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Investopedia Financial Efficiency: The Analyst's Guide To Time Management The average advisor's day is jam packed with a litany of tasks including servicing client s, attending sales meetings, tracking the stock market and calling on sales leads. While these financial professionals are often well compensated for taking on this hectic lifestyle, the long hours and volume of duties are also a major reason why the burnout rate in the financial industry is so high. (For related reading, see Finding Your Place In The Financial Industry.) TUTORIAL: Fundamental Analysis To be clear, there's nothing that an advisor can do to eliminate these duties. In fact, the more successful an advisor becomes, the busier his or her schedule will be. Even so, by implementing better time management techniques, there is a way to reduce stress levels and to make the day more productive. To that end, the following are some tips meant to help advisors better manage their workdays. Be an Early Bird What a broker or advisor does in the morning sets the tone for the day. That's why the most successful advisors wake up early and address personal issues before they come to work. They fix things around the house, make personal phone calls, have their morning coffee, get a haircut and take care of all of the little things that would otherwise distract them during the work day. They also read, watch programs such as CNBC, peruse The Wall Street Journal or theInvestor's Business Daily and make themselves aware of what's going on in the international markets and on the domestic front that could have an impact on the day's market action. Alternately, others might use this time to organize a call list so they'll know which clients they're going to phone throughout the day. (For related reading, check out Keeping Clients Through Good And Bad.) In short, don't just roll out of bed and come to work. Be productive so that when you come into the office, you're ready to hit the ground running. Use the Commute Use your commute to your advantage. Read the latest issues of BusinessWeek, Forbes orFortune, or listen to a cassette about becoming a better salesperson. Your local bookstore is full of them! Again, the key is to do something so that when you are at work, you can focus on garnering new clients and servicing existing ones. Another idea: If you haven't already done so, plan your day. Figure out what amount of time you are going to dedicate to prospecting, to servicing existing client s and to furthering your education. Again, the more prep work you do now, the less stressed you'll be when you enter the office. Make s Early and Often

Some advisors fritter away their day, preferring to wait until the evening hours to their clients. This is often a mistake because when people get home from work, they're either too tired or too busy with personal matters to talk business. In fact, even if you do get a hold of them, they aren't going to stay on the phone any longer than they have to, much less listen to your longwinded sales pitch. In addition, if you think about it, it's nearly impossible to fit in all of the calls that you need to make to be a successful advisor during the evening hours. It simply leaves too little time to build relationships, sell your products or talk to more than a handful of clients or prospects. (For related reading, see Targeting Ideal Customers.) The solution: call clients at work. Many clients won't mind - after all, it's their money, they worked hard for it and they want to be reassured that their investments are in good hands. Your call will serve that purpose. So call early, and call often. Make Time For Prospecting Once a broker or advisor establishes a client base, he or she often neglects to prospect for other clients. This is also a mistake. For example, if you were to lose your top two or three s because someone died, moved or simply wanted to liquidate their securities holdings to buy real estate, you'd probably see your fee payments or commission runs drop dramatically, right? This is precisely why you need to prospect and to have a constant influx of new customers. With that in mind, if you are so busy that no matter how you reformat your schedule you can't squeeze in prospecting, consider hiring a cold caller. In fact, if you are a top producer, your firm will probably be glad to provide you with one. If not, consider tapping an intern or a local college student to generate potential sales leads. (To learn more, see Cold Call Without Getting The Cold Shoulder and Alternatives To The Cold Call.) Work Over Lunch Brokers and advisors are notorious for taking long lunches. But instead of frequenting the local watering hole, consider reading during lunch. Better yet, use the time to exchange sales ideas with your co-workers, or to familiarize yourself with your firm's research reports. Yet, another idea is to kill two birds with one stone and meet a client or a prospective client over lunch. Everyone needs to eat, but spending an hour or two away from the office every day will not only make you less productive, it may also have an adverse impact on your money line or commission run. Look Alive Between Four and Five When the stock exchange closes at 4pm EST most brokers and advisors get up from their desks, chat with their colleagues and generally time until 5:30 or 6pm when they start calling their clients at home. This is a mistake. Use this hour to your advantage! Call on businesses before they close for the day, or call your clients before they go home from work for the day. Or simply review the day's trades and catch up on some paperwork. Again, many advisors waste this hour. Don't fall into this trap. Work to Your Limit, Not Past It Fit as much as you can into a day, but don't exceed your limits. While working late can make you money, it can also lead to burnout. To avoid this, a good method is to come up with a list of activities in the morning that should be completed during the day. Then, once that list is completed, go home! Spend time with your family. Relax. , being an advisor is akin to running a marathon, not a sprint. So pace yourself. Bottom Line

Being a broker or an advisor is tough work. In this field, time management skills aren't a luxury - they're a necessity in order to increase efficiency and to ultimately succeed.

