Jun
24
Transfer Pricing
Transfer pricing is the rates or prices that are utilized when selling goods or services between company divisions and departments, or between a parent company and a subsidiary. The transfer pricing that is set for the exchange may be the original purchase price of the goods in question, or a rate that is reduced due to internal depreciation. When used properly, transfer pricing can help to more efficiently manage profit and loss ratios within the company. Generally, transfer pricing is considered to be a relatively simple method of moving goods and services among the overall corporate family. In situations where the transportation of goods is involved in the transaction, the transfer pricing may include both a fixed price per unit...
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Jun
24
Floor Loans
A floor loan is a loan used in the real estate world to fund the initial stages of a construction project. This funding gets the project started and usually constitutes a majority of the total amount of the loan, but the remainder of the funds are initially withheld by the lender. Only when the construction reaches certain milestones are the rest of the funds released to the borrowers. The most common usage of a floor loan occurs in commercial real estate, as the lenders usually release the funds once some tenants are secured for the property in question. Banks and other institutional lenders make their money from providing loans to various entities who borrow funds with the promise of eventually repaying them along with interest. Those...
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Jun
24
Bridge Equity
Bridge equity refers to a period of short-term financing that is used to get an individual or company through a tight financial situation until long-term financing can be secured. In this way, the equity acts as a bridge between the current situation and the future eventuality. Private equity firms often use bridge equity as a way to complete a leveraged buyout of an existing company. Loans known as bridge loans, which are often issued by lenders expecting quick repayment at high interest rates, are another way for companies to receive short-term capital. Many loans and similar financing arrangements are often set up to be realized over a long period of time. There are some cases, however, in which it is necessary for individuals or...
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Jun
24
Asset Reconstruction
Asset reconstruction is the handling of distressed assets to attempt to recover their value and clear them from the books. It arises in response to a financial crisis that causes the number of bad loans to rise rapidly in response to a series of economic problems. Some governments directly fund asset reconstruction programs as part of an economic recovery plan, and it is also possible to see private firms performing this service. The asset reconstruction company assumes bad assets from another company to clear them from that company's books. It may purchase the assets at a very discounted price, causing the original company to take a loss, but clearing nonperforming assets can allow it to start accurately assessing financial health and...
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Jun
14
What You Need To Know About Inflation
What You Need To Know About Inflation   Inflation is one of the reasons people--especially those in their 20s and 30s--are often surprised by the amount they will need to save for their retirement. Inflation pushes future costs higher: as a result, the nest egg needed to produce the income you want would need to be bigger. There are several ways to help combat the ravages of inflation on the value of your savings. Invest to try to outpace inflation You should own at least some investments whose potential return exceeds the inflation rate. A portfolio that earns 2% when inflation is 3% actually loses purchasing power each year. Though past performance is no guarantee of future results, stocks historically have provided higher...
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May
21
Capital Budgeting
Capital budgeting techniques help a company assess a project's viability and profitability among other things. Not all techniques are the same, just like each project has different factors that affect its future profitability. Common capital budgeting techniques include the creation of a capital budget, present value of future cash flows, and the payback period for a given project. Companies can use each one of these techniques if necessary or select just one. This process is mostly a measurement of financial viability, though non-qualitative reviews may also present information. A capital budget lists all cash flows from future cash payments and the associated costs with earning these revenues. The difference is usually in the negative...
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Mar
21
Capital Rationing
Putting together and following a viable capital rationing strategy is important to the process of keeping a company financially stable. The idea behind the rationing is to make sure that resources are allocated efficiently so that the company is positioned to earn the most returns for its efforts. Drafting a workable capital rationing strategy involves understanding which resources are available for allocation, setting priorities for the use of those resources, and limiting the number of active projects so that the best overall returns are earned from those projects. When it comes to business budgeting, capital rationing aids in making sure enough resources are allocated to each line item considered essential to the business operation. As...
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Jan
22
Financial Analytics for Business Sustainability
Financial analytics is a set of tools or a system that can be used to increase a company's financial productivity, specifically its profitability. It works through assessing individual or granular aspects of a business opportunity and then combining all relevant information so that an overarching, financially beneficial decision can be made. Financial analytics allows business executives to proactively seek out ways to change and enhance their business models so that they are constantly up-to-date with the current financial environment. A financial analytics system requires the integration and assessment of a broad spectrum of data that affects, or may potentially affect, a company. Some particular aspects that financial analytics may...
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Dec
14
Financing Perspectives in Apartment Investing
Many investors in single family rental properties believe that apartment investing financing is out of their reach due to the higher mortgage amounts. Unless there's a dismal credit or business history, most apartment investing borrowers will find that the major lending decisions are made based on cash flow, much more than considerations of credit history and other income. Lenders do a great deal of due diligence involving the subject property, with market analysis, competition assessment and more. The goal of all of this is to ascertain the expected sustainable cash flow for the property into the future. The lender wants to be sure that the project will produce the cash flow necessary to pay the mortgage and return a profit consistently....
