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what is profit | profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses costs and taxes involved in sustaining the activity in question any profits earned funnel back to business owners who choose to either pocket the cash distribute it to shareholders as dividends or reinvest it back into the business investopedia paige mclaughlin | |
what does profit tell you | profit is the money a business pulls in after accounting for all expenses whether it s a lemonade stand or a publicly traded multinational company the primary goal of any business is to earn money therefore a business performance is based on profitability in its various forms some analysts are interested in top line profitability whereas others are interested in profitability before taxes and other expenses still others are only concerned with profitability after all expenses have been paid the three major types of profit are gross profit operating profit and net profit all of which can be found on the income statement each profit type gives analysts more information about a company s performance especially when it s compared to other competitors and time periods the word profit comes from the latin noun profectus meaning progress and the verb proficere meaning to advance gross operating and net profitthe first level of profitability is gross profit which is sales minus the cost of goods sold sales are the first line item on the income statement and the cost of goods sold cogs is generally listed just below it for example if company a has 100 000 in sales and a cogs of 60 000 it means the gross profit is 40 000 or 100 000 minus 60 000 divide gross profit by sales for the gross profit margin which is 40 or 40 000 divided by 100 000 operating profit removes operating expenses like overhead and other indirect costs as well as accounting costs like depreciation and amortization it is sometimes referred to as earnings before interest and taxes or ebit net profit furthermore removes the costs of interest and taxes paid by the business because it falls at the bottom of the income statement it is sometimes referred to as the firm s bottom line the bottom line tells a company how profitable it was during a period and how much it has available for dividends and retained earnings what s retained can be used to pay off debts fund projects or reinvest in the company | |
where does profit come from | in a capitalist system where firms compete with one another to sell their goods the question of where profits come from has been one of interest among economists karl marx for instance argued that profits arise from surplus labor extracted from workers by business owners modern thinkers suggest that profits compensate for the risk that entrepreneurs take on when starting a business others argue that profits arise from inefficient markets and imperfect competition 1 | |
what is the corporate tax rate on profits | in the u s the corporate tax rate on profits is currently 21 reduced from 35 since the 2017 tax cuts and jobs act 2 | |
what does a company s bottom line tell you | the bottom line tells a company how profitable it was during a period and how much it has available for dividends and retained earnings what s retained can be used to pay off debts fund projects or reinvest in the company an increasing bottom line is a sign that a company is growing while a shrinking bottom line could be a red flag | |
what is a profit and loss p l statement | a profit and loss p l statement also known as an income statement is a financial statement that summarizes the revenues costs expenses and profits losses of a company during a specified period these records provide information about a company s ability to generate revenues manage costs and make profits | |
how profit and loss p l statements work | the p l statement is one of three financial statements that every public company issues on a quarterly and annual basis along with the balance sheet and the cash flow statement it is often the most popular and common financial statement in a business plan as it shows how much profit or loss was generated by a business p l statements are also referred to as a n the p l or income statement like the cash flow statement shows changes in accounts over a set period of time the balance sheet on the other hand is a snapshot showing what the company owns and owes at a single moment it is important to compare the income statement with the cash flow statement since under the accrual method of accounting a company can log revenues and expenses before cash changes hands this document follows a general form as seen in the example below it begins with an entry for revenue known as the top line and subtracts the costs of doing business including the cost of goods sold operating expenses tax expenses and interest expenses the difference known as the bottom line is net income also referred to as profit or earnings p l management refers to how a company handles its p l statement through revenue and cost management grace kim investopediacomparing p l statementsit is important to compare income statements from different accounting periods the reason behind this is that any changes in revenues operating costs research and development r d spending and net earnings over time are more meaningful than the numbers themselves for example a company s revenues may grow on a steady basis but its expenses might grow at a much faster rate comparing one company s p l statement with another in the same industry that is similar in size can further help investors evaluate the financial well being of a company for example doing so might reveal that one company is more efficient at managing expenses and has better growth potential than the other revenues and expenses for nonprofit organizations are generally tracked in a financial report called the statement of activities as such this report is sometimes called a statement of financial activities or a statement of support types of p l statementsas noted above a p l statement may be prepared in one of two ways these are the cash method and the accrual method the cash method which is also called the cash accounting method is only used when cash goes in and out of the business this is a very simple method that only accounts for cash received or paid a business records transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities this method is commonly used by smaller companies as well as people who want to manage their personal finances the accrual accounting method records revenue as it is earned this means that a company using the accrual method accounts for money that it expects to receive in the future for instance a company that delivers a product or service to its customer records the revenue on its p l statement even though it hasn t yet received payment similarly liabilities are accounted for even when the company hasn t yet paid for any expenses you can find many templates to create a personal or business p l statement online for free example of a p l statementbelow is the income or p l statement for 2023 and 2022 for the hypothetical company butterfly industries all of the figures are in u s dollar usd millions except per share data you can use the income statement to calculate several metrics including the gross profit margin the operating profit margin the net profit margin and the operating ratio together with the balance sheet and the cash flow statement the income statement provides an in depth look at a company s financial performance | |
why are profit and loss p l statements important | a profit and loss p l statement is one of the three types of financial statements prepared by companies the other two are the balance sheet and the cash flow statement the purpose of the p l statement is to show a company s revenues and expenditures over a specified period of time usually over one fiscal year investors and analysts can use this information to assess the profitability of the company often combining this information with insights from the other two financial statements for instance an investor might calculate a company s return on equity roe by comparing its net income as shown on the p l to its level of shareholder equity as shown on the balance sheet | |
what is the difference between a p l statement and a balance sheet | a company s p l statement shows its income expenditures and profitability over a period of time the balance sheet on the other hand provides a snapshot of its assets and liabilities on a certain date the balance sheet is typically presented as of the last day of the company s fiscal year investors use the balance sheet to understand the financial strength of the company comparing the amount and quality of its assets against its liabilities | |
are all companies required to prepare p l statements | publicly traded companies are required to prepare p l statements and must file their financial statements with the u s securities and exchange commission sec so that they can be scrutinized by investors analysts and regulators companies must comply with a set of rules and guidelines known as generally accepted accounting principles gaap when they prepare these statements private companies on the other hand are not necessarily required to comply with gaap some smaller companies though may not even prepare formal financial statements at all the bottom linea p l statement summarizes the revenues costs and expenses of a company during a specific period it is one of three financial statements that public companies issue quarterly and annually the other two are a balance sheet and a cash flow statement investors and analysts use financial statements to assess the financial health of a company and its growth potential | |
what is profit before tax pbt | profit before tax is a measure that looks at a company s profits before the company has to pay corporate income tax it essentially is all of a company s profits without the consideration of any taxes profit before tax can be found on the income statement as operating profit minus interest profit before tax is the value used to calculate a company s tax obligation | |
why is profit before tax important | profit before tax may also be referred to as earnings before tax ebt or pre tax profit the measure shows all of a company s profits before tax a run through of the income statement shows the different kinds of expenses a company must pay leading up to the operating profit calculation for example gross profit deducts costs of goods sold cogs going further operating profit factors in both cogs and all operational expenses and is also known as earnings before interest and tax ebit after ebit only interest and taxes remain for deduction before arriving at net income | |
how is profit before tax calculated | understanding the income statement can help an analyst to have a better understanding of pbt its calculation and its uses the third section of the income statement focuses in on interest and tax these deductions are taken from the summation of the second section which results in operating profit ebit interest is an important metric that includes both a company s interest from investments as well as interest paid out for leverage following the implementation of the tax cuts and jobs act tcja all c corporations have a federal tax rate of 21 1 all other companies are pass throughs which means they are taxed at the individual taxpayer s rate 2 any kind of entity will also have to pay state taxes state tax rates can vary widely by state and entity type the basics of calculating pbt are simple take the operating profit from the income statement and subtract any interest payments then add any interest earned pbt is generally the first step in calculating net profit but it excludes the subtraction of taxes to calculate it in reverse you can also add taxes back into the net income as mentioned above different types of companies will have different tax obligations at the federal and state level calculating the actual amount of taxes owed will come from the pbt | |
why is profit before tax useful | pbt is not typically a key performance indicator on the income statement these are usually focused on gross profit operating profit and net profit however like interest the isolation of a company s tax payments can be an interesting and important metric for cost efficiency management the pre tax profit also determines the amount of tax a company will pay any credits would be taken from the tax obligation rather than deducted from the pre tax profit further excluding the tax provides managers and stakeholders with another measure for which to analyze margins a pbt margin will be higher than the net income margin because tax is not included the difference in pbt margin vs net margin will depend on the amount of taxes paid also excluding income tax isolates one variable that may have a substantial impact for a variety of reasons for instance c corps pay a federal tax rate of 21 however different industries may receive certain tax breaks often in the form of credits which can influence the tax impact overall renewable energy is one example wind solar and other renewables can be subject to an investment tax credit and a production tax credit 3 thus comparing the pbt of companies when renewables are involved can help to provide a more reasonable assessment of profitability | |
what is the difference between ebit ebt and ebitda | working down the income statement provides a view of profitability with different types of expenses involved operating profit also known as ebit is a measure of a company s full operational capabilities this includes the direct cogs involved with manufacturing a product and the indirect operating expenses that are associated with the core business but not directly tied to it pbt is a part of the final steps in calculating net profit it deducts interest from ebit this arrives at the taxable net income for a company interest itself is often an indicator of a company s capitalization structure if a company has been financed with a high amount of debt it will have higher interest payments to make ebit is often the best measure of full operational capabilities while the differences in a company s ebit vs pbt will show its debt sensitivity earnings before interest tax depreciation and amortization ebitda is an extension of the well known usefulness of ebit as an operational profitability and efficiency measure ebitda adds the non cash activities of depreciation and amortization to ebit many analysts find ebitda is a very quick way to assess a company s cash flow and free cash flow without going through detailed calculations ebitda like ebit is before interest and tax so it is readily comparable many types of multiples comparisons will use ebitda because of its universal usefulness enterprise value to ebitda is one example | |
is ebt the same as profit before tax | earnings before tax ebt is often referred to as profit before tax as well as pre tax income | |
what is the difference between profit before tax and taxable income | profit before tax is a company s profits before considering tax obligations it is found on the income statement as operating profit less interest on the other hand taxable income is the amount of income that is subject to taxes depending on the tax laws in a company s jurisdiction | |
what is the difference between profit before taxes and ebitda | while profit before tax shows a company s profits before taking into account its tax costs earnings before interest tax depreciation and amortization ebitda includes non cash activities like depreciation and amortization in this way ebitda is used as a measure for profitability but critics have said that it is less reflective of a company s performance since it leaves out these important aspects in this way showing ebitda versus net income can make a company look more attractive but may be less indicative of a company s overall performance since it ignores a company s asset costs the bottom lineprofit before tax can be arrived at through taking operating profit from the income statement minus its interest payments and adding interest earned often it is the first step in calculating net profit although it doesn t consider the impact of taxes while it isn t typically used as a key performance indicator profit before tax can allow you to isolate the impact of taxes on a company comparing the profit before tax margin and net margin can show how a company is affected by tax costs which can have a material impact on the company and its overall cost efficiencies | |