4 Characteristics Of Recession-Proof Companies by Marv Dumon ( Author | Biography) Filed Under: Bear Market, Credit Crunch, Economics, Economy, Financial Crisis, Fundamental Analysis,Investment, Recession

Tough economic and market conditions provide operational and financial adversity for most companies. Reductions in cash flow pose significant risks to companies' financial success. And, because the duration of a recession or adverse market conditions are difficult to predict, there is a risk that prolonged stagnation will cause an entity to go right out of business. However, some businesses don't feel the same pinch. This makes them good defensive stocks during bad market conditions. Tutorial: Stock-Picking Strategies

How Recessions Hurt Tough economic times turn risk into operational and financial duress. A company may be forced to reduce expenses, lay off nonessential employees and minimize purchases, acquisitions and capital expenditures. A business typically has obligations it can't eliminate, such as payroll, rent, leases, taxes and capital expenditures; these must be met with limited cash availability. (If you're interested, take a look at our article A Review of Past Recessions for a historical refresher.) A recession hits the pocketbooks of a business's customers too, whose reduced spending impacts the company in turn. As customers reduce their spending, the number of product orders decreases; customers may not pay their bills, thus reducing the working capital of the companies they owe and leaving the business with write-downs. Contractors are often hit hardest. Their services focus on new projects - perhaps installing building equipment, working on new construction sites, or roofing and tiling work. In tough market conditions, their customers will also cut down on expenses and reduce service orders as part of a broader effort to conserve cash. Favored Investment Industries Risk is a critical variable for investors when deciding where to park their money. Companies that have a business model insulated from economic downturns are viewed as attractive and safe investment opportunities. A cash cow can continue to produce cash flow streams despite lagging economic activity. (Read Spotting Cash Cows to learn how to identify these companies.) There can be several reasons why a company fares well during a recessionary period:

1. The company provides critical repair and maintenance services, or sells essentials. Companies that provide nonessential services are typically the first to receive tough operational and financial blows from a recession. Consumers can choose to cut their own grass or paint their own houses, putting the residential contractor in tough financial times. Certain service companies, however, provide essential and critical services to their customers that cannot be so easily reduced or eliminated. For instance, refineries and chemical plants hire engineering firms and consultants to conduct periodic assessments of their equipment, wirings and processes. These are ongoing reviews that cannot be eliminated simply to save a few dollars in expenditures. Another example is waste management. Neighborhoods and businesses certainly will not allow trash to pile up around their establishments, no matter how bad the economy gets. Similarly, companies that manufacture an important product that breaks down with a certain level of frequency and needs to be replaced tend to hold up well during tough times. For instance, a maker of engine seals and gaskets will tend to have more stable revenue streams. Good seals and gaskets ensure that a car engine performs smoothly. These types of products also eventually break down. Thus, the product must be replaced to ensure an engine continues to work. How about a printer cartridge? When it runs out of ink, you are forced to order another one and replace the cartridge. That's a classic case of a relatively insulated model. (For a related article on defensive stocks, check out Guard Your Portfolio With Defensive Stocks) 2. The company serves a customer base that is insulated from economic meltdown. Nuclear and power generating facilities, for the most part, have stable revenue. So do companies that transport oil and energy commodities. There are limited or no substitute products or services in these business models; it will take more than a recession to force people to give up electricity! Some rail cars that carry and ship certain cargo can also be relatively insulated. For example, a rail company may have a long-term contract with the military to ship fuel, munitions and material to various destination points around the country. These types of companies are considered more stable in tough economies. Companies that serve government contracts tend to continue to perform well, as these contracts are likely to continue through a recession, providing these companies with steady cash flows. 3. The company provides products or services that are mandated by government regulation or compliance rules. Security agencies and their personnel inspect the millions of tons of imported goods cargo entering the United States at various shipping ports and channels. These inspections are necessary in preventing drugs, smuggled weapons and other non-permitted goods from entering the country. Such security precautions are mandated by government and local authorities and unless there is an unusual oversupply of qualified personnel who can perform these services, such businesses will continue to see business demand, despite a lagging economy. Another example is pipeline inspection. The United States has millions of miles of underground pipelines that carry oil and gas across the country. Ruptures and pipe damage can cause explosions that kill citizens. Thus, pipeline inspection is a required activity to help ensure such assets are in good condition. Another required activity for public companies and most government agencies is the performance of an audit by an external agency. Auditing firms have a stable supply of work from these types of clients. 4. The company provides proprietary, niche or highly defensible products or services within the marketplace. A company may have an offering that is considered best-in-class in the industry. For example, a drilling equipment manufacturer may have patented pipes and related equipment that make it important for its drilling customers to use. It is possible that in hard economic times, its customers will elect to use these more reliable products and reduce or eliminate orders from competitors. Pharmaceuticals and healthcare companies with drug patents are also classic examples of

companies with relatively inelastic demand for their products. (For more insight, read Economics Basics: Elasticity.) The Bottom Line Economic downturns pose financial problems for many companies, but there are companies that continue to generate revenue despite adverse market conditions. If a company serves an insulated market, provides critical repair and maintenance services or sells a consumable product, its business is unlikely to plummet, even in the worst market conditions. Additionally, products or services mandated by the government offer good opportunities for stable business, as do companies that provide a proprietary or patented product or service. Even during recession, money continues to flow in an economy. There are profitable companies out there, but it is up to smart investors to find them. (For further reading, take a look at Industries That Thrive On Recession)

