to turn the entire balance of the annuity into a pension-like income stream for life, or jointly on two lives. The payout tends to be higher than the safe withdrawal rate than investors can use in an investment account, and it provide guarantees and surety where it wouldn’t exist otherwise. You can also elect to have these payments start off slightly lower, and then to increase at a guaranteed rate, to keep up with the cost of living. Continue reading...
What is Asset Turnover?
Asset Turnover is a metric that investors and companies can use to determine how efficiently a business uses its assets to create revenue. Asset Turnover is a ratio of the value of a company’s sales or revenues relative to the value of its assets. It can be calculated simply by dividing sales or revenue by total assets. The higher an asset turnover ratio for a company, the better that company is performing - since it implies that the company is generating a high level of sales and revenue per unit of assets. Continue reading...
What Does Asset Mean?
Any item of economic value that a person or entity owns, benefits from, or has use of in generating income. Assets can generally be converted to cash, but economic circumstances often determine whether the asset can be sold at fair value. Some common examples of assets are cash, stocks, paid-for real estate, inventory, office equipment, jewelry, artwork, or other property of value that can be counted towards a person’s estate or a corporation’s balance sheet. Continue reading...
What is asset allocation?
Asset allocation is theoretically the best way to control the return you experience, through diversification and rebalancing. Asset allocation theories provide you with mechanisms to diversify your money among various asset classes, such as stocks, bonds, real estate, commodities, precious metals, etc. The benefit of asset allocation is twofold: first, nobody knows which asset class will perform better at any given time, and second, various asset classes are not entirely correlated or have a negative correlation, which provides a hedge. If one asset class appreciates significantly, the other might not, but, if the allocation is done correctly, this may be exactly what the investor was looking for. Continue reading...
What is an asset mix?
An asset mix is the blend of major asset classes in a portfolio, which should be constructed based on the risk tolerance, time horizon, and goals of the investor. A common example of an asset mix is the 70/30 stock-bond mix, where 70% of the assets are invested in stocks and 30% in bonds. “Mix” is one way of describing the asset allocation of a portfolio, but it also describes the practice of diversifying among asset classes. The core asset classes that most people consider are stocks, bonds, cash equivalents, real estate, and commodities. Continue reading...
What are Current Assets?
Current Assets are items on a balance sheet that are either cash or are going to be cash in the near future. The current assets section of a balance sheet is an indication of cash flows and liquidity. The assets are usually listed in order of liquidity, or the amount of time that it will take for them to become cash. This section includes cash, accounts receivable, prepaid expenses, inventory, supplies, and temporary investments. (The order given here is not necessarily the order of liquidity found on a balance sheet.) Continue reading...
What are Tangible Assets?
Tangible assets are the property of a company that are tangible and can be quickly liquidated. This includes current-period accounts receivable and money in checking, savings, and money-market accounts. Buildings, land, equipment and inventory are all tangible assets as well. Tangible assets are an important part of a company’s book value. For most valuations, intangible assets such as patents, other intellectual property, and goodwill are not included. Continue reading...
What is the “Period Income” Option on Annuities?
The Period Income option or Guaranteed Period option on Annuities means that the entire balance, plus some interest, will be paid out to you in equal amounts over the course of a set number of years. This option may fulfill a specific need for income in a certain time of life. It used to be slightly more attractive to investors when interest rates were higher, but, today, the low interest rate environment does not give insurers enough time to generate interest for these sorts of payouts. Continue reading...
What is a Dividend?
A dividend is an income-like payment to an investor who holds stock. Dividends tend to be paid by companies who are well established and are not retaining their earnings for capital projects. There are several kinds of dividends, but the most common is the cash dividend. You are not likely to see dividends paid by companies whose stocks are categorized as Growth stocks. Growing companies are going to be ploughing money back into their company for years. Well-established companies tend to distribute some of their profits as dividends because it allows them to retain loyal shareholders and keep the price of the stock fairly steady. Continue reading...
What is Return on Assets?