what is a profit center | a profit center is a branch or division of a company that directly adds or is expected to add to the entire organization s bottom line it is treated as a separate standalone business responsible for generating its revenues and earnings its profits and losses are calculated separately from other areas of the business peter drucker coined the term profit center in 1945 understanding profit centersprofit centers are crucial to determining which units are the most and the least profitable within an organization they function by differentiating between certain revenue generating activities this facilitates a more accurate analysis and cross comparison among divisions a profit center analysis determines the future allocation of available resources and whether certain activities should be cut entirely as an example they may investigate the customer financing arm of the business to see if it is creating the necessary profit the managers or executives in charge of profit centers have decision making authority related to product pricing and operating expenses they also face considerable pressure as they must ensure that their division s sales from products or services outweigh the costs that their profit center produces profits year after year either by increasing revenue decreasing expenses or both not all units within an organization can be tracked as profit centers this is particularly the case for many departments that provide an essential service within an organization the research department within a broker dealer the auditing compliance human resources department of a law firm the inventory control department of a clothing retailer human resources and customer service these divisions have their own costs but do not generate their own revenues as a result they are known as cost centers while profit centers are operated with a focus on bringing in revenue cost centers are not associated with the direct generation of profits cost centers also include various support departments such as it support human resources or customer services which are critical to business functions but do not have a specific responsibility to make money real world examples of profit centersat the retailer walmart different departments selling different products could be divided into profit centers for analysis for example clothing could be considered one profit center while home goods could be a second profit center in addition departments that rotate on a seasonal basis such as the garden center or sections relating to holiday decor can be examined as profit centers to separate these departments seasonal contribution from those with a year round contribution the computer giant microsoft has a wide variety of profit centers ranging from hardware to software to digital services in analyzing these large revenue sources the company may choose to separate the funds produced from the sale of its windows operating system from that of other software suites such as microsoft office or other hardware sectors such as the xbox gaming console this allows the profitability of different products to be examined and correlated based on associated cost and revenue comparisons the concept of a profit center is a framework to facilitate optimal resource allocation and profitability to optimize profits management may decide to allocate more resources to highly profitable areas while reducing allocations to less profitable or loss inducing units | |
what is profit margin | profit margin is a common measure of the degree to which a company or a particular business activity makes money expressed as a percentage it represents the portion of a company s sales revenue that it gets to keep as a profit after subtracting all of its costs for example if a company reports that it achieved a 35 profit margin during the last quarter it means that it netted 0 35 from each dollar of sales generated laura porter investopedia | |
how profit margin works | businesses and individuals around the globe perform economic activities with the aim of making a profit numbers like x million in gross sales or y million in earnings are useful but don t address a business s profitability and comparative performance several different quantitative measures are used to compute the gains or losses that a business generates which makes it easier to assess the performance of a business over different time periods or compare it against competitors profitability ratios are often the first thing investors look at before investing in a company and the most popular and widely watched of them all are profit margins while privately owned businesses like local shops may compute profit margins at their own desired frequency like weekly or monthly publicly traded companies are required to report them in accordance with the standard reporting time frames typically quarterly and or annually businesses that are running on borrowed money may be required to compute and report their profit margins to lenders like a bank monthly 1there are other key profitability ratios that analysts and investors often use to determine the financial health of a company they include return on assets roa and return on equity roe types of profit marginwhile net profit margin is the most familiar and commonly used measure there are actually four levels or types of profit margin based on four kinds of profit these profits are reflected on a company s income statement in the following sequence here are the mathematical formulas for calculating three types of profit margin gross profit margin operating profit margin and net profit margin uses of profit margin in business and investingfrom a billion dollar corporation to an average joe s sidewalk hot dog stand profit margin is widely used by businesses around the globe it is also used to indicate the profitability potential of larger sectors and of overall national or regional markets it is common to see headlines like abc research warns on declining profit margins of american auto sector or european corporate profit margins are breaking out in essence the profit margin has become the globally adopted standard measure of the profit generating capacity of a business and is considered a top level indicator of its potential it is one of the first few key figures to be quoted in the quarterly results reports that companies issue business owners company management and external consultants use it internally for addressing operational issues and to study seasonal patterns and corporate performance during different time frames a zero or negative profit margin translates to a business that s either struggling to manage its expenses or failing to achieve good sales drilling it down further helps to identify the leaking areas like high unsold inventory excess or underutilized employees and resources or high rentals and then to devise appropriate action plans profit margins serve many purposes among other things they help companies to identify issues raise funds and attract investors enterprises operating multiple business divisions product lines stores or facilities that are spread out geographically may use profit margins to assess the performance of each unit and compare them against one another profit margin often comes into play when a company seeks funding smaller businesses like a local retail store may need to provide it to get or restructure a loan from banks or other lenders large corporations issuing debt to raise money are required to reveal their intended use of the capital which can provide insights to investors about the profit margin that might be achieved either by cost cutting increasing sales or a combination of the two the number has become an integral part of equity valuations in the primary market for initial public offerings ipos finally profit margins are a significant consideration for investors when comparing two or more companies investors often hone in on their respective profit margins if a company has a higher profit margin than its peer group it suggests it is better run and capable of generating greater returns for investors comparing profit marginsprofit margins are commonly used not just to compare a company s current performance against its past one but also to compare it to other companies this only really works though when looking at similar companies operating in the same sector what is an acceptable or good profit margin in one industry may be terrible or ridiculously high in another one businesses like retail and transportation will usually have high turnaround and revenue which can mean overall high profits but low profit margins high end luxury goods by comparison may have low sales volume but high profits per unit sold below is a comparison of the profit margins of four long running and successful companies in the technology and retail spaces from 2015 to the first quarter of 2024 technology companies like microsoft and alphabet registered high double digit quarterly profit margins compared to the single digit margins achieved by walmart and target however that does not mean walmart and target did not generate profits or were less successful at what they do compared to microsoft and alphabet they just run very different businesses since they belong to different sectors a blind comparison based solely on profit margins would be inappropriate profit margin comparisons between microsoft and alphabet and between walmart and target are more appropriate examples of high profit margin industriesproducers of luxury goods and high end accessories can have a high profit potential despite low sales volume compared with the makers of lower end goods a very costly item like a high end car may not even be manufactured until the customer has ordered it making it a low expense process for the maker without much operational overhead software or gaming companies may make a substantial investment initially in developing a new software product or video game but cash in big later by selling millions of copies with very little additional expense similarly patent secured businesses like pharmaceutical companies may incur high research costs initially but reap high profit margins when they bring a new drug to market according to nyu stern school of business the companies in the u s with the highest profit margins as of jan 2024 are banks oil and gas producers and explorers and tobacco companies 2 | |
when comparing similar companies be wary of unusually high profit margins a closer investigation of the financials may reveal that the current margin was inflated by a one off event and isn t sustainable | examples of low profit margin industriesoperation intensive businesses like transportation that may have to deal with fluctuating fuel prices drivers perks and retention and vehicle maintenance usually have lower profit margins agriculture based ventures often also fall into this category owing to weather uncertainty high inventory operational overheads the need for farming and storage space and resource intensive activities automotive is another sector known for low profit margins automakers profits and sales are limited by intense competition uncertain consumer demand and high operational expenses involved in developing dealership networks and logistics | |
how do you define profit margin | profit margin is a measure of how much money a company is making on its products or services after subtracting all of the direct and indirect costs involved it is expressed as a percentage | |
what are the different types of profit margins | there are four ways of looking at a company s profit margin gross profit margin operating profit margin pretax profit margin and net profit margin | |
what is the difference between gross profit and net profit | gross profit measures a company s total sales revenue minus the total cost of goods sold or services performed net profit margin also subtracts other expenses including overhead debt repayment and taxes net profit is considered a company s bottom line the bottom linethere are many different metrics that analysts and investors can use to help them determine whether a company is financially sound one of these is the profit margin which measures the company s profit as a percentage of its sales in simple terms a company s profit margin is the total number of cents per dollar that a company receives from a sale that it can keep as a profit the most common and widely used type of profit margin is net profit margin which accounts for all of a company s costs both direct and indirect | |
what is a profit sharing plan | a profit sharing plan gives employees a share in the profits of a company under this type of retirement plan also known as a deferred profit sharing plan dpsp an employee receives a percentage of a company s profits based on its quarterly or annual earnings it s up to the company to decide how much of its profits it wishes to share there are certain restrictions that regulate this plan understanding profit sharing plansso how does profit sharing work well to start a profit sharing plan is any retirement plan that accepts discretionary employer contributions this means a retirement plan with employee contributions such as a 401 k or something similar is not a profit sharing plan because of the personal contributions because employers set up profit sharing plans businesses decide how much they want to allocate to each employee a company that offers a profit sharing plan adjusts it as needed sometimes making zero contributions in some years in the years when it makes contributions however the company must come up with a set formula for profit allocation 1the most common way for a business to determine the allocation of a profit sharing plan is through the comp to comp method using this calculation an employer first calculates the sum total of all of its employees compensation then to determine what percentage of the profit sharing plan an employee is entitled to the company divides each employee s annual compensation by that total to arrive at the amount due to the employee that percentage is multiplied by the amount of total profits being shared 1the most frequently used formula for a company to determine a profit sharing allocation is called the comp to comp method 1example of a profit sharing planlet s assume a business with only two employees uses a comp to comp method for profit sharing in this case employee a earns 50 000 a year and employee b earns 100 000 a year if the business owner shares 10 of the annual profits and the business earns 100 000 in a fiscal year the company would allocate profit share as follows the contribution limit for a company sharing profits with an employee for 2023 and 73 500 including catch up contributions for those 50 or over during the year 1requirements for a profit sharing plana profit sharing plan is available for a business of any size and a company can establish one even if it already has other retirement plans 1 further a company has a lot of flexibility in how it can implement a profit sharing plan as with a 401 k plan an employer has full discretion over how and when it makes contributions however all companies have to prove that a profit sharing plan does not discriminate in favor of highly compensated employees 2as of 2023 the contribution limit for a company sharing its profits may not exceed the lesser of 100 of your compensation or 66 000 this limit increases to 73 500 for 2023 if you include catch up contributions in addition the amount of an employee s salary that can be considered for a profit sharing plan is limited in 2023 to 330 000 3to implement a profit sharing plan all businesses must fill out an internal revenue service form 5500 and disclose all participants of the plan 45 early withdrawals just as with other retirement plans are subject to penalties though with certain exceptions 6 | |
is a profit sharing plan the same as a 401 k | no a profit sharing plan is not the same thing as a 401 k with a profit sharing plan a company gives employees a portion of the profit based on quarterly or annual earnings with a 401 k employees are making personal contributions in some cases a company will partially match an employee s 401 k contribution | |
is profit sharing taxed like a bonus | no profit sharing is not taxed like a bonus with a cash plan employees are given either cash or stock on a regular basis such as quarterly or annually the payouts are quick relative to a retirement plan but they are also taxed as regular income a deferred plan sees profits set aside for a later date usually when the employee retires the employee is also not taxed until retirement some plans combine elements of both a cash and a deferred plan | |
what is a typical profit sharing amount | employers typically use one of two methods to determine contribution amounts with a comp to comp method the total amount of compensation given to all employees is calculated next each employee s compensation is divided by the total compensation yielding a percentage that establishes each employee s portion of the profit the higher an employee s salary the greater the percentage of the profits that the person receives less commonly a company may give the same percentage of profits to every employee regardless of that employee s salary | |