Tier 1 Common Capital Ratio What Does Tier 1 Common Capital Ratio Mean? A measurement of a bank's core equity capital compared with its total risk-weighted assets. This is the measure of a bank's financial strength. The Tier 1 common capital ratio excludes any preferred shares or non-controlling interests when determining the calculation. This differs from the Tier 1 capital ratio which is based on the sum of its equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. A firm's risk-weighted assets include all assets that the firm holds that are systematically weighted for credit risk. Central banks typically develop the weighting scale for different asset classes, such as cash and coins, which have zero risk, versus a letter or credit, which carries more risk. The risk-weighted assets essentially measure the firm's assets in of risk, typically in of 0%, 20%, 50% or 100%.

Investopedia explains Tier 1 Common Capital Ratio Regulators use the Tier 1 common capital ratio to grade a firm's capital adequacy as one of the following rankings: Well-Capitalized, Adequately Capitalized, Undercapitalized, Significantly Undercapitalized, and Critically Undercapitalized. A firm must have a Tier 1 capital ratio of 6% or greater and not pay any dividends or distributions that would affect its capital to be classified as Well-Capitalized. A firm is Adequately Capitalized with a Tier 1 ratio of 4% or more; Undercapitalized below 4%, Significantly Undercapitalized below 3%, and Critically Undercapitalized at 2% or below. Firms that are ranked Undercapitalized or below are prohibited from paying any dividends or management fees. In addition, they are required to file a capital restoration plan.

Core Capital What Does Core Capital Mean? The minimum amount of capital that a thrift bank, such as a savings bank or savings and loan company, must have on hand in order to comply with Federal Home Loan Bank regulations. Core

capital consists of equity capital and declared reserves. The minimum requirement was put in place to ensure that consumers are protected when creating financial s.

Investopedia explains Core Capital Following the financial crisis of 2008, regulators began focusing heavily on banks' Tier 1 capital, which consists of core capital, but can also include nonredeemable, noncumulative preferred equity. This is more stringent than normal capital ratios, which can also include Tier 2, and lesserquality capital.

Tier 2 Capital What Does Tier 2 Capital Mean? A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more.

Investopedia explains Tier 2 Capital This is related to Tier 1 Capital.

Capital Adequacy Ratio - CAR What Does Capital Adequacy Ratio - CAR Mean? A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

Investopedia explains Capital Adequacy Ratio - CAR This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank

being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Key Ratio What Does Key Ratio Mean? A mathematical ratio that illustrates and summarizes the current financial condition of a company. Key ratios can be used to easily obtain an idea of a company's financial status. Companies that are in good condition financially will have superior ratios to those that are performing poorly.

Investopedia explains Key Ratio There are actually several different key ratios used by analysts to examine a bank's financial condition. These include the capital to assets ratio, the loan loss reserves to total loans ratio, the liquidity ratio and many others. These ratios provide direct measures of different specific aspects of a bank's assets, liabilities and cash flow.

Paid-Up Capital What Does Paid-Up Capital Mean? The total amount of shareholder capital that has been paid in full by shareholders.

Investopedia explains Paid-Up Capital Paid-up capital is essentially the portion of authorized stock that the company has issued and received payment for

Share Capital What Does Share Capital Mean? Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares. Also known as "equity financing".

Investopedia explains Share Capital The amount of share capital a company reports on its balance sheet only s for the initial amount for which the original shareholders purchased the shares from the issuing company. Any price differences arising from price appreciation/depreciation as a result of transactions in the secondary market are not included. For example, suppose ABC Inc. raised $2 billion from its initial public offering. Over the next year, the total value of its shares increases to $5 billion. In this case, the value of the share capital is still only $2 billion because ABC Inc. had received only $2 billion from the sale of its securities to the investing public.

Contributed Capital What Does Contributed Capital Mean? An entry on the shareholders' equity section of a company's balance sheet that summarizes the total value of stock that shareholders have directly purchased from the issuing company. Contributed capital is calculated by adding the par value of the shares to the value paid that was greater than par value.

