companies – Miro Zecevic

Liquidity

April 1, 2022 mirozecevicmmg

The ease with which you may sell an investment or asset at a reasonable price is referred to as liquidity.

Liquid assets are those that can be exchanged for cash:

Quickly and easily
With little or no transaction fees
At their current market prices (i.e., without having to entice a buyer with a big discount)

Something is more liquid in general if:

Many individuals would be interested in purchasing it;
It’s simple to determine its value;
It’s simple to transfer ownership from one person to another;
The object or investment is more standardized (i.e., less unique)

A share of Apple stock, for example, is liquid because it’s simple to buy and sell, and many people would want to possess it at the proper price. You can figure out how much it’s worth by looking at the stock market’s current pricing. Furthermore, the corporation has billions of outstanding shares, therefore it isn’t unique.

A piece of custom-designed luxury real estate, on the other hand, is illiquid since there may be only a few potential purchasers, it’s difficult to agree on exactly how much it’s worth, and the transfer procedure can take a long time.

Liquid

Stocks
Bonds
Mutual funds
Exchange-traded funds (ETFs)

Illiquid

Real estate
Art
Antiques
Collectibles, like coins, stamps, or baseball cards

Because you may easily convert cash into other assets, it is the most liquid asset.
Money market accounts and funds, savings accounts, and various forms of very short-term debt investments are all examples of “cash equivalent” investments. (Certificates of Deposit or CDs are a little less liquid since they lock your money up for a certain length of time and charge a fee if you need to withdraw it early.)

While there’s nothing wrong with retaining illiquid assets, people and businesses both benefit from having some liquidity.

For day-to-day needs or unexpected obligations, you’ll need some liquid assets. If your sole asset is a house, selling it immediately for a fair price to fund a car repair would be difficult.
Liquidity is required by businesses to fund short-term costs and maintain financial stability. If the company’s revenues are hit hard by a sudden economic downturn, having adequate cash on hand might help it get through it.

Liquidity refers to how quickly and easily an item may be sold for a reasonable price. Stocks, bonds, and ETFs (exchange-traded funds) are all liquid assets that are simple to sell. Real estate and fine art, for example, are illiquid assets that are more difficult to convert into cash. It is critical for both individuals and businesses to have sufficient liquid assets in order to pay short-term payments and cover any unforeseen expenses or financial difficulties.

Key points:

Liquidity refers to how quickly and easily an item may be sold for a reasonable price.
Although cash is the most liquid asset, equities, bonds, mutual funds, and exchange-traded funds (ETFs) are all considered extremely liquid. Houses, coin collections, and art are all illiquid because finding a buyer willing to pay a fair price takes time.
While having some illiquid assets is acceptable, you should balance them out with liquid assets that you can sell quickly if you need cash.

Liquidity text on wood block with a pile of coins on a blue and white background

Quarter – Q1, Q2, Q3, Q4

February 24, 2022 mirozecevicmmg

On a company’s financial calendar, a quarter is a three-month period that serves as the foundation for quarterly financial reports and dividend payments.

The majority of financial reporting and dividend payments occur quarterly. Not all companies’ fiscal quarters match the calendar quarters, and it’s customary for businesses to complete their fourth quarter after their busiest season.

The fiscal quarter and the fiscal year are the two primary accounting periods for businesses. Most businesses’ fiscal years span from January 1 to December 31 (though it does not have to). The following are the traditional calendar quarters that make up the year:

– January, February, and March (Q1)
– April, May, and June (Q2)
– July, August, and September (Q3)
– October, November, and December (Q4)

Companies, investors, and analysts compare and assess trends using data from multiple quarters. A company’s quarterly report, for example, is frequently compared to the same quarter of the prior year. Many businesses are seasonal, making a comparison of quarterly results deceptive.

Quarterly Reports

For publicly listed corporations and their investors, quarterly earnings reports are critical. Each press release has the power to influence the stock price of a company. A company’s stock value may rise if it has a strong quarter. The value of the company’s shares might plummet if the company experiences a bad quarter.

After their first three fiscal quarters, all public corporations in the United States must file quarterly filings with the SEC, known as Form 10-Q. The prior three months’ unaudited financial statements and operating data are included in each 10-Q.

An annual report, known as Form 10-K, is also required of a publicly traded corporation. An audited statement, presentations, and additional disclosures are frequently included in annual reports that are more extensive than quarterly reports.

Forward-looking “guidance” for the following several quarters or through the end of the year is frequently included in quarterly earnings reports. Analysts and investors use these estimates to forecast performance over the next several quarters.

Quarterly Dividends

In the United States, most corporations that pay a dividend will spread it out across four quarters. It is common in many economies outside of the United States to divide the yearly dividend into quarterly installments, with one payment being significantly bigger than the rest.

When it comes to quarterly dividends, the ex-date might cause considerable volatility in a stock’s price.

Non-Standard Quarters

Some public corporations will adopt a non-standard or non-calendar quarterly reporting structure for a variety of reasons.

A corporation may use a non-traditional fiscal year to aid in business or tax planning. According to the IRS, companies can pick a “tax year” that is still 52–53 weeks long but does not finish in December.

