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Cash Flow – Understanding Cash Flow

There are plenty of different terms that get thrown around in the financial, business, and investing worlds but few that are so important to understand as cash flow.  If you’re unsure of the specifics of just what cash flow actually is, then you owe it to yourself and your portfolio to learn more about it as soon as you possibly can.  There are plenty of different variables that go into it, but grasping the basics behind it is a fairly straightforward concept and one that you certainly can’t afford to ignore.  Here’s a quick look at the basic principles behind it.

Essentially, cash flow is nothing more than the movement of money in and out of an organization, account, project, or other financial structure.  It’s often called a cash stream or funds flow as well, but all the terms mean the same thing.  In nearly all cases it isn’t measured on a daily or hourly basis but rather assessed over a set period of time, although that period of time can be as long or as short as needed to ascertain whatever is being measured.  A few basic things will influence cash flow, and understanding them is a good idea as well.

Cash flow is broken down into two simple categories – inflow and outflow.  Inflow is affected by numerous different things including financing, investing, and operations.  Financing obviously covers things like loans, investing is related to private investors or to the sale of shares on the open market, and operations is the profit a company brings in through its regular activities.  Outflow normally consists of business expenses as well as any investments made, including general overhead or other factors.  Obviously, inflow being higher than outflow is needed for a company to remain profitable and have any chance at success in the marketplace.

Cash flow statements are utilized to provide a detailed look at the overall cash flow of an organization, and are used by accountants, investors, creditors, shareholders, and others who are tied closely to the financial success or failure of a company.  In the case of investors, for example, using cash flow statements is vital for gauging the risk associated with an investment.  The same is applicable to creditors before they extend a loan to the organization in question.  In short, this is one area of finance and investment that you simply can’t afford to ignore.  Take the time to review any statement in detail before you elect to make an investment.

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The Federal Deposit Insurance Corporation – What Does the FDIC Do?

After the numerous bank failures in the 1920’s and 1930’s that were part of the Great Depression, Congress created the Federal Deposit Insurance Corporation in 1933 to help restore consumer confidence in the banking system. This was an attempt to try and get the country’s finances back in order, so that individuals and small businesses would put their money in banks again. The FDIC is considered to be an independent agency that acts on behalf of the federal government, and is responsible for insuring deposits at the banks and savings institutions throughout the country.

Some other responsibilities that the Federal Deposit Insurance Corporation takes on includes promoting the safety of these banking institutions by monitoring any risks that they are exposed to, intervening when necessary. If a banking institution looks like it will fail, the FDIC is able to step in and take over. This helps protect the deposits of the bank’s customers. As a result, since 1934 no insured funds have been lost as a result of a bank failing. However, not all banking products are covered by this insurance, so be sure to find out what is covered by the FDIC if you are thinking about making a deposit or taking out a loan.

A few examples of the types of accounts covered by the Federal Deposit Insurance Corporation include savings, checking, trust funds, IRA, CD and money market accounts. It does not cover things such as mutual funds or other investment accounts, by contrast. If you have purchased stocks, bonds, or other insurance policies, you will have to find separate coverage for these. The job that the FDIC performs is extremely important, because it can insure deposits for at least $250,000 and can limit any effect on the economy of bank failure.

The money for this insurance is not provided by Congress or the federal government at any level. It is provided by the premiums that banks pay for deposit insurance coverage, as well as any earnings on investments from the US Treasury. It’s estimated that the Federal Deposit Insurance Corporation currently insures over 7 trillion dollars in deposits. The FDIC is headed by a Board of Directors constructed of five people, who are appointed by the President. They must also be confirmed by the Senate, and must include an equal balance of political parties. This is meant to provide an impartial form of leadership, as the FDIC is primarily constructed to assist consumers.

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The European Union Banking Federation – What the EBF Does

An organization that represents the European banking sector, the European Union Banking Federation covers the interests of over 5000 European banks in 31 countries. Its combined assets include over 30,000 billion Euros. The EBF was founded in 1960, and serves as a way for European institutions to lay out their legislation and propose or debate ideas. In this way, it mainly serves as a moderator for the international banks that make up the European Union. At the beginning, the EU was mostly interested in integrating trade in goods, and banking was not necessarily involved in this as much as it is today.