is profit sharing worth it | it depends on what your priorities are a profit sharing plan is a great way for a business to give its employees a sense of ownership in the company but there are typically restrictions as to when and how an employee can withdraw these funds without penalties the bottom linea profit sharing plan is a way for employers to provide employees with a portion of the business s profits based on quarterly or annual earnings contributions are given out on a regular basis or are put into a fund that is made available at a later time such as when the employee retires a profit sharing plan is funded entirely by the employer and is therefore different from a 401 k which is primarily funded by the employee profit sharing plans are generally seen as a meaningful way to motivate employees by directly connecting the company s success to the employees increased compensation | |
what is a profit sharing plan | a profit sharing plan gives employees a share in the profits of a company under this type of retirement plan also known as a deferred profit sharing plan dpsp an employee receives a percentage of a company s profits based on its quarterly or annual earnings it s up to the company to decide how much of its profits it wishes to share there are certain restrictions that regulate this plan understanding profit sharing plansso how does profit sharing work well to start a profit sharing plan is any retirement plan that accepts discretionary employer contributions this means a retirement plan with employee contributions such as a 401 k or something similar is not a profit sharing plan because of the personal contributions because employers set up profit sharing plans businesses decide how much they want to allocate to each employee a company that offers a profit sharing plan adjusts it as needed sometimes making zero contributions in some years in the years when it makes contributions however the company must come up with a set formula for profit allocation 1the most common way for a business to determine the allocation of a profit sharing plan is through the comp to comp method using this calculation an employer first calculates the sum total of all of its employees compensation then to determine what percentage of the profit sharing plan an employee is entitled to the company divides each employee s annual compensation by that total to arrive at the amount due to the employee that percentage is multiplied by the amount of total profits being shared 1the most frequently used formula for a company to determine a profit sharing allocation is called the comp to comp method 1example of a profit sharing planlet s assume a business with only two employees uses a comp to comp method for profit sharing in this case employee a earns 50 000 a year and employee b earns 100 000 a year if the business owner shares 10 of the annual profits and the business earns 100 000 in a fiscal year the company would allocate profit share as follows the contribution limit for a company sharing profits with an employee for 2023 and 73 500 including catch up contributions for those 50 or over during the year 1requirements for a profit sharing plana profit sharing plan is available for a business of any size and a company can establish one even if it already has other retirement plans 1 further a company has a lot of flexibility in how it can implement a profit sharing plan as with a 401 k plan an employer has full discretion over how and when it makes contributions however all companies have to prove that a profit sharing plan does not discriminate in favor of highly compensated employees 2as of 2023 the contribution limit for a company sharing its profits may not exceed the lesser of 100 of your compensation or 66 000 this limit increases to 73 500 for 2023 if you include catch up contributions in addition the amount of an employee s salary that can be considered for a profit sharing plan is limited in 2023 to 330 000 3to implement a profit sharing plan all businesses must fill out an internal revenue service form 5500 and disclose all participants of the plan 45 early withdrawals just as with other retirement plans are subject to penalties though with certain exceptions 6 | |
is a profit sharing plan the same as a 401 k | no a profit sharing plan is not the same thing as a 401 k with a profit sharing plan a company gives employees a portion of the profit based on quarterly or annual earnings with a 401 k employees are making personal contributions in some cases a company will partially match an employee s 401 k contribution | |
is profit sharing taxed like a bonus | no profit sharing is not taxed like a bonus with a cash plan employees are given either cash or stock on a regular basis such as quarterly or annually the payouts are quick relative to a retirement plan but they are also taxed as regular income a deferred plan sees profits set aside for a later date usually when the employee retires the employee is also not taxed until retirement some plans combine elements of both a cash and a deferred plan | |
what is a typical profit sharing amount | employers typically use one of two methods to determine contribution amounts with a comp to comp method the total amount of compensation given to all employees is calculated next each employee s compensation is divided by the total compensation yielding a percentage that establishes each employee s portion of the profit the higher an employee s salary the greater the percentage of the profits that the person receives less commonly a company may give the same percentage of profits to every employee regardless of that employee s salary | |
is profit sharing worth it | it depends on what your priorities are a profit sharing plan is a great way for a business to give its employees a sense of ownership in the company but there are typically restrictions as to when and how an employee can withdraw these funds without penalties the bottom linea profit sharing plan is a way for employers to provide employees with a portion of the business s profits based on quarterly or annual earnings contributions are given out on a regular basis or are put into a fund that is made available at a later time such as when the employee retires a profit sharing plan is funded entirely by the employer and is therefore different from a 401 k which is primarily funded by the employee profit sharing plans are generally seen as a meaningful way to motivate employees by directly connecting the company s success to the employees increased compensation | |
the profitability index pi alternatively referred to as value investment ratio vir or profit investment ratio pir describes an index that represents the relationship between the costs and benefits of a proposed project | the profitability index is calculated as the ratio between the present value of future expected cash flows and the initial amount invested in the project a higher pi means that a project will be considered more attractive investopedia theresa chiechiunderstanding the profitability index pi the profitability index is helpful in ranking various projects because it lets investors quantify the value created per each investment unit a profitability index of 1 0 is logically the lowest acceptable measure on the index as any value lower than that number would indicate that the project s present value pv is less than the initial investment as the value of the profitability index increases so does the financial attractiveness of the proposed project the profitability index is an appraisal technique applied to potential capital outlays the method divides the projected capital inflow by the projected capital outflow to determine the profitability of a project as indicated by the aforementioned formula the profitability index uses the present value of future cash flows and the initial investment to represent the aforementioned variables | |
when using the profitability index to compare the desirability of projects it s essential to consider how the technique disregards project size therefore projects with larger cash inflows may result in lower profitability index calculations because their profit margins are not as high | the pi or the profitability index measures the costs and benefits of a proposed project it is calculated as the present value of the expected cash flows divided by the cost of the initial investment formula for the profitability indexthe profitability index can be computed using the following ratio the present value of future cash flows requires the implementation of time value of money calculations cash flows are discounted the appropriate number of periods to equate future cash flows to current monetary levels discounting accounts for the idea that the value of 1 today does not equal the value of 1 received in one year because money in the present offers more earning potential via interest bearing savings accounts than money yet unavailable cash flows received further in the future are therefore considered to have a lower present value than money received closer to the present the discounted projected cash outflows represent the initial capital outlay of a project the initial investment required is only the cash flow required at the start of the project all other outlays may occur at any point in the project s life and these are factored into the calculation through the use of discounting in the numerator these additional capital outlays may factor in benefits relating to taxation or depreciation interpreting the profitability indexbecause profitability index calculations cannot be negative they consequently must be converted to positive figures before they are deemed useful calculations greater than 1 0 indicate the future anticipated discounted cash inflows of the project are greater than the anticipated discounted cash outflows calculations less than 1 0 indicate the deficit of the outflows is greater than the discounted inflows and the project should not be accepted calculations that equal 1 0 bring about situations of indifference where any gains or losses from a project are minimal | |
when using the profitability index exclusively calculations greater than 1 0 are ranked based on the highest calculation when limited capital is available and projects are mutually exclusive the project with the highest profitability index is to be accepted as it indicates the project with the most productive use of limited capital | the profitability index is also called the benefit cost ratio for this reason although some projects result in higher net present values those projects may be passed over because they do not have the highest profitability index and do not represent the most beneficial usage of company assets example of the profitability indeximagine that a company is considering two potential projects building a new factory or expanding an existing one the factory expansion project is expected to cost 1 million and generate cash flows of 200 000 per year for the next 5 years with a discount rate of 10 the new factory project is expected to cost 2 million and generate cash flows of 300 000 per year for the next 5 years also with a discount rate of 10 to calculate the profitability index for the factory expansion project the present value of the future cash flows would be calculated using the following formula | |
where pv is the present value cf is the cash flow in a given year r is the discount rate and n is the number of years | plugging in the values for this example we get the profitability index for the factory expansion project is then calculated as to calculate the profitability index for the new factory project the present value of the future cash flows would be calculated using the same formula the profitability index for the new factory project is then calculated as in this example the factory expansion project has a higher profitability index meaning it is a more attractive investment the company might decide to pursue this project instead of the new factory project because it is expected to generate more value per unit of investment however since both pis are less than 1 0 the company may end up forgoing either project in favor of a better opportunity elsewhere advantages and disadvantages of the profitability indexaccounts for the time value of moneyallows comparisons across different projects | |
does not consider ongoing future costs | ignores project sizebad forecasts or assumptions can make the analysis unreliablehere are some advantages of the profitability index here are some disadvantages of the profitability index | |
how is the profitability index computed | the profitability index is a calculation determined by dividing the present value of futures cash flows by the initial investment in the project the present value of the future cash flows is calculated using the time value of money which takes into account the fact that money today is worth more than the same amount of money in the future due to the potential for earning interest the initial investment is the amount of capital required to start the project | |
what is the profitability index used for | the profitability index is used for comparison and contrast when a company has several investments and projects it is considering undertaking the pi is especially useful when a company has limited resources and can t pursue all potential projects as it can be used to prioritize which projects to pursue first the index can be used alongside other metrics to determine which is the best investment | |
what is a good profitability index | generally the higher the pi the better a profitability index greater than 1 0 is often considered to be a good investment as it means that the expected return is higher than the initial investment when making comparisons the project with the highest pi may be the best option | |
what are other names for the profitability index | the profitability index is also called the profit investment ratio pir cost benefit ratio or the value investment ratio vir the bottom linethe profitability index pi is a measure of the attractiveness of a project or investment it is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project a pi greater than 1 0 is considered to be a good investment with higher values corresponding to more attractive projects the pi is useful for ranking and comparing different projects but it is important to consider how this technique disregards project size and only looks at the present value of future cash flows and the initial investment under capital constraints and when comparing mutually exclusive projects only those with the highest pis should be undertaken | |
what are profitability ratios | profitability ratios are a class of financial metrics that are used to assess a business s ability to generate earnings relative to its revenue operating costs balance sheet assets or shareholders equity over time using data from a specific point in time they are among the most popular metrics used in financial analysis profitability ratios can be a window into the financial performance and health of a business ratios are best used as comparison tools rather than as metrics in isolation profitability ratios can be used along with efficiency ratios which consider how well a company uses its assets internally to generate income as opposed to after cost profits investopedia julie bang | |
