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what does the return on revenue tell you | return on revenue or net profit margin helps investors to see how much profit a company is generating from the sales for that while also considering the operating and overhead costs by knowing how much profit is being earned from total revenue investors can evaluate and management s effectiveness a company not only needs to generate more sales and revenue but it must also keep costs contained return on revenue provides clarity as to the relationship between revenue generation and expense management if a company s management is generating revenue but the company s costs are increasing so much that it eclipses the revenue earned the net profit margin will decline in other words if a company s expenses are rising at a faster rate than its growth in revenue the net profit margin will decline over time a company can increase the return on revenue or profit margin by increasing revenue decreasing costs or some combination of both companies can also change the sales mix to increase revenue the sales mix is the proportion of each product a business sells relative to total sales each product sold may deliver a different level of profit by shifting sales to products that provide a higher profit margin a business can increase net income and improve ror assume for example that a sporting goods store sells an 80 baseball glove that generates a 16 profit and a 200 baseball bat that produces a 20 profit while the bat generates more revenue the glove produces a 20 profit 16 80 and the bat only earns a 10 profit 20 200 by shifting the store s sales and marketing effort to baseball gloves the business can earn more net income per dollar of sales which increases ror a corporation s ror allows an investor to compare profitability from year to year and evaluate the company s management s business decisions since ror does not consider a company s assets and liabilities it should be used in conjunction with other metrics when evaluating a company s financial performance ror vs eps | |
when management makes changes to increase ror the company s decisions also help increase earnings per share eps eps is an indicator of a company s profitability by comparing net income to the number of outstanding shares of common stock the higher the eps the more profitable a company is considered | eps is calculated by dividing net income by the number of outstanding shares of common stock for example let s assume that a firm earns a total net income of 1 million per year and has 100 000 shares of common stock outstanding and eps is 1 000 000 100 000 shares or 10 per share if senior management can increase net income to 1 2 million and there is no change in common stock shares eps increases to 12 per share the increase in net income also increases ror however ror has no bearing on the number of shares outstanding both eps and ror measure the extent of the profit generated by a company companies issue shares of stock to generate funds to invest in the company and grow profits if a company generates a significant amount of net income as a result of the capital received from issuing shares of stock the company s management would be seen as growing earnings efficiently in other words earnings per share shows how much net income has been generated based on the quantity of shares outstanding a company that generates more earnings with a fewer number of shares outstanding than the competition would have a higher eps and be viewed more favorably by investors eps helps to show how effectively management is at deploying its resources to generate profit while eps measures the profit generated as a result of the number of outstanding stock shares ror measures the profit generated from the amount of revenue generated ror helps to show how effective a company s management is at increasing sales while managing the costs to run the business both metrics are important and should be used in tandem when evaluating a company s financial performance real world example of return on revenuebelow is the income statement for apple inc aapl for the fiscal year ending sept 28 2019 according to the company s 10 k filing to determine whether apple s return on revenue was favorable investors should compare the results to other companies within the same industry and during the same period investors can also calculate a company s ror for several periods to get a sense of how the ror has been trending | |
what is return on risk adjusted capital rorac | the return on risk adjusted capital rorac is a rate of return measure commonly used in financial analysis where various projects endeavors and investments are evaluated based on capital at risk projects with different risk profiles are easier to compare with each other once their individual rorac values have been calculated the rorac is similar to return on equity roe except the denominator is adjusted to account for the risk of a project the formula for rorac isreturn on risk adjusted capital is calculated by dividing a company s net income by the risk weighted assets return on risk adjusted capital net income risk weighted assets where risk weighted assets allocated risk capital economic capital or value at risk begin aligned text return on risk adjusted capital frac text net income text risk weighted assets textbf where text risk weighted assets allocated risk capital economic text capital or value at risk end aligned return on risk adjusted capital risk weighted assetsnet income where risk weighted assets allocated risk capital economiccapital or value at risk | |
what does return on risk adjusted capital tell you | return on risk adjusted capital rorac takes into account the capital at risk whether it be related to a project or company division allocated risk capital is the firm s capital adjusted for a maximum potential loss based on estimated future earnings distributions or the volatility of earnings companies use rorac to place greater emphasis on firm wide risk management for example different corporate divisions with unique managers can use rorac to quantify and maintain acceptable risk exposure levels this calculation is similar to risk adjusted return on capital raroc with rorac however the capital is adjusted for risk not the rate of return rorac is used when the risk varies depending on the capital asset being analyzed example of how to use roracassume a firm is evaluating two projects it has engaged in over the previous year and needs to decide which one to eliminate project a had total revenues of 100 000 and total expenses of 50 000 the total risk weighted assets involved in the project is 400 000 project b had total revenues of 200 000 and total expenses of 100 000 the total risk weighted assets involved in project b is 900 000 the rorac of the two projects is calculated as project a rorac 1 0 0 0 0 0 5 0 0 0 0 4 0 0 0 0 0 1 2 5 project b rorac 2 0 0 0 0 0 1 0 0 0 0 0 9 0 0 0 0 0 1 1 1 begin aligned text project a rorac frac 100 000 50 000 400 000 12 5 text project b rorac frac 200 000 100 000 900 000 11 1 end aligned project a rorac 400 000 100 000 50 000 12 5 project b rorac 900 000 200 000 100 000 11 1 even though project b had twice as much revenue as project a once the risk weighted capital of each project is taken into account it is clear that project a has a better rorac the difference between rorac and rarocrorac is similar to and easily confused with two other statistics risk adjusted return on capital raroc is usually defined as the ratio of risk adjusted return to economic capital in this calculation instead of adjusting the risk of the capital itself it is the risk of the return that is quantified and measured often the expected return of a project is divided by value at risk var to arrive at raroc another statistic similar to rorac is the risk adjusted return on risk adjusted capital rarorac this statistic is calculated by taking the risk adjusted return and dividing it by economic capital adjusting for diversification benefits it uses guidelines defined by the international risk standards covered in basel iii which is a set for reforms that are to be implemented by jan 1 2022 and is meant to improve the regulation supervision and risk management within the banking sector limitations of using return on risk adjusted capital roraccalculating the risk adjusted capital can be cumbersome as it requires understanding the value at risk calculation for related insight read more about how risk weighted assets are calculated based on capital risk | |