Investopedia explains Contributed Capital Shares that investors purchased from the secondary markets are not incorporated into the contributed capital. However, shares sold as a result of a secondary offering would count, as the proceeds of these shares go directly to the issuing company.

Paid In Capital What Does Paid In Capital Mean? The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid in capital represents the funds raised by the business from equity, and not from ongoing operations. Paid in capital is a company balance sheet entry listed under stockholder's equity, often shown alongside the balance sheet entry for additional paid-in capital. It may also be referred to as "contributed capital".

Investopedia explains Paid In Capital Paid in capital can be compared to additional paid in capital, and the difference between the two values will equal the paid by investors over and above the par value of the shares. Preferred shares will sometimes have par values that are more than marginal, but most common shares today have par values of just a few pennies. Because of this, "additional paid in

capital" tends to be representative of the total paid-in capital figure, and is sometimes shown by itself on the balance sheet.

Additional Paid In Capital What Does Additional Paid In Capital Mean? A value that is often included in the contributed surplus in the shareholders' equity section of a company's balance sheet. The represent the excess paid by an investor over the par-value price of a stock issue. Additional paid-in-capital can arise from issuing either preferred or common stock.

Investopedia explains Additional Paid In Capital For example, assume that a company issues 1 million shares with a par value of $50 per share. When the shares are purchased by investors, however, they pay $70 per share - a of $20 over par value. When the capital received from this issue is recorded, $50 million ($50*1 million) will be allocated to a share capital or paid-in-capital . The excess $20 million ($20*1 million) will be allocated to the contributed surplus as additional paid-incapital. Some companies will choose to separate additional paid in capital from contributed surplus on their balance sheet

Par Value What Does Par Value Mean? 1. The face value of a bond. 2. A dollar amount that is assigned to a security when representing the value contributed for each share in cash or goods.

Investopedia explains Par Value 1. The par values for different fixed-income products will vary. Bonds generally have a par value of $1,000, while most money market instruments have higher par values. 2. Stocks will typically have a par value of $0.01 or none at all.

Operating Profit

What Does Operating Profit Mean? The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. Also known as "earnings before interest and tax" (EBIT). Calculated as:

Investopedia explains Operating Profit For example, suppose ABC Printing Company earns $50 million from its core printing related operations, $10 million from its 40% stake in XYZ Corp. and $3.5 million from interest earned in its money market and bank s. In addition, the company spends $10 million in production related costs. Overall, the company's operating profit is $40 million. This is calculated as the $50 million in operating revenue million minus the $10 million in production costs. The other $10 million and $3.5 million in earnings are not included in operating income because they are investment income

Capital What Does Capital Mean? 1. Financial assets or the financial value of assets, such as cash. 2. The factories, machinery and equipment owned by a business.

Investopedia explains Capital Capital is an extremely vague term and its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use.

Capital Gain What Does Capital Gain Mean? 1. An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

2. Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain). If the security continues to be held, the gain is unrealized. A capital loss would occur when the opposite takes place.

Investopedia explains Capital Gain 1. Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy. 2. Tax conscious mutual fund investors should determine a mutual fund's unrealized accumulated capital gains, which are expressed as a percentage of its net assets, before investing in a fund with a significant unrealized capital gain component. This circumstance is referred to as a fund's capital gains exposure. When distributed by a fund, capital gains are a taxable obligation for the fund's investors.

Capital Expenditure - CAPEX What Does Capital Expenditure - CAPEX Mean? Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.

Investopedia explains Capital Expenditure - CAPEX The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities. In of ing, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

Capital Asset What Does Capital Asset Mean? A type of asset that is not easily sold in the regular course of a business's operations for cash and is generally owned for its role in contributing to the business's ability to generate profit. Furthermore, it is expected that the benefits gained from the asset will extend beyond a time span of one year. On a business's balance sheet, capital assets are represented by the property, plant and equipment figure.

Investopedia explains Capital Asset Examples include land, buildings, machinery, etc. Generally, these are assets that cannot quickly be turned into cash and are often only liquidated in a worst-case scenario. For example, a company might look at selling a capital asset if it was looking at restructuring or the business was engaged in bankruptcy proceedings. Depending on the business involved, capital assets may represent the majority of assets that are owned. For example, in equipment heavy operations such as oil exploration, it is not surprising to find the majority of a business's assets to be capital assets.

n-Core Assets What Does Non-Core Assets Mean? Assets that are either not essential or simply no longer used in a company's business operations. They usually serve companies best when extra cash is needed as they can often be sold. Some businesses sell their non-core assets in order to pay down their bank debt. Non-core assets are not crucial to the continued success of a business but can still provide a valuable contribution.

Investopedia explains Non-Core Assets Non-core assets are likely to be sold by a company if the need for cash arises. Examples of noncore assets include real estate, commodities, natural resources, currencies, high-yield bonds and options. However, exactly what types of assets are considered non-core will vary from one business to another. For example, a real-estate investment trust would consider its real estate holdings as a core asset, while an oil company may not.

