company – 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

How SEC regulates stock market?

September 3, 2021 mirozecevicmmg

Securities and Exchange Commission (SEC) is independent U.S federal agency that regulates the stock market. It was created in 1934 by Congress to help restore investor confidence after the 1929 stock market crash. The Securities Exchange Act of 1934 was created by Securities and Exchange Commission. It govern securities transaction on the secondary market relying on Securities Act of 1933 which increased transparency in financial statements and established laws against fraudulent activities. In essence SEC provides transparency by ensuring accurate and consistent information about companies that allows investors to make informed and sound decisions. Without transparency stock market would be vulnerable to market speculation and creation of asset bubbles.

Securities and Exchange Commission has five commissioners and five different divisions:
Division of corporate finance – review corporate filing requirements ensuring that investors have complete and accurate information on company’s financial health that will help them make the best decision.
Division of investment management – regulates investment companies, variable insurance products and federally registered investment advisers. It also oversees The Securities Investor Protection Corporation (SIPC) that insures investment accounts in case that brokerage firm goes bankrupt.
Division of Enforcement – enforces SEC regulations by investigating and prosecuting violations of securities laws and regulations.
Division of Trading and Market – establishes and maintains standards that regulate the stock market. It oversees securities firms and exchanges as well as industry’s self regulatory organizations.
Division of Economic and Risk Analysis – economic data and risk analysis to other division in order to integrate them in the core mission of SEC. This division predicts how proposed rules would affect market.

United States stock market is one of the most regulated markets in the world with high level of transparency which attracts many business to the United States. SEC’s monitoring of exchanges and all organizations connected with selling of securities has a big role in creating such highly regulated market. It is fairly easy to take your company public in the U.S which helps companies grow larger at a faster rate. By conducting research in financial literacy SEC found out that average investor doesn’t poses enough knowledge about the way market and economy function. That is the reason why SEC is so protective of ordinary, non-accredited investors through its regulations. It makes safe for average investor to buy stocks, bonds or mutual funds by regulating sale of those securities and providing investors with information that will help them make investing decisions.

Corporate Finance

July 14, 2021 mirozecevicmmg

Corporate Finance is about how companies make decisions about what projects to pursue and how to value those projects.

Ratio Analysis

Ratio Analysis is taking two numbers from financial statements and dividing one by the other. What we are doing is taking two pieces of accounting data, put one over the other, and this forms a ratio. We are taking two pieces of data and forming a performance metric. Ratios are usually presented as a percentage or a number depending on whether the usual case is bigger or less than one.

Time value of money

Time is money, literally. If there is a prospect of receiving a certain sum then the sooner you receive it the more it is worth. Interest rates describe this relationship between present value and future value.

Discounting Cash Flows

A company is essentially an entity that generates cash flows each year into the future. The trick is estimating those future cash flows and how much they might grow or shrink and what the risks are to realizing (receiving) them.

Present value and Future value

$100 invested for one year, earning 5% interest, will be worth $105 after one year, therefore $100 paid now and $105 paid exactly one year later both have the same value to a recipient who expects 5% return. That is $100 invested for one year at 5% interest has a future value of $105.

Net Present Value

The way we look at decisions about whether to fund a project or calculate the value of an asset is to turn that stream of future dollars into today’s dollars. Then we compare that sum of present value, we don’t do the deal, if t is less, it is considered a good deal.