what is return on sales ros | return on sales ros is a ratio used to evaluate a company s operational efficiency this measure provides insight into how much profit is being produced per dollar of sales an increasing ros indicates that a company is improving efficiency while a decreasing ros could signal impending financial troubles ros is closely related to a firm s operating profit margin investopedia lara antalformula and calculation of return on sales ros locate net sales and operating profit from a company s income statement and plug the figures into the formula below ros operating profit net sales where ros return on sales operating profit is calculated as earnings before interest or ebit begin aligned text ros frac text operating profit text net sales textbf where text ros text return on sales text operating profit is calculated as earnings text before interest or ebit end aligned ros net salesoperating profit where ros return on salesoperating profit is calculated as earningsbefore interest or ebit | |
when calculating return on sales investors might notice that some companies report net sales while others report revenue net sales is total revenue minus the credits or refunds paid to customers for merchandise returns net sales will likely be listed for companies in the retail industry while others will list revenue | below are the steps to calculate return on sales return on sales is a financial ratio that calculates how efficiently a company is generating profits from its top line revenue it measures the performance of a company by analyzing the percentage of total revenue that is converted into operating profits the calculation shows how effectively a company is producing its core products and services and how its management runs the business therefore ros is used as an indicator of both efficiency and profitability investors creditors and other debt holders rely on this efficiency ratio because it accurately communicates the percentage of operating cash a company makes on its revenue and provides insight into potential dividends reinvestment potential and the company s ability to repay debt ros is used to compare current period calculations with calculations from previous periods this allows a company to conduct trend analyses and compare internal efficiency performance over time it is also useful to compare one company s ros percentage with that of a competing company regardless of scale the comparison makes it easier to assess the performance of a small company than a fortune 500 company however ros should only be used to compare companies within the same industry as they vary greatly across industries a grocery chain for example has lower margins and therefore a lower ros compared to a technology company return on sales and operating profit margin are often used to describe a similar financial ratio the main difference between each usage lies in the way their respective formulas are derived the standard way of writing the formula for operating margin is operating income divided by net sales return on sales is extremely similar except the numerator is usually written as earnings before interest and taxes ebit while the denominator is still net sales example of how to use return on salesfor example a company that generates 100 000 in sales and requires 90 000 in total costs to generate its revenue is less efficient than a company that generates 50 000 in sales but only requires 30 000 in total costs ros is larger if a company s management successfully cuts costs while increasing revenue using the same example the company with 50 000 in sales and 30 000 in costs has an operating profit of 20 000 and a ros of 40 20 000 50 000 if the company s management team wants to increase efficiency it can focus on increasing sales while incrementally increasing expenses or it can focus on decreasing expenses while maintaining or increasing revenue limitations of using return on salesreturn on sales should only be used to compare companies that operate in the same industry and ideally among those that have similar business models and annual sales figures companies in different industries with wildly different business models have very different operating margins so comparing them using ebit in the numerator could be confusing to make it easier to compare sales efficiency between different companies and different industries many analysts use a profitability ratio that eliminates the effects of financing accounting and tax policies earnings before interest taxes depreciation and amortization ebitda for example by adding back depreciation the operating margins of big manufacturing firms and heavy industrial companies are more comparable ebitda is sometimes used as a proxy for operating cash flow because it excludes non cash expenses such as depreciation but ebitda does not equal cash flow that s because it does not adjust for any increase in working capital or account for capital expenditures that are needed to support production and maintain a company s asset base as operating cash flow does | |
what can return on sales tell you | return on sales is a financial ratio that calculates how efficiently a company is generating profits from its top line revenue it measures the performance of a company by analyzing the percentage of total revenue that is converted into operating profits ros is used as an indicator of both efficiency and profitability as it shows how effectively a company is producing its core products and services and how its management runs the business | |
what is the difference between ros and operating margin | return on sales and operating profit margin are often used to describe a similar financial ratio the main difference between each usage lies in the way their respective formulas are derived the standard way of writing the formula for operating margin is operating income divided by net sales return on sales is extremely similar except the numerator is usually written as earnings before interest and taxes ebit while the denominator is still net sales | |
what are the limitations of return on sales | return on sales should only be used to compare companies that operate in the same industry and ideally among those that have similar business models and annual sales figures a grocery chain for example has lower margins and therefore a lower ros compared to a technology company companies in different industries with wildly different business models have very different operating margins so comparing them using ebit in the numerator could be confusing | |