A few of the topics or proposals that the European Union Banking Federation meets to discuss today among its members include everything from economic integration to company law or tax laws. The freedom of banks and other financial institutions is another important topic that is discussed, as well as accounting practices and the international legislation that affects all aspects of banking in the EU. Because one bank in the region can affect others, it’s important for this dialogue to take place at the hands of an impartial third party, rather than in individual governments.

If you are interested in European banking or are thinking about investing in European markets at any point, it’s important to understand more about the European Union Banking Federation and what it does. The primary role of the EBF is to represent the interests of the banking industry throughout Europe, and serve as a forum where practices can be exchanged so that all members reap the rewards of a system where banking legislation is unified. It helps play a role in the regulation of the Euro as well, which is important for investors to follow.

Meetings in the European Union Banking Federation can be arranged when there are matters to be discussed that affect the entire banking sector, as well as specialized working groups or specialist proposals. There are over 2.3 million employees in these European banks, which means that the proposals adopted can affect a wide range of people. It maintains an ongoing conversation with other similar agencies, including the European Commission. Before investing in the Euro or in any European markets, it can be helpful to read the latest publications from this agency to learn more about what has happened in the banking sector. This can help you stay informed.

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The Dow Theory – The Six Tenets of the Dow Theory

A theory regarding the movement of stock prices, the Dow Theory is a form of technical stock analysis that is still used today. It is composed from the analysis of 255 editorials appearing in the Wall Street Journal, written by Charles H. Dow, a preeminent economist and founder of the Dow Jones and Company. There are six main tenets that make up this theory, which are worth taking a look at by anyone who wants to understand the stock market. The first is that the market has three movements, including the main movement, medium swing, and short swing movements. These relate to the amount of time that the market spends in each pattern or trend.

The second tenet of the Dow Theory is that all market trends have three phases. This includes the accumulation phase, public participation phase, and distribution phase. The first phase is when professional investors actively buy and sell a stock. This will not greatly impact the price of the stock, because these investors are in the minority. However, as the knowledge of these beginning movements catches on, the public will start to participate and buy the same stocks, entering the second phase. This causes a rapid price change. Finally, the first round of investors distributes their initial holdings, making the largest profit.

Another component, or third tenet, of the Dow Theory is that the stock prices will incorporate any new information as soon as it is public knowledge, meaning that the news affects prices of stocks. The fourth tenet states that stock market averages must be able to confirm one another, meaning that if one stock rises, it is not a trend until other stocks in the same industry start to follow suit. The averages should, as part of the theory, move in the same direction.

The trends that have been suspected are then confirmed, in the fifth tenet of the Dow Theory, by volume. If prices start to move on a low volume, this could be due to one buyer or seller making certain judgments. However, if the changes in price are also accompanied by a high volume of movement, then this means there is a definite trend. Finally, this theory states that once trends have been identified, you must assume that they exist until there are definitive signals to prove that the trend has ended. By understanding these six tenets, you can gain a greater perspective on the stock market and its trends.

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Selling Covered Calls – About Call Options

There are numerous ways to protect your investment portfolio, from buying puts to selling covered calls. When you write a call, this means that you are selling someone else the right to purchase a stock from you at a predetermined price, called a strike price. This figure will be set by the option series. Because you are the writer, or seller of this call, you are short the option, while the buyer is long the option. This means that you are obligated to sell the stock if the buyer decides that he or she wants it at any time.

To profit or use this process of selling covered calls in your favor, you are hoping that the stock price does not change, that you can collect any premium associated with it, and that the option will expire before the buyer exercises their right to use the call option. In the event of a covered call, you already own the shares, as opposed to a naked call, which means that you don’t own the stocks yet but will have to purchase them if the buyer exercises their call options. There is some element of risk in these strategies, because you will be basing your actions on what you think the buyer will do, and whether you think the stock will change in price at any point.

The benefit of selling covered calls is that it is a good strategy for those who want to protect their own portfolio, because you can collect income from these call premiums. If the call expires and is worthless, you then get to keep the stock anyways, and the dividends associated with it for the time that it was in play. To get started with this option, however, you have to be approved by your broker, but there aren’t as many restrictions on writing covered calls as there are on writing naked calls.

The one thing to keep in mind is that selling covered calls is a strategy that works the best only in stocks that experience very little movement. If you don’t anticipate the value to go up or down too far, then you may wish to offer this as a covered call for sale. You want the stock to stay as consistent as possible, so that you can collect the premiums at a profit and lower your own average monthly costs in the long run. Always consult with your broker before attempting this protective strategy for best results, and choose your stocks wisely.