what can profitability ratios tell you | profitability ratios can shed light on how well a company s management is operating a business investors can use them along with other research to determine whether or not a company might be a good investment broadly speaking higher profitability ratios can point to strengths and advantages that a company has such as the ability to charge more or less for products and to maintain lower costs a company s profitability ratios are most useful when compared to those of similar companies the company s own performance history or average ratios for the company s industry normally a higher value relative to previous value indicates that the company is doing well return ratios are metrics that compare returns received to investments made by bondholders and shareholders they reflect how well a business manages the investments to produce value for investors types of profitability ratiosprofitability ratios generally fall into two categories margin ratios and return ratios margin ratios give insight from several different angles into a company s ability to turn sales into profit return ratios offer several different ways to examine how well a company generates a return for its shareholders using the money they ve invested some common examples of the two types of profitability ratios are margin ratiosdifferent profit margins are used to measure a company s profitability at various cost levels of inquiry these income statement profit margins include gross margin operating margin pretax margin and net profit margin the margins between profit and costs expand when costs are low and shrink as layers of additional costs e g cost of goods sold cogs operating expenses and taxes are taken into consideration gross profit margin also known as gross margin is one of the most widely used profitability ratios gross profit is the difference between sales revenue and the costs related to the products sold the aforementioned cogs gross margin compares gross profit to revenue a company with a high gross margin compared to its peers likely has the ability to charge a premium for its products it may indicate the company has an important competitive advantage on the other hand a pattern of declining gross margins may point to increased competition some industries experience seasonality in their operations for example retailers typically experience significantly higher revenues and earnings during the year end holiday season thus it would be most informative and useful to compare a retailer s fourth quarter profit margin with its or its peers fourth quarter profit margin from the previous year operating margin is the percentage of sales left after accounting for cogs as well as normal operating expenses e g sales and marketing general expenses administrative expenses it compares operating profit to revenue operating margin can indicate how efficiently a company manages its operations that can provide insight into how well those in management keep costs down and maximize profitability a company with a higher operating margin than its peers can be considered to have more ability to handle its fixed costs and interest on obligations it most likely can charge less than its competitors and it s better positioned to weather the effects of a slowing economy the pretax margin shows a company s profitability after accounting for all expenses including non operating expenses e g interest payments and inventory write offs except taxes as with other margin ratios pretax margin compares revenue to costs it can signal management s ability to run a business efficiently and effectively by boosting sales as it lowers costs a company with a high pretax profit margin compared to its peers can be considered a financially healthy company with the ability to price its products and or services most appropriately the net profit margin or net margin reflects a company s ability to generate earnings after all expenses and taxes are accounted for it s obtained by dividing net income into total revenue net profit margin is seen as a bellwether of the overall financial well being of a business it can indicate whether company management is generating enough profit from its sales and keeping all costs under control its drawback as a peer comparison tool is that because it accounts for all expenses it may reflect one time expenses or an asset sale that would increase profits for just that period other companies won t have the same one off transactions that s why it s a good idea to look at other ratios such as gross margin and operating margin along with net profit margin the cash flow margin measures how well a company converts sales revenue to cash it reflects the relationship between cash flows from operating activities and sales cash flow margin is a significant ratio for companies because cash is used to buy assets and pay expenses that makes the management of cash flow very important a greater cash flow margin indicates a greater amount of cash that can be used to pay for example shareholder dividends vendors and debt payments or to purchase capital assets a company with negative cash flow is losing money despite the fact that it s producing revenue from sales that can mean that it might need to borrow funds to keep operating a limited period of negative cash flow can result from cash being used to invest in e g a major project to support the growth of the company one could expect that that would have a beneficial effect on cash flow and cash flow margin in the long run return ratiosreturn ratios provide information that can be used to evaluate how well a company generates returns and creates wealth for its shareholders given a certain level of investment deployed to generate such profits these profitability ratios compare investments in assets or equity to net income those measurements can indicate a company s capability to manage these investments profitability is assessed relative to costs and expenses it s analyzed in comparison to assets to see how effective a company is at deploying assets to generate sales and profits the use of the term return in the roa measure customarily refers to net profit or net income the value of earnings from sales after all costs expenses and taxes roa is net income divided by total assets the more assets that a company has amassed the greater the sales and potential profits the company may generate as economies of scale help lower costs and improve margins returns may grow at a faster rate than assets ultimately increasing roa roe is a key ratio for shareholders as it measures a company s ability to earn a return on its equity investments roe calculated as net income divided by shareholders equity may increase without additional equity investments the ratio can rise due to higher net income being generated from a larger asset base funded with debt a high roe can be a sign to investors that a company may be an attractive investment it can indicate that a company has the ability to generate cash and not have to rely on debt this return ratio reflects how well a company puts its capital from all sources including bondholders and shareholders to work to generate a return for those investors it s considered a more advanced metric than roe because it involves more than just shareholder equity it considers all the capital that is being used by the company to generate the profits roic compares after tax operating profit to total invested capital again from debt and equity it s used internally to assess appropriate use of capital roic is also used by investors for valuation purposes roic that exceeds the company s weighted average cost of capital wacc can indicate value creation and a company that can trade at a premium | |
what are the most important profitability ratios | the profitability ratios often considered most important for a business are gross margin operating margin and net profit margin | |
why are profitability ratios significant | they re significant because they can indicate the ability to make regular profits after accounting for costs and how well a company manages investments for a return for shareholders they can reflect management s ability to achieve these two goals as well as the company s overall financial well being | |
how is business profitability best measured | the gross profit margin operating profit and net profit margin ratios are the most commonly used measurements of business profitability net profit margin reflects the amount of profit a business gets from its total revenue after all expenses are accounted for operating profit reflects the profit from the company s core operations including sales general and administrative expenses and gross profit margin indicates profit that exceeds the cost of goods sold the bottom lineprofitability ratios offer companies investors and analysts a way to assess various aspects of a company s financial health there are two main types of profitability ratios margin ratios and return ratios margin ratios measure a company s ability to generate income relative to costs return ratios measure how well a company uses investments to generate returns and wealth for the company and its shareholders | |
what is a program evaluation review technique pert chart | a program evaluation review technique pert chart is a graphical representation of a project s timeline that displays all of the individual tasks necessary to complete the project put simply a pert chart is a project management tool that allows users to map out a project s timeline and itemize individual tasks this means that the pert chart allows users to communicate project instructions and set schedules and timelines for projects among other things | |
how program evaluation review technique pert charts work | a pert chart uses circles or rectangles called nodes to represent project events or milestones a chart can be made using different types of software this includes specialized computer software designed to create pert charts or even a simple program like microsoft excel 2the nodes on the pert chart are linked by vectors or lines that represent various tasks dependent tasks are items that must be performed in a specific manner for example if an arrow is drawn from task no 1 to task no 2 on a pert chart task no 1 must be completed before work on task no 2 begins 1items at the same stage of production but on different task lines within a project are referred to as parallel tasks they re independent of each other and occur at the same time 1a well constructed pert chart looks like this a project manager creates a pert chart in order to analyze all of a project s tasks while estimating the amount of time required to complete each one using this information the project manager can estimate the minimum amount of time required to complete the entire project this information also helps the manager develop a project budget and determine the resources needed to accomplish the project a pert chart may make it easier to see and track a project s critical path the critical path is the minimum time it will take to complete a project based on the longest path from start to finish | |
how to interpret a pert chart | a pert chart is a visual representation of a series of events that must occur within the scope of a project s lifetime the direction of the arrows indicates the flow and sequence of events required dotted activity lines represent dummy activities these are items that are located on another pert path numbers and time allotments are assigned and shown inside each vector these charts have their distinct definitions and terms the most important of which is anticipating how long it will take to finalize a project a pert chart is similar to a critical path analysis which is another method that project managers use to chart tasks in a project the main difference between the two is that a pert chart uses various time frames and probability terms when estimating each project stage advantages and disadvantages of pert chartsas a project management tool pert charts have distinct advantages and disadvantages a pert chart allows a manager to evaluate the time and resources necessary to complete a project it also allows the manager to track required assets during any stage of production in the course of the project 3pert analysis incorporates data and information supplied by a number of departments this combining of information encourages department responsibility and identifies all responsible parties across the organization it also improves communication during the project and it allows an organization to commit to projects that are relevant to its strategic positioning 3pert charts are useful input for what if analyses understanding the possibilities concerning the flow of project resources and milestones allows management to achieve the most efficient and useful project path 3the information that goes into a pert chart can be highly subjective they may include unreliable data or unreasonable estimates for cost or time 3pert charts are deadline focused and might not fully communicate the financial positioning of a project creating a pert chart is labor intensive and maintaining and updating the information requires additional time and resources continual review of the information provided as well as the prospective positioning of the project is required for a pert chart to be of value 3managers can evaluate time and resources to complete projectassets required can be tracked during the course of projectincorporates data and information from all departmentsimproves communicationuseful input for what if analysesmay include unreliable data or unreasonable estimatesmay not fully communicate project s financial positioningneeds a lot of time labor and project positioningpert chart vs gantt chartthe gantt chart goes back even further than the pert chart american mechanical engineer henry gantt designed it sometime in the second decade of the 20th century and it remains the most widely used project management chart 4like the pert chart the gantt chart is a graphical depiction of a project timeline presented as a horizontal bar chart it records the start and completion dates of each element of a project and indicates their interdependencies the two charts are used in similar ways early versions of the gantt chart did not show dependencies that is it didn t indicate where a delay in the completion of one task could hold up the start of another task potentially throwing a whole project off schedule later versions of gantt corrected this although it may be difficult to interpret the pert chart is often preferred to the gantt chart a project management tool because it identifies task dependencies in some cases though project managers may use a pert chart as part of the planning stage of a project and a gantt chart to monitor its execution 5example of pert chartpert charts were first created by the u s navy s special projects office in the 1950s to guide the polaris fleet ballistic missile project using the pert model navy project managers were able to the success of this initial use of pert charts has caused them to be used ever since in many industries | |
what are the main components of a pert chart | a pert chart displays all of the key deliverables necessary to complete a project it indicates the amount of time and resources needed to perform each task and the person or department responsible for each the key deliverables or tasks are displayed with arrows that indicate the order in which each must be completed and the dependencies among them | |
how can i create a pert chart | microsoft excel can be used to create a pert chart custom software with ready made templates such as lucidchart also are available | |
why would i use a pert chart instead of a gantt chart | a pert chart requires a project manager to think through three possible timelines optimistic time is the shortest possible route to completion pessimistic time is the longest it might take if everything goes wrong the most likely time is a reasonable estimate of the best case scenario from the outset the project manager has defined the ideal outcome of a project but also identified the possible barriers to achieving that outcome the bottom lineproject management can be a very daunting and challenging task but there are tools that managers can use to help make the process a little smoother the pert chart can help project managers visually map out the project s timeline by highlighting all the tasks involved it also helps managers by laying out project instructions and the timeline needed to complete each individual task charts can be created using specialized computer software or even microsoft excel | |
what are progress billings | progress billings are invoices requesting payment for work completed to date progress billings are prepared and submitted for payment at different stages in the process of a major project this type of billing is common in projects that last a long time it allows the person billing usually a contractor to fund the project and themselves as the project continues the progress billings invoice can include the original contract amount the amount client has paid to date as well as what percentage of the job has been completed however progress billings can include other items that owners and contractors should understand and work out before work begins understanding progress billingsprogress billings allow contractors to bill their clients incrementally as the project is in progress for progress billings to work the client and contractor must agree to a payment schedule when invoices will be submitted for payment they are useful for long term projects that often come with large budgets progress billings prevent the client from having to fund the project upfront the contractor also benefits by getting paid at regular intervals and can also pay for expenses such as raw materials during the project by invoicing at various stages payments are based on a verified percentage of project completion in other words the payments might be divided up as the project progresses based on specific milestones set by one or both parties the final remaining balance is usually remitted to the contractor once the project has been completed and the client is satisfied with the work | |