what is return on total assets | return on total assets rota is a ratio that measures a company s earnings before interest and taxes ebit relative to its total net assets it is defined as the ratio between net income and total average assets or the amount of financial and operational income a company receives in a financial year as compared to the average of that company s total assets the ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings ebit is used instead of net profit to keep the metric focused on operating earnings without the influence of tax or financing differences when compared to similar companies understanding return on total assetsthe greater a company s earnings in proportion to its assets and the greater the coefficient from this calculation the more effectively that company is said to be using its assets the rota expressed as a percentage or decimal provides insight into how much money is generated from each dollar invested into the organization this allows the organization to see the relationship between its resources and its income and it can provide a point of comparison to determine if an organization is using its assets more or less effectively than it had previously in circumstances where the company earns a new dollar for each dollar invested in it the rota is said to be one or 100 percent the formula for return on total assets rota is return on total assets ebit average total assets where ebit earnings before interest and taxes begin aligned text return on total assets frac text ebit text average total assets textbf where text ebit text earnings before interest and taxes end aligned return on total assets average total assetsebit where ebit earnings before interest and taxes to calculate rota divide net income by the average total assets in a given year or for the trailing twelve month period if the data is available the same ratio can also be represented as the product of profit margin and total asset turnover | |
how to calculate rota | to calculate rota obtain the net income figure from a company s income statement and then add back interest and or taxes that were paid during the year the resulting number result is the company s ebit the ebit number should then be divided by the company s total net assets to show the earnings that the company has generated for each dollar of assets on its books total assets include contra accounts for this ratio meaning that allowance for doubtful accounts and accumulated depreciation are both subtracted from the total asset balance before calculating the ratio limitations of using return on total assets rota over time the value of an asset may diminish or increase in the case of real estate the value of the asset may rise on the other hand most mechanical pieces of a business such as vehicles or other machinery generally depreciate over time as wear and tear affect their value since the rota formula uses the book values of assets from the balance sheet it may be significantly understating the fixed assets actual market value this leads to a higher ratio result that shows a return on total assets that is higher than it should be because the denominator total assets is too low another limitation is how the ratio works with financed assets if a debt was used to buy an asset the rota could look favorable while the company may actually be having trouble making its interest expense payments the ratio inputs can be adjusted to reflect the assets functional values while accounting for the interest rate currently being paid to a financial institution for example if an asset was acquired with funds from a loan with an interest rate of 5 and the return on the associated asset was a gain of 20 then the adjusted rota would be 15 since many newer companies have higher amounts of debt associated with their assets these adjustments may make the business look less attractive in the eyes of investors once those debts begin to clear the rota will appear to improve accordingly | |
what is a returned payment fee | a returned payment fee is a one time penalty charged by a bank when a customer bounces a check the bank sends the customer a message indicating that a check has been returned unpaid due to non sufficient funds in the account depending on the bank this fee can be between 25 and 40 for each bad check a credit card issuer will add its own penalty fee if a customer makes a payment with a check or an online payment that is declined by a bank in order to resolve the problem the customer has to deposit enough money to cover the fees and the check that was not honored and then ask the recipient of the check to resubmit it for payment the customer s credit rating will not be dinged if the matter is resolved quickly understanding returned payment feescreditors charge consumers a series of fees some are for services rendered while others are punitive service fees range from account maintenance charges minimum balance fees and funds transfer charges punitive fees and penalties include things like non sufficient funds nsf charges late fees and returned payment fees creditors must specify the amount of any fees including those for returned payments in the agreement returned payment fees also called dishonored payment fees are charged when a customer makes a payment with insufficient funds to cover a payment depending on the creditor returned payment fees generally range anywhere between 25 and 40 per instance as noted above payments may be returned for any number of reasons including insufficient funds in a consumer s account or because of closed accounts banks may also freeze accounts for legitimate reasons including suspicious activity or government garnishments which can also result in payments being returned while returned payment fees are most common with checks they may also occur with payments that are made online or scheduled to be taken automatically consumers should be cautious when paying with a check or setting up an automatic payment customers who know they won t have enough money to cover their payment by the due date shouldn t send the creditor a check while late fees and interest charges may apply they won t have additional charges like a returned payment and nsf fee customers can easily cancel any recurring payments or make changes to the payment method to an account that can cover the charge to avoid a returned payment fee | |
when your creditor charges a returned payment fee there s a very good likelihood that you ll incur an nsf fee from your bank as well | special considerationssome institutions may waive returned payment fees in certain conditions for example they may waive the fee for a first time occurrence or for customers with accounts in good standing others may also waive the fee in case the consumer has a good reason why the payment was rejected it s always best to talk to your financial institution if there was a viable error for which you had no control a returned payment fee often comes along with late payment fees and interest if you try to pay your credit card bill at the last minute but your payment doesn t clear your monthly minimum payment becomes overdue and you will owe a late fee a few credit cards do not charge late fees at all or will waive the late fee the first time the customer has a late payment even if a late fee doesn t apply interest charges will almost always apply you may also be subject to an increase in your interest rate if your returned payment means you ve missed your minimum payment deadline your bank may also charge you an insufficient funds fee also known as an nsf fee for writing a check that didn t clear types of returned payment feescredit card companies generally have some of the highest returned payment fees in fact they can be as high as 40 to find out whether your credit card has a returned payment fee and how much it is check the card s terms and conditions returned payment fees are also charged by other creditors including cable subscription services cell phone companies and wireless service providers and gyms many contracts like car leases and financing may also outline returned payment charges | |
