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    »What are partnerships and limited liability companies?«

  • TorontoSEO 8:17 PM on September 12, 2008 Permalink |
    Tags: , , , , limited liability companies, limited liability company, , , , , , What are partnerships and limited liability companies   

    What are partnerships and limited liability companies?

    Some business owners choose to create partnerships or limited liability companies instead of a corporation. A partnership can also be called a firm, and refers to an association of a group of individuals working together in a business or professional practice.

    While corporations have rigid rules about how they are structured, partnerships and limited liability companies allow the division of management authority, profit sharing and ownership rights among the owners to be very flexible.

    Partnerships fall into two categories. General partners are subject to unlimited liability. If a business can’t pay its debts, its creditors can demand payment from the general partners’ personal assets. General partners have the authority and responsibility to manage the business. They’re analogous to the president and other officers of a corporation.

    Limited partners escape the unlimited liability that the general partners have. They are not responsible as individuals, for the liabilities of the partnership. These are junior partners who have ownership rights to the profits of the business, but they don’t generally participate in the high-level management of the business. A partnership must have one or more general partners.

    A limited liability company (LLC) is becoming more prevalent among smaller businesses. An LLC is like a corporation regarding limited liability and it’s like a partnership regarding the flexibility of dividing profit among the owners. Its advantage over other types of ownership is its flexibility in how profit and management authority are determined. This can have a downside. The owners must enter into very detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement.

    A partnership or LLC agreement specifies how profits will be divided among the owners. While stockholders of a corporation receive a share of profit that’s directly related to how many shares they own, a partnership or LLC does not have to divide profit according to how much each partner invested. Invested capital is only of the factors that are used in allocating and distributing profits.

     

  • »Depreciation«

  • TorontoSEO 9:34 PM on September 9, 2008 Permalink |
    Tags: , , , Depreciation, Depreciation expense, , fixed asset, , , , , ,   

    Depreciation

    Depreciation is a term we hear about frequently, but don’t really understand. It’s an essential component of accounting however. Depreciation is an expense that’s recorded at the same time and in the same period as other accounts. Long-term operating assets that are not held for sale in the course of business are called fixed assets. Fixed assets include buildings, machinery, office equipment, vehicles, computers and other equipment. It can also include items such as shelves and cabinets. Depreciation refers to spreading out the cost of a fixed asset over the years of its useful life to a business, instead of charging the entire cost to expense in the year the asset was purchased. That way, each year that the equipment or asset is used bears a share of the total cost. As an example, cars and trucks are typically depreciated over five years. The idea is to charge a fraction of the total cost to depreciation expense during each of the five years, rather than just the first year.

    Depreciation applies only to fixed assets that you actually buy, not those you rent or lease. Depreciation is a real expense, but not necessarily a cash outlay expense in the year it’s recorded. The cash outlay does actually occur when the fixed asset is acquired, but is recorded over a period of time.

    Depreciation is different from other expenses. It is deducted from sales revenue to determine profit, but the depreciation expense recorded in a reporting period doesn’t require any true cash outlay during that period. Depreciation expense is that portion of the total cost of a business’s fixed assets that is allocated to the period to record the cost of using the assets during period. The higher the total cost of a business’s fixed assets, then the higher its depreciation expense.

     

  • »Coin Collecting Auctions Bane or Boon?«

  • TorontoSEO 12:32 PM on September 9, 2008 Permalink |
    Tags: , , Boon, coin auction, Coin auctions, Coin Collecting Auctions Bane or Boon, , , mailing, , , , ,   

    Coin Collecting Auctions Bane or Boon?

    If you are a coin collector who wants to sell or buy coins, one good way to do it is through coin auctions or bidding.

    Coin auctions provide the best ways to obtain coins that have remarkable values. Coin auctions are the primary source of rare coins because most rare coin collectors want to sell their treasures to the highest bidder.

    Unlike the typical way of selling and buying coins, coin auctions entail some rules and regulations for both the bidder and the seller that they must adhere to.