what s included in progress billings | the information included in progress billings is different from the typical invoicing practices of many companies some of the financial details might include progress billings include a technique called the schedule of values which outlines the different costs or values for each of the project s tasks a schedule of values is common in the construction industry whereby owners and contractors work together to determine how much will be spent on each phase of the project during the progress billings process a value is assigned to each phase as part of the schedule also the completion percentage can be established for each phase as progress is made on the overall project the schedule of values also helps to determine whether there were cost overruns or the project came under budget for example the schedule of values would show what was paid for each task as well as the initial estimate as a result it can be determined at what point in the construction phase did the project exceed the estimated project cost having a schedule of values included in the progress billings process helps contractors and owners develop a transparent process where all of the financial details are known upfront it also protects construction companies legally and financially by having the estimates in writing so that there are no surprises at the completion of the project in some projects a specific amount or percentage might be withheld by the owner until the completion of the project the retention amount or retainage can be 5 to 10 of the total project or for each progress value essentially the money is held in reserve in the event there are any issues during the project a retainage also helps protect the owner in case the project isn t completed the contract is followed properly or if there are any issues with the contractor and the subcontractors however the retainage amount can create cash flow issues for the construction company as a result both the owner and contractor must come up with an agreed upon retainage amount early in the process who uses progress billings progress billings are fairly common in a number of different industries including construction projects many roofers plumbers general contractors painters electricians and plumbers will use progress billings as part of their businesses the cost of raw materials labor and delays in construction are some reasons why the industry uses progress billings they are also used in aerospace and defense since these projects typically have tremendous budgets and can take years to complete as a result progress billing is a natural solution both the client and contractor should sign a document each time a payment is remitted special considerations factoring in cost changesit is common for a project s cost to change given the total dollars involved and the complexity of the project the building contract states how clients approve cost changes and typically a customer must initial or sign a document that indicates the specific changes however some cost overruns are unavoidable while others are due to a lack of planning some common cost overruns can include many contractors factor in a price allowance such as a small percentage that provides the ability to increase the price of the project owners should discuss with the contractor the extent of any price allowances example of progress billingsonce a client chooses the contractor the two will negotiate the terms of the contract this process includes establishing a payment schedule or frequency of payment according to certain milestones agreed upon by both parties once the work begins and the milestones are reached the contractor can then start submitting invoices to the client assume abc construction signs an agreement to build an office building for 1 6 million over a two year period and that abc s profit is 600 000 the total project costs and profit would be broken down as follows | |
what is a progressive tax | a progressive tax involves a tax rate that increases or progresses as taxable income increases it imposes a lower tax rate on low income earners and a higher rate on those with higher incomes this is usually achieved by creating tax brackets that group taxpayers by income range the income tax system in the u s is considered a progressive system there are seven tax brackets in 2024 with rates of 10 12 22 24 32 35 and 37 there were 16 tax brackets in 1985 1investopedia dennis madambaunderstanding the progressive taxthe rationale for a progressive tax is that a flat percentage on all income would place a disproportionate burden on people with low incomes the dollar amount owed might be smaller but the effect on their real spending power would be greater | |
how progressive a tax structure is depends upon how much of the tax burden is transferred to higher incomes a tax code with tax rates ranging from 10 to 80 would be more progressive than one with rates ranging from 10 to 30 | advantages of a progressive taxa progressive tax system reduces the tax burden on those who can least afford to pay they only have to pay 12 of their top dollars of income if they re single and earn less than 47 150 a year as of 2024 a single filer who earns more than 609 350 annually must pay 37 on their top dollars of income 2this leaves more money in the pockets of low wage earners who are likely to spend more of it on essential goods and services and stimulate the economy in the process a progressive tax system tends to collect more taxes than flat taxes or regressive taxes because the highest percentage is collected from those with the highest amounts of money those with greater resources fund a larger portion of the services that all citizens and businesses rely on such as road maintenance and public safety disadvantages of a progressive taxcritics of a progressive tax system argue that it s a disincentive to success they also oppose the system as a means of income redistribution which they believe punishes the wealthy and even the middle class unfairly opponents of the progressive tax are generally supporters of low taxes and correspondingly minimal government services progressive tax vs regressive taxa regressive tax is the opposite of a progressive tax a rate is applied uniformly across all levels of income so the tax burden decreases as income rises a sales tax is an example of a regressive tax both individuals would pay the same amount of sales tax on an identical bag of groceries even if one earns 300 000 a year and the other earns 30 000 but the less wealthy individual has shelled out a greater percentage of their income to purchase that food 3progressive tax vs flat taxlike a regressive tax a flat income tax system imposes the same percentage tax rate on everyone regardless of income the federal insurance contributions act fica tax that funds social security and medicare is often considered to be a flat tax because all wage earners pay the same percentage but the social security tax does have an earnings cap it applies only to income up to 168 600 in 2024 you wouldn t have to pay this tax on 1 000 of your income if you earned 169 600 4the medicare tax applies to all wages there s no earnings cap on this as there is for the social security tax 5 | |
do i pay the same percentage of tax on all my income | no you only pay your highest percentage tax rate on the portion of your income that exceeds the minimum threshold for that tax bracket a single person who earns 100 000 would fall into the 22 tax bracket but only on the portion of their income that exceeds 47 150 their income from 11 600 up to 47 150 would be taxed at a rate of 12 income below 11 600 is taxed at a 10 rate these income ranges apply to the 2024 tax year 2 | |
how often do the tax brackets change | tax brackets are set by congress and enforced by the internal revenue service irs changes are typically made based on legislation like the tax cuts and jobs act tcja of 2017 the tcja kept seven tax brackets but it increased the income ranges for many of them so some individuals could earn more before moving into a higher bracket the income ranges are also adjusted annually to keep pace with inflation 6 | |
what is the purpose of a progressive tax | progressive taxes exist so the burden of paying for government services oversight and infrastructure doesn t fall disproportionately on those earning lesser incomes those who earn less are taxed at a lesser rate those who earn more are taxed at a higher rate this concept is known as ability to pay taxation the top earners are taxed more and on larger sums of money so a progressive tax increases the amount of tax revenue coming in the bottom linea progressive tax progresses to higher tax rates as taxable income increases individuals with lower incomes are taxed at lower rates than those with higher incomes the u s progressive income tax involves seven tax brackets each with its own rate these tax rates are 10 12 22 24 32 35 and 37 in 2024 the rates didn t change from 2023 to 2024 but the ranges of income covered by the brackets increased to reflect inflation 2 | |
what is project finance | project finance is the funding of long term infrastructure industrial projects and public services using a nonrecourse or limited recourse financial structure the debt and equity used to finance the project are paid back from the cash flow generated by the project project financing is a loan structure that relies primarily on the project s cash flow for repayment with the project s assets rights and interests held as secondary collateral project finance is especially attractive to the private sector because companies can fund major projects off balance sheet obs | |
how project finance works | as noted above the term project finance refers to the financing of long term industrial and or infrastructure projects most commonly for oil and gas companies and the power sector it is also used to finance certain economic bodies like special purpose vehicles spvs the funding required for these projects is based entirely on the projected cash flows some of the common sponsors of project finance include the following entities the project finance structure for a build operate and transfer bot project includes multiple key elements project finance for bot projects generally includes an spv the company s sole activity is carrying out the project by subcontracting most aspects through construction and operations contracts because there is no revenue stream during the construction phase of new build projects debt service only occurs during the operations phase for this reason parties take significant risks during the construction phase the sole revenue stream during this phase is generally under an offtake agreement or power purchase agreement because there is limited or no recourse to the project s sponsors company shareholders are typically liable up to the extent of their shareholdings the project remains off balance sheet for the sponsors and for the government not all infrastructure investments are funded with project finance many companies issue traditional debt or equity in order to undertake such projects off balance sheet projectsproject debt is typically held in a sufficient minority subsidiary and is not consolidated on the balance sheet of the respective shareholders this reduces the project s impact on the cost of the shareholders existing debt and debt capacity the shareholders are free to use their debt capacity for other investments to some extent the government may use project financing to keep project debt and liabilities off balance sheet so they take up less fiscal space fiscal space is the amount of money that the government may spend beyond what it is already investing in public services such as health welfare and education the theory is that strong economic growth will bring the government more money through extra tax revenue from more people working and paying more taxes allowing the government to increase spending on public services nonrecourse project financing | |
when a company defaults on a loan recourse financing gives lenders full claim to shareholders assets or cash flow in contrast project financing designates the project company as a limited liability spv the lenders recourse is thus limited primarily or entirely to the project s assets including completion and performance guarantees and bonds in case the project company defaults | a key issue in nonrecourse financing is whether circumstances may arise in which the lenders have recourse to some or all of the shareholders assets a deliberate breach on the part of the shareholders may give the lender recourse to assets applicable law may restrict the extent to which shareholder liability may be limited for example liability for personal injury or death is typically not subject to elimination nonrecourse debt is characterized by high capital expenditures capex long loan periods and uncertain revenue streams underwriting these loans requires financial modeling skills and sound knowledge of the underlying technical domain to preempt deficiency balances loan to value ltv ratios are usually limited to 60 in nonrecourse loans lenders impose higher credit standards on borrowers to minimize the chance of default nonrecourse loans on account of their greater risk carry higher interest rates than recourse loans recourse loans vs nonrecourse loansif two people are looking to purchase large assets such as a home and one receives a recourse loan and the other a nonrecourse loan the actions that the financial institution can take against each borrower are different in both cases the homes may be used as collateral meaning they can be seized should either borrower default to recoup costs when the borrowers default the financial institutions can attempt to sell the homes and use the sale price to pay down the associated debt if the properties sell for less than the amount owed the financial institution can pursue only the debtor with the recourse loan the debtor with the nonrecourse loan cannot be pursued for any additional payment beyond the seizure of the asset project finance vs corporate financeproject and corporate finance are very important concepts in the world of financing both of these funding methods rely on debt and equity to help businesses reach their financing goals having said that they are very distinct project finance can be very capital intensive and risky and relies on the project s cash flow for repayment in the future corporate finance on the other hand is focused on boosting shareholder value through various strategies like the investment of capital and taxation unlike project financing shareholders receive an ownership stake in the company with corporate financing some of the key features of corporate financing include | |
what is the role of project finance | project finance is a way for companies to raise money to realize opportunities for growth this type of funding is generally meant for large long term projects it relies on the project s cash flows to repay sponsors or investors | |
what are the risks associated with project finance | some of the risks associated with project finance include volume financial and operational risk volume risk can be attributed to supply or consumption changes competition or changes in output prices inflation foreign exchange and interest rates often lead to financial risk operational risk is often defined by a company s operating performance the cost of raw materials and the cost of maintenance among others | |
why do firms use project finance | project finance is a way for companies to fund long term projects this form of financing uses a nonrecourse or limited recourse financial structure firms with weak balance sheets are more apt to use project finance to meet their funding needs rather than trying to raise capital on their own this is especially true for smaller companies and startups that have large scale projects on the horizon the bottom linecompanies need capital in order to begin and grow their operations one of the ways that certain companies can do so is through project financing this form of funding allows businesses that may not have a strong financial history to raise capital for larger long term projects sponsors which invest in these projects are paid using cash flows from the project this is unlike corporate finance which is less risky and concentrates on maximizing shareholder value | |