what is a revaluation | a revaluation is a calculated upward adjustment to a country s official exchange rate relative to a chosen baseline the baseline can include wage rates the price of gold or a foreign currency revaluation is the opposite of devaluation which is a downward adjustment of a country s official exchange rate understanding a revaluationin a fixed exchange rate regime only a decision by a country s government such as its central bank can alter the official value of the currency developing economies are more likely to use a fixed rate system in order to limit speculation and provide a stable system a floating rate is the opposite of a fixed rate in a floating rate environment revaluation can occur on a regular basis as seen by the observable fluctuations in the foreign currency market and the associated exchange rates the u s had a fixed exchange rate until 1973 when president richard nixon removed the united states from the gold standard and introduced a floating rate system although china has an advanced economy its currency has been fixed since 1994 before the chinese government revalued its currency in 2005 it was pegged to the u s dollar after revaluation it was pegged to a basket of world currencies 1effects of revaluationsrevaluations affect both the currency being examined and the valuation of assets held by foreign companies in that particular currency since a revaluation has the potential to change the exchange rate between two countries and their respective currencies the book values of foreign held assets may have to be adjusted to reflect the impact of the change in the exchange rate for example suppose a foreign government has set 10 units of its currency equal to 1 in u s currency to revalue the government might change the rate to five units per dollar this results in its currency being twice as expensive when compared to u s dollars than it was previously if the aforementioned currency revaluation occurred any assets held by a u s company in the foreign economy need to be revalued if the asset held in foreign currency was previously valued at 100 000 based on the old exchange rate the revaluation would require its value to be changed to 200 000 this change reflects the new value of the foreign asset in the home currency by adjusting for the revaluation of the currency involved causes of a revaluationcurrency revaluation can be triggered by a variety of events some of the more common causes include changes in the interest rates between various countries and large scale events that affect the overall profitability or competitiveness of an economy changes in leadership can also cause fluctuations because they may signal a change in a particular market s stability speculative demand can also affect the value of a currency for example in 2016 prior to the vote determining if britain would remain part of the european union eu speculation caused fluctuations in the value of multiple currencies since it was not yet known at that time whether or not britain would remain part of the eu any action taken because of this possibility was considered speculative in nature 2 | |
what is the effect of a currency revaluation | a currency revaluation increases the value of a currency in relation to other currencies this makes the purchase of foreign goods in foreign currencies less expensive to domestic importers conversely domestic exporters will see a decline in exporting business as the exporting goods are now more expensive to foreign importers | |
is currency revaluation good or bad | currency revaluation is usually good for the country that does the revaluation as it increases the value of the currency exchange rates are bilateral so the improvement in one currency means the decline of another however because the world is intertwined changes in currency values can have far reaching consequences which could impact the levels of imports and exports so though a currency revaluation might be good for a country s currency it makes its goods more expensive possibly hurting the level of exports | |
how can a country increase the value of its currency | currencies are affected by a variety of factors some ways that a country can improve its currency is by purchasing its own currency and selling foreign exchange assets to do so it can also raise interest rates reduce inflation and implement supply side economic policies such as increasing competitiveness | |
what is revaluation reserve | revaluation reserve is an accounting term used when a company creates a line item on its balance sheet for the purpose of maintaining a reserve account tied to certain assets this line item can be used when a revaluation assessment finds that the carrying value of the asset has changed understanding revaluation reservecompanies have the flexibility to create line items for reserves on the balance sheet when they feel it is necessary for proper accounting presentation companies may use reserves for various reasons including asset revaluation like most reserve line items the revaluation reserve amount either increases or decreases the total value of balance sheet assets revaluation reserves are not necessarily common but they can be used when a company believes the value of certain assets will fluctuate beyond established schedules the standard procedure for identifying the carrying value of assets on the balance sheet involves marking assets down over time on a scheduled basis usually based on a depreciation schedule in general revaluation reserves increase or decrease the carrying value of the asset based on estimates of its fair value companies may establish a revaluation reserve if they believe an asset s carrying value needs to be more closely monitored and assessed due to certain market situations such as real estate assets that are increasing in market value or foreign assets that are fluctuating due to currency changes a company can add to or subtract from the revaluation reserve throughout the year without waiting for monthly or quarterly scheduled adjustments this line item helps to keep value more accurate through day to day activities companies may use reserve lines in place of or in association with write downs or impairments write downs and impairments are usually a one time expense charge due to an unexpected decrease in the value of a long term asset recording revaluation reservesthe revaluation reserve refers to the specific line item adjustment required when the revaluation of an asset takes place in most cases the reserve line either increases a liability or reduces the value of an asset | |
when an entry to a reserve account is made an offsetting entry must be made to an expense account which will show up on the income statement | if the asset decreases in value the revaluation reserve is credited on the balance sheet to decrease the carrying value of the asset and the expense is debited to increase the total revaluation expense if the asset increases in value the offsetting reserve expense would be decreased through credit and the revaluation reserve on the balance sheet would be increased through a debit book value vs fair valuefor most companies the carrying value of assets is the book value after netting out any accumulated depreciation the carrying value of an asset may be adjusted to the fair value after the depreciation period has ended generally the decision to record an asset s carrying value at book value rather than fair value is made when an asset is long term in nature shorter term assets are usually more liquid and therefore can easily be carried on the balance sheet at their fair market value | |
is revaluation reserve a current liability | a revaluation account is a reserve account that is adjusted when the value of an asset fluctuates it is not a current liability it functions as a line item adjustment when the asset s valuation is re evaluated an increase in value is credited to the reserve account and a decrease is debited from the reserve account | |
does revaluation reserve affect equity | a revaluation reserve account would affect equity if there are gains in the account this would not affect equity if the gains reverse losses in the account on the same asset | |