Capital Asset What Does Capital Asset Mean? A type of asset that is not easily sold in the regular course of a business's operations for cash and is generally owned for its role in contributing to the business's ability to generate profit. Furthermore, it is expected that the benefits gained from the asset will extend beyond a time span of one year. On a business's balance sheet, capital assets are represented by the property, plant and equipment figure.

Investopedia explains Capital Asset Examples include land, buildings, machinery, etc. Generally, these are assets that cannot quickly be turned into cash and are often only liquidated in a worst-case scenario. For example, a company might look at selling a capital asset if it was looking at restructuring or the business was engaged in bankruptcy proceedings. Depending on the business involved, capital assets may represent the majority of assets that are

owned. For example, in equipment heavy operations such as oil exploration, it is not surprising to find the majority of a business's assets to be capital assets

Operating Cash Flow - OCF What Does Operating Cash Flow - OCF Mean? The cash generated from the operations of a company, generally defined as revenues less all operating expenses, but calculated through a series of adjustments to net income. The OCF can be found on the statement of cash flows. Also known as "cash flow provided by operations" or "cash flow from operating activities". One method of calculated OCF is:

Investopedia explains Operating Cash Flow - OCF Operating cash flow is the cash that a company generates through running its business. It's arguably a better measure of a business's profits than earnings because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. It's cash flow that pays the bills! You can also use OCF as a check on the quality of a company's earnings. If a firm reports record earnings but negative cash, it may be using aggressive ing techniques

Non-Operating Cash Flows What Does Non-Operating Cash Flows Mean? Cash flows (inflows and outflows) that are not related to the day-to-day, ongoing operations of a business. Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity. On most company balance sheets, total cash flows will be broken down into operating cash flows, investing cash flows, and financing cash flows, with the latter two making up non-operating cash flows.

Investopedia explains Non-Operating Cash Flows Investors will evaluate the cash flows along with revenues, profits and other operating metrics when researching individual companies. While the operating cash flows give a better indication of the long-term profitability potential of a company, the non-operating cash flows are also important to follow. These cash flows will shed light on how much it costs a company to raise capital (through debt and share offerings) and how well they manage the balance sheet through investing opportunities and asset sales

Cash Flow from Financing Activities What Does Cash Flow from Financing Activities Mean? A category in the cash flow statement that s for external activities such as issuing cash

dividends, adding or changing loans, or issuing and selling more stock. The formula for cash flow from financing activities is as follows: Cash Received from Issuing Stock or Debt - Cash Paid as Dividends and for Re-Acquisition of Debt/Stock

Investopedia explains Cash Flow from Financing Activities This section of the statement of cash flows measures the flow of cash between a firm and its owners and creditors. Negative numbers can mean the company is servicing debt, but it can also mean the company is making dividend payments and stock repurchases, which investors might be glad to see.

Cash Flow What Does Cash Flow Mean? 1. A revenue or expense stream that changes a cash over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance. 2. An ing statement called the "statement of cash flows", which shows the amount of cash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength.

Investopedia explains Cash Flow 1. In business as in personal finance, cash flows are essential to solvency. They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue. 2. The statement of a business's cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.

Cash Flow Statement What Does Cash Flow Statement Mean? One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a

company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

Investopedia explains Cash Flow Statement Because public companies tend to use accrual ing, the income statements they release each quarter may not necessarily reflect changes in their cash positions. For example, if a company lands a major contract, this contract would be recognized as revenue (and therefore income), but the company may not yet actually receive the cash from the contract until a later date. While the company may be earning a profit in the eyes of ants (and paying income taxes on it), the company may, during the quarter, actually end up with less cash than when it started the quarter. Even profitable companies can fail to adequately manage their cash flow, which is why the cash flow statement is important: it helps investors see if a company is having trouble with cash.

Generally Accepted ing Principles - GAAP What Does Generally Accepted ing Principles - GAAP Mean? The common set of ing principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting ing information.

Investopedia explains Generally Accepted ing Principles - GAAP GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary! That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous ants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements.

Discounted Cash Flow - DCF What Does Discounted Cash Flow - DCF Mean? A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one. Calculated as:

Also known as the Discounted Cash Flows Model.

Investopedia explains Discounted Cash Flow - DCF There are many variations when it comes to what you can use for your cash flows and discount rate in a DCF analysis. Despite the complexity of the calculations involved, the purpose of DCF analysis is just to estimate the money you'd receive from an investment and to adjust for the time value of money. Discounted cash flow models are powerful, but they do have shortcomings. DCF is merely a mechanical valuation tool, which makes it subject to the axiom "garbage in, garbage out". Small changes in inputs can result in large changes in the value of a company. Instead of trying to project the cash flows to infinity, terminal value techniques are often used. A simple annuity is used to estimate the terminal value past 10 years, for example. This is done because it is harder to come to a realistic estimate of the cash flows as time goes on.