what is project management | project management is the planning and organization of a company s resources to move a specific task event or duty toward completion it can involve a one time project or an ongoing activity and resources managed include personnel finances technology and intellectual property understanding project managementgenerally speaking the project management process includes the following stages planning initiation execution monitoring and closing we ll discuss each of those stages in more depth later in this article project management often is associated with fields in engineering and construction and more lately healthcare and information technology it which typically have a complex set of components that have to be completed and assembled in a set fashion to create a functioning product no matter the industry project managers tend to have roughly the same job to help define the goals and objectives of the project and determine when the various project components are to be completed and by whom they also create quality control checks to ensure completed components meet a certain standard from start to finish every project needs a plan that outlines how things will get off the ground how they will be built and how they will finish every project usually has a budget and a time frame project management uses a type of triage process to keep everything moving smoothly on time and on budget that means when the planned time frame is coming to an end the project manager may keep all the team members working on the project to finish on schedule many types of project management have been developed to meet the specific needs of certain industries or types of projects three of those types are waterfall agile and lean types of project managementthis is similar to traditional project management but includes the caveat that each task needs to be completed before the next one starts steps are linear and progress flows in one direction like a waterfall because of this attention to task sequences and timelines is very important in this type of project management often the size of the team working on the project will grow as smaller tasks are completed and larger tasks begin the computer software industry was one of the first to use this methodology with the basis originating in the 12 core principles of the agile manifesto agile project management is an iterative process focused on the continuous monitoring and improvement of deliverables 1 at its core high quality deliverables are a result of providing customer value team interactions and adapting to current business circumstances agile project management does not follow a sequential stage by stage approach instead phases of the project are completed in parallel to each other by various team members in an organization this approach can find and rectify errors without having to restart the entire procedure this methodology is all about avoiding waste both of time and of resources the main idea is to create more value for customers with fewer resources when managing a project with this approach the goal is similar to that of the lean enterprise production principle the only resources that will be used on the project are those that directly contribute to its successful completion there are many more methodologies and types of project management than listed here but these are some of the most common the type used depends on the preference of the project manager or the company whose project is being managed kanban is a highly visual and intuitive project management methodology designed to optimize workflow and enhance productivity at its core kanban relies on a kanban board a visual representation of the project s tasks and their status tasks are depicted as cards that move through different stages of the workflow typically represented as columns on the board such as to do in progress and done as work progresses team members move cards across the board providing real time visibility into the status of each task and the overall project by visualizing work in this way kanban promotes transparency collaboration and efficiency allowing teams to identify bottlenecks prioritize tasks and maintain a steady flow of work perhaps considered more of a process improvement tool six sigma can still be used in project management six sigma is a rigorous and data driven approach to process improvement that aims to minimize defects and variability within organizational processes six sigma utilizes a structured methodology known as dmaic define measure analyze improve and control in the define phase project goals and objectives are clarified and key metrics are established to measure process performance the measure phase involves collecting relevant data and analyzing process performance against established metrics to identify areas for improvement in the analyze phase root causes of defects or variations are identified through statistical analysis and data driven techniques once root causes are understood the improve phase focuses on implementing targeted solutions to address identified issues and optimize process performance finally the control phase involves establishing controls and monitoring systems to sustain improvements over time ensuring that processes remain stable and continue to meet desired performance levels scrum is a popular agile framework designed to enhance team collaboration and deliver value iteratively scrum breaks down project work into manageable units called sprints usually lasting between one to four weeks each sprint begins with a planning session where the team selects a set of tasks from the product backlog to complete during the sprint once the sprint starts the team works collaboratively to achieve the sprint goal holding daily stand up meetings to discuss progress address challenges and adapt as needed throughout the sprint scrum teams focus on delivering incremental value often producing a potentially shippable product increment by the end of each sprint at the conclusion of the sprint the team conducts a sprint review to demonstrate the completed work to stakeholders and gather feedback steps of project managementdifferent project management frameworks may identify more or less steps in general there s five stages of project management each discussed briefly below the initiation phase serves as the genesis of the project where an idea is nurtured into a clear vision it involves brainstorming feasibility studies and refining the project concept to align with organizational goals and stakeholder needs in the initiation stage project objectives are defined along with the scope of work and the desired outcomes planning is the phase where the blueprint for the project is crafted planning involves breaking down the project into manageable tasks sequencing them logically estimating resources and developing a comprehensive project plan planning usually entails some sort of resource allocation tasks resource allocation ensures that the necessary people materials and budget are available when needed risk management identifies potential threats when those resources may not be achievable at the right time or quantity the execution phase is where the project plan comes to life and the project team swings into action tasks are assigned and the project team members collaborate to bring the project deliverables to fruition quality assurance processes are implemented to verify that project deliverables meet the specified quality standards the execution phase is the period of intense activity as the project potentially visibly progresses toward its goals once the project is underway the monitoring phase involves tracking project performance against the plan identifying any deviations or issues and taking corrective action to bring the project back on course change management processes are implemented to address any changes to the project scope schedule or resources project managers use this phase to tackle any obstacles that come up i e late deliveries personnel being unavailable etc the closing phase marks the culmination of the project journey loose ends are tied and hopefully accomplishments are celebrated in the closing phase the final deliverables are handed over to the customer or end user and any remaining administrative tasks such as contract closure or financial reconciliations are completed it s usually a good idea to debrief on lessons learned to implement better processes or project management techniques for future similar projects example of project managementlet s say a project manager is tasked with leading a team to develop software products they begin by identifying the scope of the project they then assign tasks to the project team which can include developers engineers technical writers and quality assurance specialists the project manager creates a schedule and sets deadlines often a project manager will use visual representations of workflow such as gantt charts or pert charts to determine which tasks are to be completed by which departments we ll touch on visualizations in the next section they set a budget that includes sufficient funds to keep the project within budget even in the face of unexpected contingencies the project manager also makes sure the team has the resources it needs to build test and deploy a software product | |
when a large it company acquires smaller companies a key part of the project manager s job is to integrate project team members from various backgrounds and instill a sense of group purpose about meeting the end goal project managers may have some technical know how but also have the important task of taking high level corporate visions and delivering tangible results on time and within budget | project management toolsto held with organizing and staying on top of tasks the industry of project management usually leverages a handful of tools these tools have been touched on throughout this article but we ll call them out more specifically now note that projects that differ in size or scope may call for additional tools and some smaller projects may be able to do without some of these tools altogether project management vs program managementprogram management and project management are both essential disciplines within the field of organizational management they do serve distinct purposes and involve different responsibilities project management focuses on the successful delivery of specific time bound initiatives a project is more often a temporary endeavor undertaken to create a unique product service or result on the other hand program management involves the oversight of multiple related initiatives that collectively contribute to achieving strategic organizational objectives as opposed to a project a program is a collection of projects program managers are responsible for aligning individual projects with the organization s strategic goals and this entails managing interdependencies between projects for example a company may sell an entire suite of options for smart technology devices program management would ensure that each device smart light bulbs smart thermostats smart security cameras etc would align with larger company initiatives project management would ensure optimal management of future products | |
what is project management | project management is the planning execution and monitoring of a series of tasks that have an end goal companies embark on project management to achieve a certain process making sure the proper steps are taken at the right time this may relate to the company s operations i e moving from one office building to another or the company s business model i e a technology firm crafting a new software product | |
why is project management important | project management ensures that large deliverables are executed properly instead of focusing on one large end product project management usually documents evaluates and monitors a series of smaller more manageable tasks that come together to make something bigger possible project management is important because it ensures end goals are achieved | |
what are examples of project types | a common example of a project would be product development multiple departments are involved in creating the product marketing it selling it and more the team that designs a project is different from the teams that manufacture market or sell the product as part of a project each of these teams would be working with a project manager who helps move the product development from one stage to the next | |
what makes a good project plan | communication is key to a good project plan each team s responsibilities should be detailed with a goal a time frame and resources available for example visual explanations such as gantt charts also are helpful these are bar graphs that can show each stage of a project and for example the time when that stage will take place this is just one example as the best way to outline a plan for those involved depends on the scope and details of the plan the bottom lineproject management is an important part of bringing different teams or different departments together to achieve a singular goal if creating a product for example someone needs to design it someone needs to build it someone needs to test it someone needs to market it etc the project manager helps define the ultimate goal of the project and set forth a timeline for how and when that project will be achieved that way for example product testers and product marketers can know what to expect and when to expect it as well as what they are expected to achieve when the project reaches their respective stages | |
what is a projected benefit obligation pbo | a projected benefit obligation pbo is an actuarial measurement of what a company will need at the present time to cover future pension liabilities this measurement is used to determine how much must be paid into a defined benefit pension plan to satisfy all pension entitlements that have been earned by employees up to that date adjusted for expected future salary increases | |
how a projected benefit obligation pbo works | companies can provide employees with a number of benefits including a salary when they retire from work the financial accounting standards board s fasb statement of financial accounting standards no 87 states that companies must measure and disclose their pension obligations together with the performance of their plans at the end of each accounting period a projected benefit obligation pbo is one of three ways to calculate expenses or liabilities of traditional defined benefit pensions plans that take into account employee years of service and salary to calculate retirement benefits pbo assumes that the pension plan will not terminate in the foreseeable future and is adjusted to reflect expected compensation in the years ahead as a result it takes into account a number of factors including the following actuaries are responsible for establishing whether pension plans are underfunded these qualified professionals who specialize in the measurement and management of risk and uncertainty determine the benefits needed through a present value calculation actuaries are responsible for comparing the pension plan s liabilities to its assets in general they provide a breakdown of the following establishing whether a company has an underfunded pension plan can be achieved by comparing pension plan assets the investment fund referred to as the fair value of plan assets to the pbo if the fair value of the plan assets is less than the benefit obligation there is a pension shortfall the company is required to disclose this information in a footnote in its 10 k annual financial statement pbo is one of the three approaches firms use to measure and disclose pension obligations the other measures are example of projected benefit obligations pbo in december 2018 general motors u s pension plan had a pbo of 61 2 billion with fair value of plan assets at 56 1 billion in other words this means its plan was 92 funded at that time meanwhile ford s u s benefit obligation in december 2018 was 42 3 billion while its plan assets had a fair value of 39 8 billion that means ford s plan was 94 funded which is slightly better than general motors special considerationsalthough a pbo is classified as a liability on the balance sheet there is considerable criticism about whether it meets the predefined criteria to be defined as such these criteria are the responsibility to surrender an asset from the result of the transactions taking place at a specified future date the obligation for a company to surrender assets for the liability at some future point in time and that the transaction resulting in the liability has already taken place actuarial losses are treated differently by the internal revenue service irs and the fasb | |
what is promissory estoppel | promissory estoppel is the legal principle that a promise is enforceable by law even if made without formal consideration when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment promissory estoppel is intended to stop the promisor from arguing that an underlying promise should not be legally upheld or enforced the doctrine of promissory estoppel is part of the law in the united states and other countries although the precise legal requirements for promissory estoppel vary not only between countries but also between different jurisdictions such as states within the same country understanding promissory estoppelpromissory estoppel serves to enable an injured party to recover on a promise there are common legally required elements for a person to make a claim for promissory estoppel a promisor a promisee and a detriment that the promisee has suffered an additional requirement is that the person making the claim the promisee must have reasonably relied on the promise in other words the promise was one that a reasonable person would ordinarily rely on 1another requirement further qualifies the required detriment component the promisee must have suffered an actual substantial detriment in the form of an economic loss that results from the promisor failing to deliver on their promise 1 finally promissory estoppel is usually only granted if a court determines that enforcing the promise is essentially the only means by which injustice to the promisee can be rectified an example of promissory estoppel might be applied in a case where an employer makes an oral promise to an employee to pay the employee a specified monthly or annual amount of money throughout the full duration of the employee s retirement if the employee then subsequently retires based on a reliance on the employer s promise the employer could be legally estopped from not delivering on his promise to make the specified retirement payments requirements of promissory estoppelthere are three key ingredients for a legal case involving promissory estoppel the promisor the promisee and promise that was not kept in order to seek damages based on promissory estoppel a plaintiff must show that promissory estoppel as a part of contract lawcontract law generally requires that a person receive consideration for making a promise or agreement legal consideration is a valuable asset that is exchanged between two parties to a contract at the time of a promise or agreement ordinarily some form of consideration either an exchange of money or a promise to refrain from some action is required for a contract to be legally enforceable however in attempting to ensure justice or fairness a court may enforce a promise even in the absence of any consideration provided that the promise was reasonably relied on and that reliance on the promise resulted in a detriment to the promisee example of promissory estoppelas a hypothetical example imagine a person working in new york who seeks a new job after a certain number of interviews they receive a job offer from an employer in california offering a high salary and relocation expenses the prospective employee immediately quits their job ends their tenancy and begins to relocate to california upon arrival in california they learn that the job is no longer available or has a greatly reduced salary because the employee relied on the employer s promise they may be able to seek judicial relief for the expenses they incurred due to the employer s promise as with other aspects of contract law promissory estoppel is state specific so the employee would do best to consult a california attorney before pursuing legal action | |