what is a revaluation surplus | a revaluation surplus is an equity account that reflects the increase in the fair value of an asset over its previous book value note that these are unrealized gains so cannot be used to distribute dividends the bottom linein accounting revaluation reserves on a company s balance sheet are used to record the changing value of long term assets this generally applies to currency sensitive assets and is recorded by debiting or crediting an offsetting expense depending on the change in value | |
what is revealed preference | revealed preference a theory offered by american economist paul anthony samuelson in 1938 states that consumer behavior if their income and the item s price are held constant is the best indicator of their preferences 1understanding revealed preferencefor a long time consumer behavior most notably consumer choice had been understood through the concept of utility in economics utility refers to how much satisfaction or pleasure consumers get from the purchase of a product service or experienced event however utility is incredibly difficult to quantify in indisputable terms and by the beginning of the 20th century economists were complaining about the pervasive reliance on utility replacement theories were considered but all were similarly criticized until samuelson s revealed preference theory which posited that consumer behavior was not based on utility but on observable behavior that relied on a small number of relatively uncontested assumptions revealed preference is an economic theory regarding an individual s consumption patterns which asserts that the best way to measure consumer preferences is to observe their purchasing behavior revealed preference theory works on the assumption that consumers are rational in other words they will have considered a set of alternatives before making a purchasing decision that is best for them thus given that a consumer chooses one option out of the set this option must be the preferred option revealed preference theory allows room for the preferred option to change depending upon price and budgetary constraints by examining the preferred preference at each point of constraint a schedule can be created of a given population s preferred items under a varied schedule of pricing and budget constraints the theory states that given a consumer s budget they will select the same bundle of goods the preferred bundle as long as that bundle remains affordable it is only if the preferential bundle becomes unaffordable that they will switch to a less expensive less desirable bundle of goods the original intention of revealed preference theory was to expand upon the theory of marginal utility coined by jeremy bentham 2 utility or enjoyment from a good is very hard to quantify so samuelson set about looking for a way to do so since then revealed preference theory has been expanded upon by a number of economists and remains a major theory of consumption behavior the theory is especially useful in providing a method for analyzing consumer choice empirically 1three axioms of revealed preferenceas economists developed the revealed preference theory they identified three primary axioms of revealed preference the weak axiom the strong axiom and the generalized axiom example of revealed preferenceas an example of the relationships expounded upon in revealed preference theory consider consumer x that purchases a pound of grapes it is assumed under revealed preference theory that consumer x prefers that pound of grapes above all other items that cost the same or are cheaper than that pound of grapes since consumer x prefers that pound of grapes over all other items they can afford they will only purchase something other than that pound of grapes if the pound of grapes becomes unaffordable if the pound of grapes becomes unaffordable consumer x will then move on to a less preferable substitute item criticisms of revealed preference theorysome economists say that revealed preference theory makes too many assumptions for instance how can we be sure that consumer s preferences remain constant over time isn t it possible that an action at a specific point in time reveals part of a consumer s preference scale just at that time for example if just an orange and an apple were available for purchase and the consumer chooses an apple then we can definitely say that the apple is revealed preferred to the orange there is no proof to back up the assumption that a preference remains unchanged from one point in time to another in the real world there are lots of alternative choices it is impossible to determine what product or set of products or behavioral options were turned down in preference to buying an apple | |
what is revenue | revenue is the money generated from normal business operations calculated as the average sales price times the number of units sold it is the top line or gross income figure from which costs are subtracted to determine net income revenue is also known as sales on the income statement investopedia matthew collinsunderstanding revenuerevenue is the money brought into a company from its business activities over a specified period of time such as a quarter or year before subtracting expenses there are different ways to calculate revenue depending on the accounting method employed accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer under certain rules revenue is recognized even if payment has not yet been received 123cash accounting on the other hand will only count sales as revenue when payment is received cash paid to a company is known as a receipt it is possible to have receipts without revenue for example if the customer paid in advance for a service not yet rendered or undelivered goods this activity leads to a receipt but not revenue 1the financial accounting standards board s revenue from contracts with customers topic 606 is a regularly revised set of accounting rules that guide companies on how to report revenue the guidance requires an entity to recognize revenue in accordance with five steps it is necessary to check the cash flow statement to assess how efficiently a company collects money owed revenue is known as the top line because it appears first on a company s income statement net income also known as the bottom line is revenues minus expenses there is a profit when revenues exceed expenses to increase profit and hence earnings per share eps for its shareholders a company increases revenues and or reduces expenses investors often consider a company s revenue and net income separately to determine the health of a business net income can grow while revenues remain stagnant because of cost cutting such a situation does not bode well for a company s long term growth | |