Free Cash Flow - FCF What Does Free Cash Flow - FCF Mean? A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as: EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure It can also be calculated by taking operating cash flow and subtracting capital expenditures.

Watch: Free Cash Flow

Investopedia explains Free Cash Flow - FCF Some believe that Wall Street focuses myopically on earnings while ignoring the "real" cash that a firm generates. Earnings can often be clouded by ing gimmicks, but it's tougher to fake cash flow. For this reason, some investors believe that FCF gives a much clearer view of the ability to generate cash (and thus profits). It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.

Cash Flow from Financing Activities What Does Cash Flow from Financing Activities Mean? A category in the cash flow statement that s for external activities such as issuing cash dividends, adding or changing loans, or issuing and selling more stock. The formula for cash flow from financing activities is as follows: Cash Received from Issuing Stock or Debt - Cash Paid as Dividends and for Re-Acquisition of Debt/Stock

Investopedia explains Cash Flow from Financing Activities This section of the statement of cash flows measures the flow of cash between a firm and its owners and creditors. Negative numbers can mean the company is servicing debt, but it can also mean the company is making dividend payments and stock repurchases, which investors might be glad to see.

Debt What Does Debt Mean? An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Watch: Prioritizing Debt

Investopedia explains Debt Bonds, loans and commercial paper are all examples of debt. For example, a company may look

to borrow $1 million so they can buy a certain piece of equipment. In this case, the debt of $1 million will need to be paid back (with interest owing) to the creditor at a later date

Debenture What Does Debenture Mean? A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

Investopedia explains Debenture Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts.

Convertible Debenture What Does Convertible Debenture Mean? A type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. By adding the convertibility option the issuer pays a lower interest rate on the loan compared to if there was no option to convert. These instruments are used by companies to obtain the capital they need to grow or maintain the business.

Investopedia explains Convertible Debenture Convertible debentures are different from convertible bonds because debentures are unsecured; in the event of bankruptcy the debentures would be paid after other fixed income holders. The convertible feature is factored into the calculation of the diluted per-share metrics as if the debentures had been converted. Therefore, a higher share count reduces metrics such as earnings per share, which is referred to as dilution.

EBITA What Does EBITA Mean? An acronym for "earnings before interest, taxes and amortization." EBITA is most commonly used when equating profitability and efficiency ratios for firms. The necessary figures for calculating EBITA can be found on a company's income statement.

Investopedia explains EBITA The more popular figure, EBIT, is used by investors to guage a possible investment. EBITA is largely ignored by investors due to its inclusion of the intangible value of amortization. Therefore, EBITA is used more often by companies on a internal basis.

Amortization What Does Amortization Mean? 1. The paying off of debt in regular installments over a period of time. 2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright.

Investopedia explains Amortization Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and that the patent on the equipment lasts 15 years, this would mean that $2 million would be recorded each year as an amortization expense. While amortization and depreciation are often used interchangeably, technically this is an incorrect practice because amortization refers to intangible assets and depreciation refers to tangible assets. Amortization can be calculated easily using most modern financial calculators, spreadsheet software packages such as Microsoft Excel, or amortization charts and tables.

Capitalized Lease Method What Does Capitalized Lease Method Mean? An ing approach that identifies a company's lease obligation as an asset on its balance sheet. This is done because although the company has not taken ownership of the asset, the transaction is still considered to be a beneficial economic exchange for the lease holder. Under this method, the expenses are higher in the early years and gradually decline over the term of the lease.

Investopedia explains Capitalized Lease Method For example, assume that a company has a lease obligation of $500,000 for 10 years, with an interest rate of 10%. The company must make 10 payments of $81,372.70. These payments are comprised of both the interest payments and the principal payments. The interest payments are 10% of the lease balance. For example, the first interest expense is $50,000 ($500,000 x .10). The yearly payment less the interest expense is the principal payment, which reduces the lease balance. The lease is also amortized according to the company's respective amortization schedule. Assuming a straight-line schedule, the yearly amortization will be $50,000 ($500,000/10 years). Finally, the total annual capital lease expense that is realized by the company is equal to the interest expense plus the amortization, which is $100,000 ($50,000 + $50,000) for the first year. This annual expense will continue to decrease over the life of the lease.

Interest Expense What Does Interest Expense Mean? The amount reported by a company or individual as an expense for borrowed money. In the U.K. it is called "interest payable".

Investopedia explains Interest Expense Interest is calculated as a percentage of the amount of debt for each period of time. Points paid for a mortgage are a form of prepaid interest.

Creditor What Does Creditor Mean? An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real". Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan.