what is the difference between a contract and promissory estoppel | in contract law the doctrine of consideration states that there must be an exchange of consideration in order for a contract to be enforced if one party fails to uphold their end of a contract the other party can withdraw from that contract promissory estoppel is the exception to this rule under the doctrine of promissory estoppel even the existence of a promise may be sufficient to enforce an agreement if the other party has suffered damage as a result of acting on that promise | |
what is equitable estoppel | equitable estoppel is a legal doctrine that prevents a party from taking a position that is contrary to their previous position if doing so harms the other party this rule prevents someone from going back on their word in a court of law | |
what damages can be recovered in promissory estoppel | the rules for promissory estoppel vary by jurisdiction generally speaking a successful case of promissory estoppel may result in the award of either reliance damages or expectation damages reliance damages are based on what it would cost to restore the promisee to their economic position before they relied on the broken promise while expectation damages are based on the cost of putting the injured party in the same position as if the promise had been fulfilled 2the bottom linepromissory estoppel is a legal doctrine that says parties may be liable for broken promises that result in financial harm as with other legal issues promissory estoppel cases are highly specific meaning that it is worth consulting an attorney before pursuing legal action | |
what is a promissory note | a promissory note is a written promise by one party the note s issuer or maker to pay another party the note s payee a definite sum of money either on demand or at a specified future date a promissory note typically contains all the terms involved such as the principal debt amount interest rate maturity date payment schedule the date and place of issuance and the issuer s signature investopedia tara anand | |
how promissory notes work | promissory notes can lie between an iou s informality and a loan contract s rigidity an iou merely acknowledges a debt and the amount one party owes another a promissory note includes a promise to pay on demand or at a specified future date in addition to steps required for repayment like the repayment schedule although financial institutions may issue promissory notes for instance you might be required to sign one to take out a small personal loan they also allow companies and individuals to get financing from a non bank source this source can be an individual or a company willing to carry the note and provide the financing under the agreed upon terms in effect promissory notes can enable anyone to be a lender in its simplest form a promissory note might be a written promise to repay a family member state or federal securities entities may regulate more complicated promissory notes typically there are two parties to a promissory note the promisor also called the note s maker or issuer promises to repay the amount borrowed the promisee or payee is the person who gave the loan a promissory note can be secured or unsecured a secured promissory note describes the collateral typically property that secures the debt or amount borrowed for example if the borrower owns property the lender can use the car as collateral until the debt is repaid if the borrower doesn t repay the loan the promissory note permits the lender to take possession of the property 1an unsecured promissory note doesn t involve collateral in this case if the borrower doesn t repay the loan the lender can try to use standard debt collection procedures in either case the lender holds the promissory note until the debt is repaid typically those drafting a promissory note will consult with an attorney to make sure the note follows any state or federal laws around loans or investments 2a promissory note is usually held by the party that s owed money once the debt has been fully paid the note must be canceled by the payee and returned to the issuer | |
what s included in a promissory note | a promissory note should include all the details about a loan and the repayment terms in addition to the names of the borrower and the lender a promissory note may also include 3types of promissory notesin the united states promissory notes are often used when getting a student loan mortgage or a loan from a friend or family member promissory notes are also sometimes issued to corporate clients many people sign their first promissory notes as part of getting a student loan private lenders typically require students to sign promissory notes for each loan taken out some schools allow federal student loan borrowers to sign a one time master promissory note allowing receipt of multiple loans for up to 10 years if the school certifies the student s continued eligibility student loan promissory notes outline the student borrower s rights and responsibilities and the loan s conditions and terms by signing a master promissory note for federal student loans the student promises to repay the loan amounts plus interest and fees to the u s department of education 4the master promissory note also includes the student s personal contact and employment information as well as the names and contact info for the student s references homeowners usually consider their mortgage an obligation to repay the money they borrowed to buy their residence but actually the signed mortgage promissory note represents a promise to repay the mortgage or loan along with the repayment terms typically the promissory note includes 5the promissory note describes the debt s amount interest rate and late fees a lender holds the promissory note until the mortgage loan is paid off unlike the mortgage or deed of trust the promissory note is not entered into county land records promissory notes are commonly used in business as a means of short term financing for example when a company sells products but hasn t yet collected payments cash may run low leaving the company unable to pay creditors the company may ask creditors to accept a promissory note to be exchanged for cash after the company collects its accounts receivables 2or the company may ask the bank for cash in exchange for a promissory note promissory notes offer companies a credit source after exhausting other options like corporate loans or bond issues a note issued by a company in this situation is at a higher risk of default than say a corporate bond the corporate promissory note s interest rate will likely provide a greater return than a bond from the same company as high risk means higher potential returns 6these notes must be registered with the government in the state where sold and with the securities and exchange commission sec 6if the note is not registered the investor has to analyze whether the company is capable of servicing the debt companies in dire straits may hire high commission brokers to push unregistered promissory notes on the public if the company defaults the investors legal avenues may be somewhat limited promissory note repaymentthere are several different structures for repayment of a promissory note but most involve repaying the principal plus interest the interest rate can be fixed or variable and calculated daily monthly annually or in another way in some states interest rates may be capped by state law 7 a certified accountant and attorney can advise you on the tax or legal implications of the promissory note s repayment schedule 2here are various repayment approaches for a promissory note 8investing in promissory notescompany or corporate promissory notes are rarely sold to the public 9 when they are it is usually at the behest of a struggling company working through unscrupulous brokers who are willing to sell promissory notes that the company may not be able to honor alternatively the promissory note may be part of a scam sold by life insurance agents or online or out of state investment advisors some sellers may know nothing about the investments true origins the promissory notes may be for companies that don t exist promissory notes promising low risk high yield investments may lead to a type of fraud according to the sec 10before investing in promissory notes ensure all of the following are true 6investing in promissory notes involves risk these promissory notes are only offered to corporate or sophisticated investors who can handle the risks and have the money needed to buy a note to help minimize these risks an investor must register the promissory note or have it notarized so that the obligation is publicly recorded and legal a brief history of promissory notespromissory notes have had an interesting history at times they have circulated as a form of alternate currency free of government control in some places the official currency is a form of promissory note called a demand note one with no stated maturity date or fixed term allowing the lender to decide when to demand payment promissory notes and bills of exchange are governed by the 1930 geneva convention of uniform law on bills of exchange and promissory notes 11 its rules stipulate that the term promissory note should be inserted in the instrument s body and contain an unconditional promise to pay | |
what does a promissory note contain | a form of debt instrument a promissory note represents a written promise on the part of the issuer to pay back another party a promissory note will include the agreed upon terms between the two parties such as the maturity date principal interest and issuer s signature essentially a promissory note allows entities other than financial institutions to provide lending services to other entities | |
what is an example of a promissory note | one example of a promissory note is a corporate credit promissory note for this type of promissory note a company will typically be seeking a short term loan in the case of a growing startup that is low on cash as it expands its operations the terms of the agreement could state that the company pays back the loan once its accounts receivable are collected there are several other types of promissory notes including investment promissory notes take back mortgages and student loan promissory notes | |
what are the pros and cons of a promissory note | a promissory note can be advantageous when an entity is unable to secure a loan from a traditional lender such as a bank however promissory notes can be risky as the lender may not have the same means and scale of resources as traditional financial institutions at the same time legal issues could arise for both the issuer and payee in the event of default because of this getting a promissory note notarized can be important the bottom linea promissory note is a written promise by one party to make a payment of money at a date in the future although potentially issued by financial institutions other organizations or individuals can use promissory notes to confirm the agreed terms of a loan in short a promissory note allows anyone to act as a lender however the average investor should be wary of and heavily research any sales pitches for promissory notes as an investment | |
what is a promoter | a stock promoter is an individual or organization that helps raise money for some investment activity stock promoters may raise money for a company by offering investment vehicles other than traditional stocks and bonds such as limited partnerships and direct investment activities often promoters are paid in company stock or they receive a percentage of the capital raised | |
how a promoter works | investment promoters bring information about a specified investment to the attention of potential investors they may target domestic or foreign investors depending on the investment in question the goal is to locate capital that may have otherwise been invested elsewhere based on the limited knowledge available about the promoted investment opportunity the goal of stock promoters is to locate capital information is distributed to attract potential investors to the stock however that information is often misleading types of promotersthe use of stock promoters is fairly common in the penny stock market promoting activity can include positive testimonials or other information provided for free via a website or newsletter as well as more personal sales attempts by increasing excitement surrounding the particular investment the demand for the shares is likely to increase pushing up the share price this generates additional revenue for the business by allowing certain shareholders an opportunity to sell their shares at a higher price certain government entities such as the international trade administration ita part of the u s department of commerce assist u s companies with issues regarding foreign markets this can include assistance with promotional activities and issues surrounding the exportation of goods a business s customers can become casual promoters if a customer has a good experience with a product or service that customer may share that information with other potential customers or investors the investments promoted by individual promoters or promotion firms are not formally registered with the securities and exchange commission sec and many are linked to investment scams criticism of promoterspromoters may give the false impression that investing in the represented opportunity is more likely to succeed than others even to the point of suggesting that it cannot fail the same risks exist with promoted investment opportunities as with any similar style of investment because the investments promoted by individual promoters or promotion firms are not formally registered with the securities and exchange commission sec some promoters have been linked to an inordinately high number of investment scams and litigation thus not all stock promotion activities are considered legal for example in 2015 a stock promoter jason wynn and the chief executive officer ceo of the promoted company martin cantu of connect a jet were found guilty of securities fraud 1 this was related to the willful deceit of potential investors through the use of false information in a variety of advertising that led to increased interest in the company s shares further risks exist where certain writers are compensated for promoting a particular investment in situations where a person is compensated to review a particular stock there are concerns that the information provided is skewed and is more positive about the investment than may be appropriate stock promoter vs stockbrokerstock promoters are not required to have licensing or educational credentials stockbrokers on the other hand require at least a bachelor s degree and must be licensed to obtain a license stockbrokers must pass a series of exams administered by the financial industry regulatory authority finra penny stock companies are less tightly regulated than big companies and they are traded less often which encourages market manipulation the sec and department of justice investigate and prosecute stock promoters for criminal and civil violations every year promoter faqsa promoter is an individual or organization that helps raise money for some investment activity such as penny stocks stock promoters are individuals or companies hired to create media buzz and increase the demand for a stock investment promoters bring information about a specified investment to the attention of potential investors this artificially inflates the share price and the company gains capital an example of a promoter is a penny stock promoter this type of promoter may engage in pump and dump activities here a promoter might spur a buying spree for a stock by procuring a huge equity stake themselves implying that the stock is expected to grow then as share prices peak the stock promoter will dump or resell their shares which drives down the market buyers of the penny stock stand to lose huge amounts through resale in the secondary market promoting a stock is not illegal as long as the required disclosures are made section 17 b of the securities act requires that promoters disclose the fact that they re compensated and state the kind and amount of that compensation 2 however promoters are often untruthful about the amount of the compensation promoters are paid in company stock or they receive a percentage of the capital raised the bottom lineunlike stockbrokers who must be licensed by finra stock promoters are not required to have licensing or educational credentials therefore the information provided by promoters may serve simply to raise money for some investment activity and is unlikely to reflect a balanced perspective investors should pay attention to who is paying the promoter for their efforts and conduct their own research and due diligence before investing | |