Return on Assets, or ROA, is an efficiency ratio which quantifies how much profit a company can generate with the assets it has. Return on Assets is a ratio of the net income of a company divided by the amount of assets it has on the books. It can also be synonymous with Return on Investment (ROI), at least at a corporate level. Theoretically this gives analysts an idea of how much profit a company could generate by buying more equipment or other assets, or how efficiently they use the assets in which they have invested. Comparing companies in a specific industry to their peers with ratios such as this one can be illuminating. Continue reading...
What is a Non-Current Asset?
A non-current asset is an asset on the balance sheet that is not expected to convert into unrestricted cash within a year’s time. Non-current assets may include such things as intellectual property and production/operations equipment - meaning they likely do not have a need to convert to cash. From a balance sheet standpoint, non-current assets are capitalized rather than expensed - meaning the company can allocate the asset’s cost of the asset over the number of years for which the asset will be used, instead of allocating it all in the year it was purchased. Continue reading...
What are Net Tangible Assets?
Net Tangible Assets represent a company’s total amount of physical assets less its intangible assets, like intellectual property and equipment, and also less the fair market value of its liabilities. Tangible assets can include things such as cash, inventory, and accounts receivable, versus liabilities like accounts payable, long-term debt and loans. This measurement of a company's tangible assets is important because it allows a firm's management team to analyze its asset position without including obsolete or difficult to value intangible assets. A company's return on assets (ROA) can be more accurate when net tangible assets are used in the calculation. Continue reading...
What is Return on Net Assets?
Return on Net Assets is a calculation used to determine how well a company performs, relative to its resources. Return on Net Assets gives investors an idea of how well a company uses its resources to generate profits. Net assets includes not only fixed, tangible assets, but also the net working capital of a business. Working capital is defined as Current Assets minus the Current Liabilities of the business. The net profits for a period are divided by the net assets to arrive at the Return on Net Assets. Continue reading...
Is successful asset allocation an art or a science?
Successful asset allocation will cater to the risk tolerance and goals of a client based on past performances while seeking gains in an uncertain future; this calls for a mixture of art and science. We believe that successful asset allocation is based on rigorous statistics, but as with any other statistics, it’s 20/20 retrospective vision. Proper diversification can help to make the future performance slightly more predictable, but as market conditions unfold, the appropriate rebalancing or reallocation may not always be obvious, especially to a computer. Continue reading...
What is the right mix of assets for me?
Arriving at the appropriate asset allocation is not very easy to do by guesswork, so we’re here to help. There is no such thing as a mix of assets that is right for everyone. It depends on your age, employment situation, the size of your investment portfolio, your objectives, time horizon, risk tolerance, income requirement from your investment portfolio, tax bracket, and many other factors. Programs and algorithms can help you significantly when you plug some of these variables in, but it is still wise to apply some scrutiny and a human touch. Continue reading...
What does asset allocation mean?
At the highest level, Asset Allocation refers to an investor’s decision of what percentage to allocate to stocks, versus bonds, versus cash (and cash equivalents), versus any other asset class (commodities, alternatives, real estate, etc…). It is believed that the asset allocation decision is responsible for the majority of an investor’s returns. In other words, there is a direct correlation between an investor’s long-term return and how long - and to what percent - they owned stocks over their lifetime. Continue reading...
Who Created Ethereum?
Who would have thought that a 19-year-old from Toronto could write a whitepaper nearly as influential as Satoshi Nakamoto’s (Bitcoin founder)? A few years after Bitcoin’s launch, a young programmer and student of blockchain technology named Vitalik Buterin wrote a whitepaper imagining the Ethereum platform. While Bitcoin’s blockchain was primarily designed to handle transaction information, Ethereum is designed to offer a blockchain protocol for anything that can be programmed, which includes wh... Continue reading...
What’s So Special about an IRA?
When compared to other methods of investing, there are benefits to using an IRA. An IRA provides tax deferred growth of your assets, and the result of such growth, over the years, can be quite remarkable in comparison with a regular savings account. Using an advanced calculator online – or asking an advisor or a CPA to run some calculations for you – can be an eye-opening experience. For most investors, mutual funds will be their best option for cost-efficient diversification. Holding mutual funds outside of an IRA or 401(k) means that the investor will have some taxes, whether long term gains or short term gains, passed on to him or her from the mutual fund company every year that the fund experiences gains. Continue reading...