Investopedia explains Creditor When creditors are notified of bankruptcy proceedings, they have a couple of options with respect to their claim against the debtor: 1. They can share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non-wage claims come low on the priority list. 2. They can take the debtor to court and challenge a debtor's discharge (the right not to pay back) due to bankruptcy protection.

Bankruptcy What Does Bankruptcy Mean? A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

Investopedia explains Bankruptcy Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can't be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses another chance and providing creditors with a measure of debt repayment. Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or individual "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or payment plans). Bankruptcy filing specifications vary widely among different countries, leading to higher and lower filing rates depending on how easily a person or company can complete the process.

Interest What Does Interest Mean? 1. The charge for the privilege of borrowing money, typically expressed as an annual percentage rate. 2. The amount of ownership a stockholder has in a company, usually expressed as a percentage. Interest is commonly calculated using one of two methods: simple interest calculation, or compound interest calculation.

Investopedia explains Interest 1. Lenders make money from interest, borrowers pay it. 2. Someone who holds more than 5-10% of the stock in a company is said to hold significant interest

Net Interest Margin What Does Net Interest Margin Mean? A performance metric that examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments. Calculated as:

Investopedia explains Net Interest Margin For example, ABC Corp has a return on investment of $1,000,000, an interest expense of $2,000,000 and average earning assets of $10,000,000. ABC Corp's net interest margin would be -10%. This would mean that ABC Corp has lost more money due to interest expenses than was earned from investments. In this case, ABC Corp would have been better off if it had used the investment funds to pay off debts instead to making an investment.

Profit Margin What Does Profit Margin Mean? A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. Also known as Net Profit Margin.

Investopedia explains Profit Margin Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control. Imagine a company has a net income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10 million/$100 million). If in the next year net income rises to $15 million on sales of $200 million, the company's profit margin would fall to 7.5%. So while the company increased its net income, it has done so with diminishing profit margins.

Gross Margin What Does Gross Margin Mean? A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

Investopedia explains Gross Margin This number represents the proportion of each dollar of revenue that the company retains as

gross profit. For example, if a company's gross margin for the most recent quarter was 35%, it would retain $0.35 from each dollar of revenue generated, to be put towards paying off selling, general and istrative expenses, interest expenses and distributions to shareholders. The levels of gross margin can vary drastically from one industry to another depending on the business. For example, software companies will generally have a much higher gross margin than a manufacturing firm.

Gross Income What Does Gross Income Mean? 1. An individual's total personal income before taking taxes or deductions into . 2. A company's revenue minus cost of goods sold. Also called "gross margin" and "gross profit".

Investopedia explains Gross Income 1. Your gross income is how much you make before taxes. It is the figure people are looking for when they ask how much you gross a month. 2. This is an important number when analyzing a company, it indicates how efficiently management uses labor and supplies in the production process. Keep in mind that gross income varies significantly from industry to industry.

Taxable Income What Does Taxable Income Mean? The amount of income that is used to calculate an individual’s or a company’s income tax due. Taxable income is generally described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments that are allowable in that tax year. Taxable income is also generated from appreciated assets that have been sold or capitalized during the year and from dividends and interest income. Income from these sources is generally taxed at a different rate and calculated separately by the tax entity.

Investopedia explains Taxable Income Individuals may choose to use a standard deduction amount for a given tax year. This amount is subtracted from gross income to arrive at the final taxable income figure. If individual deductions are claimed, the person or company will hope to have a total amount deducted from gross income lower than what would be achieved using the standard deduction. Some typical deductions that lower many tax bills include IRA contributions and certain business expenses.

Book Value What Does Book Value Mean? 1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation.

2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. 3. The initial outlay for an investment. This number may be net or gross of expenses such as trading costs, sales taxes, service charges and so on. Also known as "net book value (NBV)". In the U.K., book value is known as "net asset value".

Investopedia explains Book Value Book value is the ing value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. 3. In personal finance, the book value of an investment is the price paid for a security or debt investment. When a stock is sold, the selling price less the book value is the capital gain (or loss) from the investment.

Book Value Of Equity Per Share - BVPS What Does Book Value Of Equity Per Share - BVPS Mean? A financial measure that represents a per share assessment of the minimum value of a company's equity. More specifically, this value is determined by relating the original value of a firm's common stock adjusted for any outflow (dividends and stock buybacks) and inflow (retained earnings) modifiers to the amount of shares outstanding. Calculated as:

Investopedia explains Book Value Of Equity Per Share - BVPS While book value of equity per share is one factor that investors can use to determine whether a stock is undervalued, this metric should not be used by itself as it only presents a very limited view of the firm's situation. BVPS provides a snap shot of a firm's current situation, but considerations of the firm's future are not included. For example, XYZ Corp, a widget producing company, may have a share price that is currently lower than its BVPS. This may not indicate that the XYZ is undervalued, because looking ahead, the growth opportunities for the company are vastly limited as fewer and fewer people are buying widgets.