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Portfolio Risk – How to Minimize Personal Financial Risk

Once you have spent time and money building up your personal portfolio of securities and assets, you will want to start thinking about how to minimize your portfolio risk. The one piece of advice that you will hear overall is that it is important to diversify your portfolio as much as possible. That way, if any individual securities fall through, you will hopefully still have money tied up in other areas, and avoid losing everything. This can help you weather the ups and downs of the economy. In addition to this type of risk, however, there are other risks that can relate to market changes, your life span, and other factors. These are worth examining as well.

There is a risk that you will outlive your money, known as longevity risk, for example. To avoid this type of portfolio risk, you will need to have a withdrawal rate that is in line with your budgetary needs. A low-cost annuity can help you keep a lifetime stream of income, along with Social Security payments. Another type of risk that you may come across is liquidity risk, or the risk that you won’t have cash that you need when you need it, forcing you to sell your assets for less money than they are worth. To avoid this, experts recommend that you set aside a percentage of your cash for each major goal in life, and have accessible liquid assets, such as short-term bonds, in those accounts.

Market risk is the type of portfolio risk that many investors think of when they are looking at the various ups and downs of the economy. This is the risk that stock and bond markets will fall, devaluing your assets. By diversifying your portfolio with stocks, bonds, and cash, you should be able to wait out any bear markets. Be sure to look over your portfolio from time to time with a financial advisor to see if there are new areas you can invest in.

Finally, there is a certain risk involved in working with financial professionals. Manager risk is the term that is assigned to the idea that there is a risk that you will pick the wrong person or institution to manage your money. By using mutual funds and researching your professional money manager, you can avoid this risk and be sure to keep some sort of profit rolling throughout your lifetime, with minimal loss.

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Ponzi Schemes – How do Ponzi Schemes Work?

The news has been full of stories about Ponzi schemes in recent years, in relation to big banking and investment scandals. This is a type of scam investment that is named after Charles Ponzi, who was known for constructing a large scheme designed to dupe investors in the early 20th century. A Ponzi scheme has the ultimate goal of trying to convince individual investors to put their money and interest into a fraudulent investment, before the scam artist then disappears. This involves several steps which are designed to instill confidence in investors, to convince them to part with their money and then never see any profit.

Ponzi schemes begin with a promise that the investment at hand will give them a high rate of return. This is always marked out to be a rate of return which is above normal, to create the feeling that the investment opportunity is one not to be missed out on. It has to strike a balance between being high enough to seem like a worthwhile investment, but not so high that it is unbelievable. Once the payoff or benefit has been set up, the investor will then receive some sort of explanation of how the payoff will be achieved, and why the investment is so special. This usually relates to insider information being traded.

After the person or company running the scheme has convinced a few individual investors to put their money in this investment, they then need to make payments at the promised rate of return. This is an important step in Ponzi schemes because it builds credibility and helps convince other potential investors to step up to the plate as well. This cycle is repeated a couple of times, so that there is a track record of several positive rates of return.

Finally, at some point in the cycle when more investors have invested in the scheme, the scam artist will pull the money and typically disappear without a trace. Although Ponzi schemes can be quite simple, they have a track record of success. The latest story that was all over the news is the Ponzi scheme set up by Bernard L. Madoff Securities LLC, which ended in a net loss to investors of nearly 50 billion dollars. Care is always necessary on the part of investors to avoid a Ponzi scheme, which is why research and credibility are so important in the world of investments.

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Pink Sheets – About Over the Counter Securities

Not all stocks are sold through the main exchange systems, such as NYSE and NASDAQ. There are numerous smaller companies that do not qualify for these exchanges for whatever reason, and which can instead be bought and sold through an electronic system known as the Pink Sheets. These stocks are commonly called OTC or over the counter stocks. The companies that are quoted in this type of system tend to be small or closely held, and can be risky investments if you are not careful. Be sure to always conduct adequate research with the help of your broker, and pay attention to the classification of each company.

Many Pink Sheets stocks are sold through the premium market tier offered, OTCQX. This is an exchange that requires all listings to meet certain criteria. For example, they must have a minimum bid price of $0.25, eliminating so-called “penny stocks” from the exchange. They must be included in S&P or Mergent Manual, have 50 round lot shareholders, and have their annual financials audited by a registered audit form, to begin with. Those that do not meet these basic requirements for the OTCQX can then be listed on the Pink Sheets market in several other categories.