what is a promotion | promotion refers to a variety of actions intended to raise greater awareness or advancement of an item in terms of a career promotion refers to advancing an employee s rank or position in a hierarchical structure in marketing promotion refers to increasing intention on a product through advertising or a discounted price understanding promotionsa promotion can occur in a variety of ways in business marketing and careers the dictionary definition of promotion is the act or fact of being raised in rank or position 1 this may occur in relation to people products or financial instruments an alternative definition is an act of furthering the growth or development of something in many different types of promotions a company often contributes additional resources to promote the growth of an item for example a company often promotes an employee to a new role by giving them higher pay alternatively a company can promote a product by paying marketing costs all types of promotions are discretionary spending this means that promotions are not required to happen however a company will often perform an evaluation prior to a promotion to analyze the benefits of the promotion compared to the costs for example the incremental salary cost for an employee may not outweigh the benefits that promoted employee will contribute job promotionsa job promotion is usually handed to an employee who has displayed exceptional performance or has developed the appropriate skills and knowledge necessary to take on additional job responsibilities in the latter case the employee may need to work for a company for a required amount of time or have management tenure to be eligible for a promotion according to indeed an employee that has been promoted and switches jobs may expect an average pay raise between 10 and 20 2 however employees may receive an assortment of other benefits instead for example an employee may receive a better title better office and career development in general a promotion usually is accompanied by a combination of the above approach your human resources representative to discuss getting promoted they often have insight as to your performance company policy and expectations for some job promotions may come as a surprise or without having to ask in this case a company will award a hard working employee with career advancement for others they may be in a situation where asking for a promotion will alert their job of a desire for career advancement and result in feedback on what it will take here are some broad tips for asking for a job promotion at universities and colleges one type of promotion is the jump from being a tenured track assistant professor to a tenured full professor depending on the college or university the promotion from assistant to full professor comes with a substantial salary bump an assistant professor may earn over 90 000 but when promoted to a full professor could earn well over 160 000 3product promotions and salespromotions also apply to the marketing sector in marketing a brand company product or service uses promotions to increase or improve the promoted asset s perception and boost sales promotional tactics run the gamut from coupons to two for sales buy one get a second one free to straight dollar markdowns or percentage discounts sales promotions are conducted through online media such as social media platforms digital communications such as mobile sms print media such as newspapers or in a physical location such as a retail store other ways to promote a business or product include word of mouth business cards and flyers a company may choose to increase the awareness of their products through a variety of promotion techniques the most common types of marketing promotions include broadly speaking every type of marketing is a type of promotion whether it s a billboard in times square or a flyer on the street corner the central goal of marketing is to promote a good and raise awareness for a product a few months or weeks before kids go back to school retailers often use product promotions to draw shoppers into a competitive market for example target has historically offered teachers coupons worth 15 off of school supplies over the summer leading up to school 4the holidays are another time of year when product promotions go into full swing and sales and deals promote products in many retail sectors from food to fashion in this example product promotions may be more to raise awareness of unique or new products that might be fitting as a holiday gift security promotionscapital markets also use promotions stock or security promotions are carried out when an individual or a group wants to hype a stock unfortunately stock promotions in the capital market are mostly fraudulent schemes carried out by people who already own shares in their portfolios these shares usually are priced really low and are from little known companies with no solid financial fundamentals if the promoter s tactics work and more people buy the stock the value of the stock will go up when this happens the stock promoter sells or dumps all of their shares on the market in classic pump and dump style stock promoters use various vehicles to promote the stock including advertising online cold calling and digital email spam investment promotion refers to creating awareness of little known stocks to increase demand and thus the price of the stock instead of relying on the marketing material from others many investors suggest to do your own research to drawn your own conclusions about what to invest in with the proliferation of cryptocurrency coins and tokens it has been increasingly easier for promoters to hype a security wait until market participants have bought in then dump their holdings to yield massive gains as such always be mindful when investing in new young securities with unproven financial histories one such case involved ethereummax after releasing its token ethereummax enlisted the help of several celebrities to promote the security 5 after obtaining an all time high price in may 2021 the token has since dropped over 99 as of september 2022 6 as a result some promoters including kim kardashian are facing potential litigation for securities fraud 7 | |
how do you show a promotion on a resume | you can show a promotion on a resume by listing it as a separate line item above your previous job your goal should be to demonstrate that you had escalating responsibility while working for a single company this is often done by listing each role on a different line to clearly show job growth | |
what is a health promotion | according to the world health organization s website health promotion allows people to gain control of their health in a variety of social and environmental ways that are designed to benefit and protect individual people s health and quality of life by addressing and preventing the root causes of ill health not just focusing on treatment and cure 8 | |
what is cross promotion in marketing | cross promotion in marketing is when one brand collaborates and teams up with another brand to promote each other s products across multiple marketing platforms for example retailer j crew sells clothing and accessories from other designers on its website under the marketing promotion called brands we love 9 | |
why is getting promoted at work important | for some it isn t if you re entirely happy with your job and your pay a promotion may not be important to you for others seeking more money or more responsibility a promotion is a crucial step to developing one s career the bottom linea promotion can occur in marketing careers the stock market and even global health endeavors the term promotion is most frequently used in the job market to describe a rise in job title duties salary or all three promotions of products are used in marketing and business and in the stock market a stock promotion is used to boost the sale of little known stocks | |
what are proof of funds | proof of funds pof refers to a document or documents that demonstrate a person or entity has the ability and funds available for a specific transaction proof of funds usually comes in the form of a bank security or custody statement the purpose of the proof of funds document is to ensure that the funds needed to execute the transaction fully are accessible and legitimate understanding proof of funds | |
when an individual or entity is making a large purchase such as buying a home the seller usually requires proof of funds this ensures not only that the buyer has the money available to make the purchase but also has legal access to the funds as the proof of funds comes from a verified authority such as a bank particularly for the purchase of a home the seller and or mortgage company wants to see if you have enough money for the down payment and the closing costs | it s important to note that in the majority of instances the proof of funds must refer to liquid capital primarily cash certain investments such as retirement accounts mutual fund accounts and life insurance do not qualify as proof of funds requirements of a proof of funds documents | |
when providing a proof of funds document there is certain information that is required to be included the following are some of the most common pieces of information that will need to be disclosed on a proof of funds document | if the funds you plan to use for the purchase are spread across multiple accounts you will need this information for all of them it may be easier to move all of your funds into one account therefore having to provide this information only once and making the total amount of funds available easier to follow it is possible to get a proof of funds document within a day or two from most banks once you have your proof of funds document in hand you want to ensure that it is secure at all times some con artists planning a financial scam may seek request a proof of funds letter to make sure that they are concentrating their efforts on someone with significant financial worth in addition it contains important financial information that should be safeguarded therefore it is important to make sure that you only give proof of funds to trusted individuals whom you have thoroughly investigated the requesting party will often stipulate the required components of the proof of funds documentation these requirements will often vary from one party to another uses of proof of funds documentationproof of funds documentation is commonly used in a wide range of financial transactions or business situations some of the more common situations may include but are not limited to you may often redact or hide sensitive non pertinent information being reported on a proof of fund document proof of funds vs proof of depositin commercial banking proof of deposit is the financial institution s verification that funds have been deposited into an account and where these deposits came from to do so the institution will compare the amount written on the check to the amount on the deposit slip when applying for a mortgage in addition to demonstrating proof of funds a buyer will have to demonstrate that funds in fact have been deposited into an account and demonstrate where they came from mortgage companies typically want to see where the deposits originate from whether they come from the borrower or they are gifts from other parties this helps determine if the borrower will be able to furnish the mortgage loan in addition to a proof of funds document and a proof of deposit a pre approval letter is required to give to the seller or the seller s agent when purchasing a home the pre approval letter will prove that you are able to obtain a mortgage to pay for the rest of the home purchase | |
what types of documents can be used as proof of funds | common types of proof of funds documents include bank statements investment account statements balance certificates issued by financial institutions and letters from financial institutions confirming the availability of funds | |
how recent should the proof of funds document be | the freshness requirement for proof of funds documents can vary but generally documents no older than 90 days are considered acceptable be mindful that certain circumstances may call for documents no older than 30 days for example when closing on a mortgage your mortgage lender will often require proof of funds documentation from the most recent month available can i use digital or scanned copies of proof of funds documents in many cases digital or scanned copies of proof of funds documents are acceptable as long as they are clear and legible however it is advisable to verify the specific requirements of the involved parties or institutions | |
are there any specific formatting requirements for a proof of funds document | while formatting requirements may vary the document should clearly display necessary information such as the account holder s name account number financial institution details and the available balance in addition to substantiating the financial information the user of the proof of funds documentation will want sufficient evidence that you are the owner of the account the bottom lineproof of funds documents are financial statements or documents that demonstrate an individual or entity s ability to cover a specific amount of funds they are required in various transactions to verify the availability of funds and minimize risks common types of proof of funds documents include bank statements investment statements and letters these documents must be recent formatted properly and comply with specific requirements | |
what is proof of stake pos | proof of stake is a blockchain consensus mechanism for processing transactions and creating new blocks a consensus mechanism is a method for validating entries into a distributed database and keeping the database secure in the case of cryptocurrency the database is called a blockchain so the consensus mechanism secures the blockchain learn more about proof of stake and how it is different from proof of work additionally find out the issues proof of stake attempts to address within the cryptocurrency industry investopedia crea taylorunderstanding proof of stake pos proof of stake reduces the computational work needed to verify blocks and transactions under proof of work hefty computing requirements kept the blockchain secure proof of stake changes the way blocks are verified using the machines of coin owners so there doesn t need to be as much computational work done the owners offer their coins as collateral called staking for the chance to validate blocks and earn rewards 1validators are selected randomly to confirm transactions and validate block information this system randomizes who gets to collect fees rather than using a competitive rewards based mechanism like proof of work 1to become a validator a coin owner must stake a specific amount of coins for instance ethereum requires 32 eth to be staked before a user can operate a node 1 blocks are validated by multiple validators and when a specific number of validators verify that the block is accurate it is finalized and closed to activate your own validator you ll need to stake 32 eth however you don t need to stake that much eth to participate in validation you can join validation pools using liquid staking which uses an erc 20 token that represents your eth 2different proof of stake mechanisms may use various methods to reach a consensus for example when ethereum introduces sharding a validator will verify the transactions and add them to a shard block which requires no more than 128 validators to form a voting committee 3 once shards are validated and a block created two thirds of the validators must agree that the transaction is valid then the block is closed |
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