Tangible Book Value Per Share - TBVPS

What Does Tangible Book Value Per Share - TBVPS Mean? A method of valuing a company on a per-share basis by measuring its equity after removing any intangible assets. The tangible book value per share is calculated as follows:

Investopedia explains Tangible Book Value Per Share - TBVPS A company's tangible book value looks at what common shareholders can expect to receive if the firm goes bankrupt and all of its assets are liquidated at their book values. Intangible assets, such as goodwill, are removed from this calculation because they cannot be sold during liquidation. Companies with high tangible book value per share provide shareholders with more insurance in case of bankruptcy.

Book Value Per Common Share What Does Book Value Per Common Share Mean? A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula:

Investopedia explains Book Value Per Common Share Should the company decide to dissolve, the book value per common indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid. In simple it would be the amount of money that a holder of a common share would get if a company were to liquidate

Credit Crisis What Does Credit Crisis Mean? A crisis that occurs when several financial institutions issue or are sold high-risk loans that start to default. As borrowers default on their loans, the financial institutions that issued the loans stop receiving payments. This is followed by a period in which financial institutions redefine the riskiness of borrowers, making it difficult for debtors to find creditors.

Investopedia explains Credit Crisis In the case of a credit crisis, banks either do not charge enough interest on loans or pay too much for the securitized loan, or the rating system does not rate the risk of the loans correctly. A crisis occurs when several factors combine in the marketplace, affecting a large number of investors. For example, banks will charge teaser rates on loans, but when the initial low payments change, they become too high for borrowers to pay. The borrowers default on the loans, and the loan's collateral value simultaneously drops. If enough lending institutions reduce the number of new loans issued, the economy will slow down, making it even harder for other borrowers to pay their loans.

Economic Depreciation What Does Economic Depreciation Mean? A measure of the decrease in value of an asset over a specific period of time. This usually pertains to property such as real estate that can lose value due to indirect causes such as the addition of new construction in close proximity to the property, road additions or closures, a decline in the quality of the neighborhood, or other external factors.

Investopedia explains Economic Depreciation In periods of economic downturn and general housing market decline, economic depreciation must be considered in the appraisal of any property. During the credit crisis and housing market collapse of 2008-09, the combination of subprime loans requiring low or no downpayments with the dramatic drop in housing values resulted in a significant amount of the U.S. homeowning population being "underwater" - meaning that they owed more money on their home than it was actually worth.

Public-Private Investment Program - PPIP What Does Public-Private Investment Program - PPIP Mean? A plan designed to value and remove troubled assets from the balance sheet of troubled financial institutions in the U.S. Essentially, the Public-Private Investment Program's goal is to create partnerships with private investors to buy toxic assets. The program is designed to increase liquidity in the market and to serve as a price-discovery tool for valuing troubled assets.

Investopedia explains Public-Private Investment Program - PPIP The Public-Private Investment Program consists mainly of two parts: a Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program uses FDIC-guaranteed debt along with private equity to purchase troubled loans from banks. On the other hand, the Legacy Securities Program is designed to use funds from the Federal Reserve, Treasury and private investors to reignite the market for legacy securities. Legacy securities include certain mortgage-

backed securities, asset-backed securities and other securitized assets that the government deems to be eligible for the program.

Bailout What Does Bailout Mean? A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement.

Investopedia explains Bailout Bailouts have traditionally occurred in industries or businesses that may be perceived as no longer being viable, or are just sustaining huge losses. Typically, these companies employ a large number of people, leading some people to believe that the economy would be unable to sustain such a huge jump in unemployment if the business folded. For example, Chrysler, a large U.S. automaker was in need of a bailout in the early 1980s. TheU.S. government stepped in and offered roughly $1.2 billion to the failing company. Chrysler was able to pay the entire bailout back, and is currently a profitable firm. One of the biggest bailouts is the one proposed by the U.S. government in 2008 that will see $700 billion put toward bailing out various financial organizations and those affected by the credit crisis.

Mortgage-Backed Security (MBS) What Does Mortgage-Backed Security (MBS) Mean? A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution. Also known as a "mortgage-related security" or a "mortgage through".

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Investopedia explains Mortgage-Backed Security (MBS) When you invest in a mortgage-backed security you are essentially lending money to a home buyer or business. An MBS is a way for a smaller regional bank to lend mortgages to its customers without having to worry about whether the customers have the assets to cover the

loan. Instead, the bank acts as a middleman between the home buyer and the investment markets. This type of security is also commonly used to redirect the interest and principal payments from the pool of mortgages to shareholders. These payments can be further broken down into different classes of securities, depending on the riskiness of different mortgages as they are classified under the MBS.