These other Pink Sheets exchange categories can include current SEC filers, who are registered but may not have current information that meets the requirements above. Another category includes banks, insurance companies, and foreign businesses that have current information but are not registered as part of the SEC system. Finally, there are some businesses that may have extremely limited information, no information provided at all, or stocks that are the subject of spam and other red flags for consumers. It’s important to pay attention to these categories if you are navigating through the stocks available on your own, to make the best decision.

The benefit to purchasing OTC stocks through the Pink Sheets exchange is that you can find some significant bargains, such as those smaller companies that are not yet big enough to list on the main market exchanges. There may be businesses out there, however, with bad credit or little to no information, and you should always proceed with the assistance of a professional broker if you are trying to find the best deal on these types of stocks. A good place to start is with the ranking system and some basic internet research into the company’s background.

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Operating Leverage – How it Affects Business

A phrase that you may see when researching any company or business for investment purposes is operating leverage. This is a term that refers to the measure of how revenue growth transforms into operating income growth. This statistic can measure leverage, and the measure of how risky a company’s operating income or cost structure can be. Some businesses are more efficient and smoothly operated than others, which can be one factor to consider for investors. When you are trying to determine which company to invest in, you may want to consider this facet.

One of the things that will determine a company’s operating leverage is the relationship between its fixed and variable costs, for example. This can include its changes in sales and cost structure. To get started with understanding more about this concept, it can be helpful to take a look at all the different types of costs out there. Fixed costs can include things such as lease payments, executive salaries, or other factors that don’t change along with other variables. Variable costs, on the other hand, are expenses that will change along with sales activity. This could include the cost of production, hourly labor, and packaging materials. As the demand for products goes up, these variable costs may increase as well.

The operating leverage, then, is the relationship between any business’s fixed and variable costs. If the business’s fixed costs are high compared to the variable costs, the operating leverage is also considered to be high. Industries that rely heavily on labor costs will have a low level of this leverage, while those such as tech companies and utilities will have higher leverage. These factors will influence how much profit a company is capable of making, which is of use to investors when researching businesses.

When you are looking at any operating leverage of a company that you are thinking about investing in, you should examine the fixed cost vs. variable cost of that business, on the other hand. Those companies that have fixed cost structures will have a high rise in profit when sales increase, while those with variable cost structures can still make money even if sales are low. However, there will be less of a rapid ascent in their profit margins. Yet when the economy takes a dip, those with a variable cost structure will be better able to cut costs quickly and weather any situation that comes their way, so they may be better long term prospects.

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Investing in Solar Power – Changes in Production Costs Point to Industry Growth

With government agencies, corporations, and individuals alike looking for new forms of sustainable energy, solar power is an old trend that is resurfacing with a vengeance. The first solar power technology was developed in the 1860’s, but this was brushed aside with the turn to coal and petroleum as new energy sources. The next time that a global interest was taken in this form of energy was in the 1970’s, when wars in the Middle East pushed up oil prices. This reawakened the belief that some form of alternative energy was needed. Those who are interested in cashing in on this growth industry may want to think about investing in solar power.

Solar and wind power currently compete with fossil fuels, but as the prices of both are approaching the point of becoming equal, investing in solar power becomes a more viable option. This is already the case in places such as Hawaii, with an abundance of sun. A combination of technology and cheaper equipment mean that this equality of energy prices is set to occur in more and more locations, which will make the solar power industry a more worthwhile investment.

Solar panels already cost half of what they did only three years ago, meaning that more consumers and businesses can afford to put the panels in place. They provide power at the point of the day with the most intense heat, which means they can run air conditioning in the most sustainable way. A traditional power grid, on the other hand, can crack and shut down under the pressure of everyone running their air conditioning at the same time. Factors such as convenience and cost make investing in solar power a worthwhile idea. With mass production improving and costs of this production becoming lower, cheaper solar energy is expected to become more prevalent in the years to come.

The problem with investing in solar power in the past was that it was seen as more of a niche industry for those interested in saving the planet through green energy. Yet as costs fall and solar power becomes just as cost-effective as fossil fuels, more and more investors will turn to it simply as a form of cheap energy, regardless of its sustainable properties. This makes it a stable investment for the future, according to most economists. It’s best to carefully research solar power businesses and providers before making any investments, to determine your best options.

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