    Basically, there are three types of coin collecting auctions. These are:

    1. Auctions through mail bidding

    In this type of coin auction, the seller will advertise and publish coin auctions through the mail. This is highly beneficial for people who want to participate in the activity but cannot attend the event personally.

    Usually, the seller has a mailing list available and it is used to send catalogs that contain the descriptions and pictures of the item(s) to be sold. At times it may contain the starting bid amount and other pertinent information.

    The seller’s mailing list, the catalogs, or brochures are sent out to the potential bidders. These lists may also be sent to those who have purchased from them in the past.

    2. Phone auctions

    These auctions are conducted by phone. Just like the mail bidding, phone auctions must observe the rules and regulations that are to be followed.

    Once the highest bid is identified, the item goes to the winner. However, there are some instances when people may ask the seller for an approximate selling price but the rules still remain the same, no disclosure of previous bids.

    3. Online coin auctions

    This type of auction is popular because when bidding on a particular coin the bidder is able to see what the coin looks like. Greater interaction between the seller and the buyer may also be achieved as the seller can instantly contact the bidder for important information.

    The only drawback to this kind of coin auction is that through the Internet, others can deceive a coin collector into believing that what they see on the screen is exactly the same item that they are bidding on.

    All of these things can provide you with the best ways of obtaining the best coins available on the market. Just try to stick to your bidding budget.

     

  • »What is price earnings ratio«

  • TorontoSEO 5:49 AM on September 8, 2008 Permalink |
    Tags: , diluted earnings per share, , forecast, measurement, price earnings ratio, , share, , stock market, stock shares, the current market price, , , , What is price/earnings ratio   

    What is price earnings ratio

    The price/earning (P/E) ratio is another measurement that’s of particular interest to investors in public businesses. The P/E ratio gives you an idea of how much you’re paying in the current price for stock shares for each dollar of earning. Earnings prop up the market value of stock shares, not the book value of the stock shares that’s reported in the balance sheet.

    The P/E ratio is a reality check on just how high the current market price is in relation to the underlying profit that the business is earning. Extraordinarily high P/E ratios are justified only when investors think that the company’s earnings per share (EPS) has a lot of upside potential in the future.

    The P/E ratio is calculated dividing the current market price of the stock by the most recent trailing 12 months diluted EPS. Stock share prices bounce around day to day and are subject to big changes on short notice. The current P/E ratio should be compared with the average stock market P/E to gauge whether the business selling above or below the market average.

    P/E ratios are currently running high, despite a four-year slump in the stock market. P/E ratios vary from industry to industry and from year to year. One dollar of EPS may command only a $10 market value for a mature business in a no-growth industry, while a dollar of EPS in a dynamic business in a growth industry may have a $30 market value per dollar of earnings, or net income.

    To sum up, the price/earnings ratio, or P/E ratio is the current market price of a capital stock divided by its trailing 12 months’ diluted earnings per share (EPS) or its basic earnings per share if the business does not report diluted EPS. A low P/E may signal an underbalued stock or a pessimistic forecast by investors. A high P/E may reveal an overvalued stock or might be based on an optimistic forecast by investors.

     

  • »Managing the Bottom Line«

  • TorontoSEO 9:08 PM on September 6, 2008 Permalink |
    Tags: , financial plan, gross revenue, , Managing the Bottom Line, , , , the Bottom Line, , , ,   

    Managing the Bottom Line

    If you don’t keep track of how much money you’re making, you have no idea whether your business is successful or not. You can’t tell how well your marketing is working. And I don’t just mean you should know the amount of your total sales or gross revenue. You need to know what your net profit is. If you don’t, there’s no way you can know how to increase it.