when public companies report their quarterly earnings two figures that receive a lot of attention are revenues and eps a company beating or missing analysts revenue and earnings per share expectations can often move a stock s price | revenue may also be referred to as sales and is used in the price to sales p s ratio an alternative to the price to earnings p e ratio that uses revenue in the denominator types of revenuea company s revenue may be subdivided according to the divisions that generate it for example toyota motor corporation may classify revenue across each type of vehicle alternatively it can choose to group revenue by car type i e compact vs truck or geography a company may also distinguish revenue between tangible and intangible product lines for example apple may be interested in separately analyzing its physical products such as the ipad apple watch and iphone and services such as apple music apple tv or icloud revenue can also be divided into operating revenue sales from a company s core business and non operating revenue which is derived from secondary sources as these non operating revenue sources are often unpredictable or nonrecurring they can be referred to as one time events or gains for example proceeds from the sale of an asset a windfall from investments or money awarded through litigation are non operating revenue formula and calculation of revenuethe formula and calculation of revenue will vary across companies industries and sectors a service company will have a different formula than a retailer while a company that does not accept returns may have different calculations than companies with return periods broadly speaking the formula to calculate net revenue is net revenue quantity sold unit price discounts allowances returnsthe main component of revenue is the quantity sold multiplied by the price for a retailer this is the number of goods sold multiplied by the sales price the obvious constraint with this formula is that many companies have a diversified product line for example apple can sell a macbook iphone and ipad each for a different price therefore the net revenue formula should be calculated for each product or service then added together to get a company s total revenue there are several components that reduce revenue reported on a company s financial statements in accordance with accounting guidelines discounts on the price offered allowances awarded to customers or product returns are subtracted from the total amount collected note that some components i e discounts should only be subtracted if the unit price used in the earlier part of the formula is at market not discount price one entity s revenue is often another entity s expense for example your personal household expense of 1 000 to buy the latest smartphone is 1 000 revenue for the phone company example of revenuemicrosoft boasts a diversified product line that contributes many types of revenue the company defines its business in several different channels including as shown below microsoft reported revenue of 61 9 billion in the three months to march 31 2024 high level reporting requirements have microsoft s income statement being shown between product revenue and service other revenue 6add screenshotin supplementary reports microsoft further clarifies revenue sources for example if you scroll further down the financial statement you can see how much each division contributed to the 61 9 billion generated in the period revenue vs income profitmany entities may report both revenue and income profit these two terms are used to report different accumulations of numbers revenue is often the gross proceeds collected by an entity it is the measurement of only the income component of an entity s operations for a business revenue is all of the money it has earned income profit usually incorporates other facets of a business for example net income incorporates expenses such as cost of goods sold selling general and administrative expenses operating expenses depreciation interest taxes and other expenses while revenue is a gross amount focused just on the collection of proceeds income or profit reports the net proceeds special considerationsin the case of government revenue is the money received from taxation fees fines inter governmental grants or transfers securities sales mineral or resource rights as well as any sales made governments collect revenue from citizens within its district and collections from other government entities a nonprofit s revenues are its gross receipts its components include donations from individuals foundations and companies grants from government entities investments and or membership fees nonprofit revenue may be earned via fundraising events or unsolicited donations in terms of real estate investments revenue refers to the income generated by a property such as rent or parking fees when the operating expenses incurred in running the property are subtracted from property income the resulting value is net operating income noi vacant real estate technically does not earn any operating revenue though the owner of the property may be required to report fair market value adjustments that result in gains when externally reporting their finances | |
what does revenue in business mean | revenue is the money earned by a company obtained primarily from the sale of its products or services to customers there are specific accounting rules that dictate when how and why a company recognizes revenue for instance a company may receive cash from a client however a company may not be able to recognize revenue until they ve performed their part of the contractual obligation | |
are revenue and cash flow the same thing | no revenue is the money a company earns from the sale of its products and services cash flow is the net amount of cash being transferred into and out of a company revenue provides a measure of the effectiveness of a company s sales and marketing whereas cash flow is more of a liquidity indicator both revenue and cash flow should be analyzed together for a comprehensive review of a company s financial health | |
what is the difference between revenue and income | revenue and income are sometimes used interchangeably however these two terms do usually mean different things revenue is often used to measure the total amount of sales a company makes from its goods and services income is often used to incorporate expenses and report the net proceeds a company has earned | |
how does one generate and calculate revenue | for many companies revenues are generated from the sales of products or services for this reason revenue is sometimes known as gross sales revenue can also be earned via other sources inventors or entertainers may receive revenue from licensing patents or royalties real estate investors might earn revenue from rental income revenue for federal and local governments would likely be in the form of tax receipts from property or income taxes governments might also earn revenue from the sale of an asset or interest income from a bond charities and non profit organizations usually receive income from donations and grants universities could earn revenue from charging tuition but also from investment gains on their endowment fund | |
what is accrued and deferred revenue | accrued revenue is the revenue earned by a company for the delivery of goods or services that have yet to be paid by the customer in accrual accounting revenue is reported at the time a sales transaction takes place and may not necessarily represent cash in hand deferred or unearned revenue can be thought of as the opposite of accrued revenue in that unearned revenue accounts for money prepaid by a customer for goods or services that have yet to be delivered if a company has received prepayment for its goods it would recognize the revenue as unearned but would not recognize the revenue on its income statement until the period for which the goods or services were delivered the bottom linerevenue is the money an entity brings in from its normal business activities such as selling its products or services over a specified period of time such as a quarter or year it s the company s gross proceeds before subtracting any expenses and is reported on the top line of its income statement revenue is one of the many metrics investors look at when deciding whether to invest in a company growth stocks for example would be expected to rapidly grow their sales whereas defensive income stocks would be expected to report steady revenues for businesses in general the goal is to grow revenues while keeping the cost of production or service as low as possible | |