Quarters’ criticism

The significance of the quarterly reporting method has been questioned by some. The main criticism of the system is that it places too much pressure on companies and executives to generate short-term outcomes to impress analysts and investors, rather than focusing on the business’s long-term objectives.

Another difficulty is that corporations only publish their summary annual statements once a year, causing the data to grow stale and out of date in the meantime.

What is a Fiscal Quarter?

A fiscal quarter is a three-month period during which a company’s financial performance is reported. A year is divided into four quarters, as the name indicates, and a publicly listed company would produce four quarterly reports every year.

Fiscal quarters are used by both companies and investors to keep track of their financial outcomes and company changes throughout time.

Are Quarters always lined up with the calendar year?

The calendar year may not necessarily correspond to the quarters. For example, if a corporation decides to start its fiscal year in February rather than January, the first quarter will be February, March, and April. Companies may do so if they want their fiscal year to conclude during their peak season.

What are the pros and cons of Quarterly Reporting?

The major benefit of quarterly reporting is that it provides investors with more data on which to make investment decisions. Investors might examine a company’s quarterly filings instead of waiting for its annual report to get a feel of how the company is doing throughout the year.

However, some say that quarterly reporting causes organizations and investors to be more focused on short-term success.

Financial Ratio for Stock Picking

February 8, 2022 mirozecevicmmg

Liquidity Ratio

This ratio indicates how rapidly a corporation can turn its present assets into cash in order to pay down its liabilities on time. Liquidity and short-term solvency are frequently used simultaneously.

Current Ratio

The current ratio compares a company’s capacity to pay down current obligations (those due within one year) with its total current assets, which include cash, accounts receivable, and inventory. The better the company’s liquidity condition, the higher the ratio:

Current Ratio = Current Liabilities / Current Assets

Quick Ratio

The quick ratio, which removes inventory from current assets, assesses a company’s ability to satisfy short-term obligations with its most liquid assets.

Quick ratio= (C+MS+AR) / CL

C – cash & cash equivalents
MS – marketable securities
AR – accounts receivable
CL – current liabilities

Another way is: Quick ratio = (Current assets – Inventory – Prepaid expenses) / Current liabilities

Efficiency ratio

The efficiency ratio is commonly used to assess how well a corporation manages its assets and liabilities inside the organization.

Asset Turnover Ratio

The asset turnover ratio compares the value of a company’s assets to the value of its sales or revenues. The asset turnover ratio is an indicator of a company’s ability to earn revenue from its assets.

Asset Turnover = Total Sales / (Beginning Assets + Ending Assets) / 2

Total Sales – Annual sales total
Beginning Assets – Assets at start of year
Ending Assets – Assets at end of year

Inventory Turnover Ratio

The pace at which a corporation replaces inventory owing to sales in a particular period is known as inventory turnover. Inventory turnover calculations assist companies in making better pricing, production, marketing, and purchasing choices.

Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory

Average Collection Period

In terms of accounts receivable (AR), the word average collection period refers to the time it takes for a firm to obtain payments due by its customers. The average collection period is used by businesses to ensure that they have enough cash on hand to satisfy their financial obligations.

Average collection period = (AR * Days) / Credit sales
AR – average amount of accounts receivable
Credit sales – total amount of net credit sales in the period

Corporate Finance

June 11, 2021 mirozecevicmmg

What is Corporate Finance?

– Business involves decisions which have financial consequences and any decision that involves the use of money is said to be a corporate finance decision.

– Corporate finance is one of the most important part of the finance domain as whether the organization is big or small they raise and deploy capital in order to survive and grow.

– These are the various roles that corporate finance plays, which are very interesting and challenging, one of the main roles is that of being a finance adviser.

– This can comprise helping to manage investments or even suggesting a mergers and acquisitions (M&A) strategy.

Corporate Finance Principles

Investment Principle:
This principle revolves around the simple concept that businesses have resources which need to be allocated in the most efficient way.

Financing Principle:
The job here for the corporate financier is to make sure that the business has right amount of capital and the right mix of debt, equity and other financial instruments.

Dividend Principle:

So the basic discussion here is that if the excess cash should be left in the business or given away to the investors/owners.

Understanding the concepts

Capital budgeting

Capital budgeting is the process of planning expenditures on assets (fixed assets) whose cash flows are expected to extend beyond one year. Managers study projects and decide which ones to include in the capital budget.

*The “capital” refers to long-term assets.
*The “budget” is a plan which details projected cash inflows and outflows during future period.

Time value of money

If you have a dollar today, you can earn interest on it and have more than a dollar next year. For example, $100 of today’s money invested for one year and earning 8% interest will be worth $108 after one year.

Benefits of Private Equity

October 18, 2018 mirozecevicmmg

Private equity enables companies to better exploit their potential. With the capital that private equity firms and their funds provide, they can drive their development and remain independent.

Raising money for your business through equity finance can have many benefits, including:

The funding is committed to your business and your intended projects. Investors only realise their investment if the business is doing well, eg through stock market flotation or a sale to new investors.
You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
Outside investors expect the business to deliver value, helping you explore and execute growth ideas.
Some business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.
Like you, investors have a vested interest in the business’ success, ie its growth, profitability and increase in value.
Investors are often prepared to provide follow-up funding as the business grows.

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