    If you want your business to be successful, you need to make a financial plan and check it against the facts on a monthly basis, then take immediate action to correct any problems. Here are the steps you should take:

    • Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be.
    • Remember that lost profits can’t be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, “I’ll make it up later.” The problem is that you really can’t make it up later: every month profits are too low is a month that is gone forever.
    • Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your rates. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
    • Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase.
    • Evaluate the success of your business based on profit, not revenue. It doesn’t matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason — don’t be one of them.
     

  • »Parts of an Income Statement Part 2«

  • TorontoSEO 8:16 PM on September 4, 2008 Permalink |
    Tags: , , , , Parts of an Income Statement Part 2, , , sum, , ,   

    Parts of an Income Statement Part 2

    Of course profit and cost of goods sold expense are the two most critical components of an income statement, or at least they’re what people will look at first. But an income statement is truly the sum of its parts, and they all need to be considered carefully, consistently and accurately.

    In reporting depreciation expense, a business can use a short-life method and load most of the expense over the first few years, or a longer-life method and spread the expense evenly over the years. Depreciation is a big expense for some businesses and the method of reporting is especially critical for them.

    One of the more complex elements of a an income statement is the line reporting employee pensions and post-retirement benefits. The GAAP rule on this expense is complex and several key estimates must be made by the business, such as the expected rate of return on the portfolio of funds set aside for these future obligations. This and other estimates affect the amount of expense recorded.

    Many products are sold with expressed or implied warranties and guarantees. The business should estimate the cost of these future obligations and record this amount as an expense in the same period that the goods are sold, along with the cost of goods expense. It can’t really wait until customers actually return products for repair or replacement, should be forecast as a percent of the total products sold.

    Other operating expenses that are reported in an income statement may also have timing or estimating considerations. Some expenses are also discretionary in nature, which means that how much is spent during the year depends on the discretion of management.

    Earnings before interest and tax (EBIT) measures the sales revenue less all the expenses above this line. It depends on all the decisions made for recording sales revenue and expenses and how the accounting methods are implemented.

     

  • »Investing and financing«

  • TorontoSEO 9:33 PM on September 3, 2008 Permalink |
    Tags: , cash flow statements, , distribution, , , Investing and financing, , , statement of cash flows, , ,   

    Investing and financing

    Another portion of the statement of cash flows reports the investment that the company took during the reporting year. New investments are signs of growing or upgrading the production and distribution facilities and capacity of the business. Disposing of long-term assets or divesting itself of a major part of its business can be good or bad news, depending on what’s driving those activities. A business generally disposes of some of its fixed assets every year because they reached the end of their useful lives and will not be used any longer. These fixed assets are disposed of or sold or traded in on new fixed assets. The value of a fixed asset at the end of its useful life is called its salvage value. The proceeds from selling fixed assets are reported as a source of cash in the investing activities section of the statement of cash flows. Usually these are very small amounts.

    Like individuals, companies at times have to finance its acquisitions when its internal cash flow isn’t enough to finance business growth. financing refers to a business raising capital from debt and quity sources, by borrowing money from banks and other sources willing to loan money to the business and by its owners putting additional money in the business. The term also includes the other side, making payments on debt and returning capital to owners. it includes cash distributions by the business from profit to its owners.

    Most business borrow money for both short terms and long terms. Most cash flow statements report only the net increase or decrease in short-term debt, not the total amounts borrowed and total payments on the debt. When reporting long-term debt, however, both the total amounts and the repayments on long-term debt during a year are generally reported in the statement of cash flows. These are reported as gross figures, rather than net.

     

  • »Parts of an Income Statement Part 3«

  • TorontoSEO 8:16 PM on September 3, 2008 Permalink |
    Tags: , , , , , Parts of an Income Statement, , , , , ,   

    Parts of an Income Statement Part 3

    While some lines of an income statement depend on estimates or forecasts, the interest expense line is a basic equation. When accounting for income tax expense, however, a business can use different accounting methods for some of its expenses than it uses for calculating its taxable income. The hypothetical amount of taxable income, if the accounting methods used were used in the tax return is calculated. Then the income tax based on this hypothetical taxable income is fitured. This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.

    Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.

    It’s incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company’s financial reports on many occasions. It’s therefore critical that any officer or manager in a company be thoroughly familiar with how the company’s financial statements are prepared. Accounting methods and how they’re implemented vary from business to business. A company’s methods can fall anywhere on a continuum that’s either left or right of center of GAAP.

     

  • »Building Cash Reserves«

  • TorontoSEO 9:33 PM on September 2, 2008 Permalink |
    Tags: , Building Cash Reserves, Building Cash Reserves Building Cash Reserves, financial cushion, , , , savings plan, , small business owner, theory, , , ,   

    Building Cash Reserves

    Building a financial cushion for your business is never easy. Experts say that businesses should have anywhere from six to nine months worth of income safely stored away in the bank. If you’re a business grossing $250,000 per month, the mere thought of saving over $1.5 million dollars in a savings account will either have you collapsing from fits of laughter or from the paralyzing panic that has just set in. What may be a nice well-advised idea in theory can easily be tossed right out the window when you’re just barely making payroll each month. So how is a small business owner to even begin a prudent savings program for long-term success?

    Realizing that your business needs a savings plan is the first step toward better management. The reasons for growing a financial nest egg are strong. Building savings allows you to plan for future growth in your business and have ready the investment capital necessary to launch those plans. Having a source of back-up income can often carry a business through a rough time.

    When market fluctuations, such as the dramatic increase in gasoline and oil prices, start to affect your business, you may need to dip into your savings to keep operations running smoothly until the difficulties pass. Savings can also support seasonal businesses with the ability to purchase inventory and cover payroll until the flush of new cash arrives. Try to remember that you didn’t build your business overnight and you cannot build a savings account instantly either.

    Review your books monthly and see where you can trim expenses and reroute the savings to a separate account. This will also help to keep you on track with cash flow and other financial issues. While it can be quite alarming to see your cash flowing outward with seemingly no end in sight, it’s better to see it happening and put corrective measures into place, rather than discovering your losses five or six months too late.

     

  • »What happened in corporate accounting scandals?«

  • TorontoSEO 8:58 PM on September 2, 2008 Permalink |
    Tags: , accounting records, corporate accounting scandals, , , , shareholder, , , , , What happened in corporate accounting scandals   

    What happened in corporate accounting scandals?

    When a corporation deliberately conceals or skews information to appear healthy and successful to its shareholders, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many, depending on the extent to which employees are informed of their company’s financial practices. Directors of corporations may fudge financial records or disguise inappropriate spending. Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information, but for employees who, through 401ks, have invested their retirement savings in company stock.

    Some recent corporate accounting scandals have consumed the news media and ruined hundreds of thousands of lives of the employees who had their retirement invested in the companies that defrauded them and other investors. The nuts and bolts of some of these accounting scandals are as follows:

    WorldCom admitted to adjusting accounting records to cover its operation costs and present a successful front to shareholders. Nine billion dollars in discrepancies were discovered before the telecom corporation went bankrupt in July of 2002. One of the hidden expenses was $408 million given to Bernard Ebbers (WorldCom’s CEO) in undisclosed personal loans.

    At Tyco, shareholders were not informed of the $170 million in loans that were taken by Tyco’s CEO, CFO, and chief legal officer. The loans, many of which were taken interest free and later written off as benefits, were not approved by Tyco’s compensation committee. Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer) face continuing investigations by the SEC and the Tyco Corporation, which is now operating under Edward Breen and a new board of directors.

    At Enron, investigations against uncovered multiple acts of fraudulent behavior. Enron used illegal loans and partnerships with other companies to cover its multi-billion dollar debt. It presented erroneous accounting records to investors, and Arthur Anderson, its accounting firm, began shredding incriminating documentation weeks before the SEC could begin investigations. Money laundering, wire fraud, mail fraud, and securities fraud are just some of the indictments directors of Enron have faced and will continue to face as the investigation continues.

     
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