what is revenue | revenue is the money generated from normal business operations calculated as the average sales price times the number of units sold it is the top line or gross income figure from which costs are subtracted to determine net income revenue is also known as sales on the income statement investopedia matthew collinsunderstanding revenuerevenue is the money brought into a company from its business activities over a specified period of time such as a quarter or year before subtracting expenses there are different ways to calculate revenue depending on the accounting method employed accrual accounting will include sales made on credit as revenue for goods or services delivered to the customer under certain rules revenue is recognized even if payment has not yet been received 123cash accounting on the other hand will only count sales as revenue when payment is received cash paid to a company is known as a receipt it is possible to have receipts without revenue for example if the customer paid in advance for a service not yet rendered or undelivered goods this activity leads to a receipt but not revenue 1the financial accounting standards board s revenue from contracts with customers topic 606 is a regularly revised set of accounting rules that guide companies on how to report revenue the guidance requires an entity to recognize revenue in accordance with five steps it is necessary to check the cash flow statement to assess how efficiently a company collects money owed revenue is known as the top line because it appears first on a company s income statement net income also known as the bottom line is revenues minus expenses there is a profit when revenues exceed expenses to increase profit and hence earnings per share eps for its shareholders a company increases revenues and or reduces expenses investors often consider a company s revenue and net income separately to determine the health of a business net income can grow while revenues remain stagnant because of cost cutting such a situation does not bode well for a company s long term growth | |
when public companies report their quarterly earnings two figures that receive a lot of attention are revenues and eps a company beating or missing analysts revenue and earnings per share expectations can often move a stock s price | revenue may also be referred to as sales and is used in the price to sales p s ratio an alternative to the price to earnings p e ratio that uses revenue in the denominator types of revenuea company s revenue may be subdivided according to the divisions that generate it for example toyota motor corporation may classify revenue across each type of vehicle alternatively it can choose to group revenue by car type i e compact vs truck or geography a company may also distinguish revenue between tangible and intangible product lines for example apple may be interested in separately analyzing its physical products such as the ipad apple watch and iphone and services such as apple music apple tv or icloud revenue can also be divided into operating revenue sales from a company s core business and non operating revenue which is derived from secondary sources as these non operating revenue sources are often unpredictable or nonrecurring they can be referred to as one time events or gains for example proceeds from the sale of an asset a windfall from investments or money awarded through litigation are non operating revenue formula and calculation of revenuethe formula and calculation of revenue will vary across companies industries and sectors a service company will have a different formula than a retailer while a company that does not accept returns may have different calculations than companies with return periods broadly speaking the formula to calculate net revenue is net revenue quantity sold unit price discounts allowances returnsthe main component of revenue is the quantity sold multiplied by the price for a retailer this is the number of goods sold multiplied by the sales price the obvious constraint with this formula is that many companies have a diversified product line for example apple can sell a macbook iphone and ipad each for a different price therefore the net revenue formula should be calculated for each product or service then added together to get a company s total revenue there are several components that reduce revenue reported on a company s financial statements in accordance with accounting guidelines discounts on the price offered allowances awarded to customers or product returns are subtracted from the total amount collected note that some components i e discounts should only be subtracted if the unit price used in the earlier part of the formula is at market not discount price one entity s revenue is often another entity s expense for example your personal household expense of 1 000 to buy the latest smartphone is 1 000 revenue for the phone company example of revenuemicrosoft boasts a diversified product line that contributes many types of revenue the company defines its business in several different channels including as shown below microsoft reported revenue of 61 9 billion in the three months to march 31 2024 high level reporting requirements have microsoft s income statement being shown between product revenue and service other revenue 6add screenshotin supplementary reports microsoft further clarifies revenue sources for example if you scroll further down the financial statement you can see how much each division contributed to the 61 9 billion generated in the period revenue vs income profitmany entities may report both revenue and income profit these two terms are used to report different accumulations of numbers revenue is often the gross proceeds collected by an entity it is the measurement of only the income component of an entity s operations for a business revenue is all of the money it has earned income profit usually incorporates other facets of a business for example net income incorporates expenses such as cost of goods sold selling general and administrative expenses operating expenses depreciation interest taxes and other expenses while revenue is a gross amount focused just on the collection of proceeds income or profit reports the net proceeds special considerationsin the case of government revenue is the money received from taxation fees fines inter governmental grants or transfers securities sales mineral or resource rights as well as any sales made governments collect revenue from citizens within its district and collections from other government entities a nonprofit s revenues are its gross receipts its components include donations from individuals foundations and companies grants from government entities investments and or membership fees nonprofit revenue may be earned via fundraising events or unsolicited donations in terms of real estate investments revenue refers to the income generated by a property such as rent or parking fees when the operating expenses incurred in running the property are subtracted from property income the resulting value is net operating income noi vacant real estate technically does not earn any operating revenue though the owner of the property may be required to report fair market value adjustments that result in gains when externally reporting their finances | |
what does revenue in business mean | revenue is the money earned by a company obtained primarily from the sale of its products or services to customers there are specific accounting rules that dictate when how and why a company recognizes revenue for instance a company may receive cash from a client however a company may not be able to recognize revenue until they ve performed their part of the contractual obligation | |
are revenue and cash flow the same thing | no revenue is the money a company earns from the sale of its products and services cash flow is the net amount of cash being transferred into and out of a company revenue provides a measure of the effectiveness of a company s sales and marketing whereas cash flow is more of a liquidity indicator both revenue and cash flow should be analyzed together for a comprehensive review of a company s financial health | |