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Nov
12
Three Types Of Capital That Are Important To You
There are three categories of financial capital that are important for you to know when analyzing your business or a potential investment. They each have their own benefits and characteristics. Equity Capital Otherwise known as "net worth" or "book value", this figure represents assets minus liabilities. There are some businesses that are funded entirely with equity capital (cash written by the shareholders or owners into the company that have no offsetting liabilities.) Although it is the favored form for most people because you cannot go bankrupt, it can be extraordinarily expensive and require massive amounts of work to grow your enterprise. Microsoft is an example of such an operation because it generates high enough returns to...
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Oct
25
Business Process Framework Basics
Business process framework represents the individual guidelines, policies, and procedures a company implements to enhance and improve its overall business operations. Most companies break down their departments or divisions into several processes to improve workflow. This provides business owners, directors, managers, and employees with specific responsibilities in their job tasks that directly affect the output of each process. Business process framework also makes extensive use of charts and graphs, which provide companies with a pictorial reference to outline process tasks and activities. Business processes typically fall under one of three categories: management, operational, and support. Management processes relate specifically to...
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Sep
10
Evaluate your "Basis" for Investment Property
You're considering investment property. What does basis mean, and how do I determine the basis of my property? Question: I have investment property. What does basis mean, and how do I determine the basis of my property? Answer: To determine your basis in an asset for purposes of calculating capital gain or loss upon the sale or other disposition of the property, you need to understand two terms--initial basis and adjusted basis. Often, your initial tax basis equals your cost--what you paid for the asset. For example, if you purchase one share of stock for $10,000, your initial basis in the stock will equal $10,000. However, your initial basis can differ from the cost if you did not purchase an asset, but rather received it as...
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Jul
21
There are three categories of financial capital that are important for you
There are three categories of financial capital that are important for you to know when analyzing your business or a potential investment. They each have their own benefits and characteristics. Equity Capital Otherwise known as “net worth” or “book value”, this figure represents assets minus liabilities. There are some businesses that are funded entirely with equity capital (cash written by the shareholders or owners into the company that have no offsetting liabilities.) Although it is the favored form for most people because you cannot go bankrupt, it can be extraordinarily expensive and require massive amounts of work to grow your enterprise. Microsoft is an example of such an operation because it generates high enough returns to justify...
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Jul
14
The Role of a Property Assessor
A property assessor is a person who calculates the value of various properties. Those calculations are then used to determine how much the owner must pay in property taxes to the local government. It also serves as a loose guideline for the amount of insurance needed on the property. A property assessor’s job description is similar to that of an appraiser or an insurance adjuster. The difference is that these other positions are with private employers, and an assessor works directly for the local government. The term “property assessment” is often used interchangeably with the term “real estate appraisal”. A real estate appraisal is an estimate of the property’s value based on real estate market fluctuations. It is meant to estimate how...
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Jul
14
Builder's Risk Insurance
Builder's risk insurance covers a building or other type of structure while it is under construction. Many lenders will not provide financing for a project unless this type of coverage is in place. The policy provides protection from a loss resulting from fire, acts of vandalism, or wind damage. Other types of losses, such as flood, earthquake, or terrorism, may be added to the policy, if desired or needed. The building owner is usually responsible for buying builder's risk insurance. The contractor on the project may be added to the policy as a named insured. Under this type of policy, the building or structure itself is insured against loss. Any materials or supplies on the job site will also be covered while the policy is in force. A...
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Apr
03
Invoice Factoring Explained
Cash flow is always an issue for businesses that offer credit terms to their customers. Worrying about when payment is going to be made, or indeed whether it will be made at all, is an unnecessary distraction when you are trying to run a business and maximize your profitability. That is why many firms have started to use invoice factoring. Invoice factoring is the process of sending your invoices to a factor as soon as they have been issued. This entitles you to draw down an agreed percentage of the invoices (perhaps up to 85 or 90 per cent) immediately. The remainder (less charges) will be paid to you once the customer has settled the bill. The most obvious advantage of using invoice factoring is improved cash flow. Even if your...
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Feb
17
Commercial Triple Net Leases
A triple net lease is a type of commercial leasing agreement. In a triple net lease, the lessee pays taxes, insurance, and maintenance in addition to the rent. There are advantages and disadvantages to a triple net lease for both parties. Individuals considering a triple net lease should research carefully before making a decision. The length of a triple net lease can vary, but many leases last for at least 50 years. A triple net lease is only one of many commercial leasing options. In a gross lease, the lessee pays rent while the landlord takes care of everything else. Most people who rent their homes are familiar with the terms of a gross lease, as this type of lease is commonly used for residential properties. In a double net lease,...
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Jan
05
Working Capital Analysis
Working capital analysis is one way of evaluating the credit worthiness of a business. By evaluating changes in a firm's current assets or liabilities, an analyst can determine changes to the business' working capital. This figure helps lenders determine how much financing will be required to see a business through its normal cycle of operation. Determining the amount of a business' working capital typically is a process of subtracting its current liabilities from its assets. Working capital is the amount of assets a business has on hand to see it through the time after which a product is acquired and sold but before the business has collected on the sale. The more working capital a business has, the less it needs to borrow for routine...
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