what is the difference between revenue and income | revenue and income are sometimes used interchangeably however these two terms do usually mean different things revenue is often used to measure the total amount of sales a company makes from its goods and services income is often used to incorporate expenses and report the net proceeds a company has earned | |
how does one generate and calculate revenue | for many companies revenues are generated from the sales of products or services for this reason revenue is sometimes known as gross sales revenue can also be earned via other sources inventors or entertainers may receive revenue from licensing patents or royalties real estate investors might earn revenue from rental income revenue for federal and local governments would likely be in the form of tax receipts from property or income taxes governments might also earn revenue from the sale of an asset or interest income from a bond charities and non profit organizations usually receive income from donations and grants universities could earn revenue from charging tuition but also from investment gains on their endowment fund | |
what is accrued and deferred revenue | accrued revenue is the revenue earned by a company for the delivery of goods or services that have yet to be paid by the customer in accrual accounting revenue is reported at the time a sales transaction takes place and may not necessarily represent cash in hand deferred or unearned revenue can be thought of as the opposite of accrued revenue in that unearned revenue accounts for money prepaid by a customer for goods or services that have yet to be delivered if a company has received prepayment for its goods it would recognize the revenue as unearned but would not recognize the revenue on its income statement until the period for which the goods or services were delivered the bottom linerevenue is the money an entity brings in from its normal business activities such as selling its products or services over a specified period of time such as a quarter or year it s the company s gross proceeds before subtracting any expenses and is reported on the top line of its income statement revenue is one of the many metrics investors look at when deciding whether to invest in a company growth stocks for example would be expected to rapidly grow their sales whereas defensive income stocks would be expected to report steady revenues for businesses in general the goal is to grow revenues while keeping the cost of production or service as low as possible | |
what is a revenue bond | a revenue bond is a category of municipal bond supported by the revenue from a specific project such as a toll bridge highway or local stadium revenue bonds that finance income producing projects are thus secured by a specified revenue source typically revenue bonds can be issued by any government agency or fund that is managed in the manner of a business such as entities having both operating revenues and expenses revenue bonds which are also called municipal revenue bonds differ from general obligation bonds go bonds that can be repaid through a variety of tax sources understanding revenue bondsa revenue bond repays creditors from income generated by the project that the bond itself is funding such as a toll road or bridge while a revenue bond is backed by a specific revenue stream holders of go bonds are relying on the full faith and credit of the issuing municipality typically since holders of revenue bonds can only rely on the specific project s income it has a higher risk than go bonds and pays a higher rate of interest broadly several types of revenue bonds are commonly issued by state and local governments structure of revenue bondstypically revenue bonds mature in 20 to 30 years and can be issued in various increments including 1 000 and 5 000 the value of the bond is called the bond s face value which is the amount paid to the investor or bondholder at the bond s maturity some revenue bonds have staggered maturity dates and do not mature at the same time these are known as serial bonds investors can purchase a revenue bond by paying the face value amount of the bond upfront and in return are paid interest over the life of the bond at the bond s maturity the face value amount is returned to the investor provided there was sufficient revenue from the project to pay back the bond if there is insufficient revenue generated from the project investors are at risk of losing their total investment for example if a revenue bond is issued to build a new toll road the tolls that are collected from motorists who drive on the road would be used to pay off the bond after the building expenses have been paid a primary reason for using revenue bonds is that they allow the municipality to avoid reaching legislated debt limits an agency that is run solely on tax dollars such as a public school cannot issue revenue bonds since these entities would be unable to pay off the bond using revenues from the specific project real life examplesst louis missouri engages in tax exempt revenue bond financing typical projects funded this way are multi family housing in which a minimum of 20 of the units are set aside for households meeting income guidelines publicly owned facilities pollution control facilities and various fixed assets such as land buildings the maturity of most of the issues is 20 to 30 years and interest earned is generally tax exempt from federal and most state income taxes this also allows the issuer to pay a lower interest rate 1new york s metropolitan transportation authority mta decided to offer green bonds in february 2016 the mta is using the 500 million of proceeds to pay for planned infrastructure renewal projects including upgrades on its railroads the bonds issued under mta s transportation revenue bond are backed by the agency s operating revenue and subsidies received from new york state 2 | |
what is a revenue cap regulation | revenue cap regulation seeks to limit the amount of total revenue that can be earned by a firm operating in an industry with no or few other competitors an industry such as this where one or a few companies control the entire production and sale of a good or service is known as a monopoly or a concentrated industry revenue cap regulation is a form of incentive regulation that uses rewards and penalties and allows producers some discretion to reach the desired outcome for society revenue cap regulation is common in the utility sector which includes many industries with monopolies sanctioned by a government or franchised monopoly industries | |
how revenue cap regulation works | governmental regulatory authorities impose revenue cap regulations on industries that have regulated monopolies such as gas water and electric utility producers because these industries supply essential services to the populace regulators seeking to balance the availability affordability and quality of the service with the costs incurred by producers to provide the service revenue cap regulation is similar to price cap regulation which seeks to control the prices companies can charge and rate of return regulation which seeks to control the rate of return earned by companies regulators can adjust revenue caps over time with adjustments typically based on a formula incorporating increases in inflation and a factor that favorably considers gains in efficiency inflation refers to the rate at which the value of money falls or occasionally rises over time as inflation rises revenue caps generally rise as well gains in efficiency in the usage or production of a utility over time are also encouraged by revenue cap regulation for example because revenue cap regulation determines a level of revenue per year that a firm can collect from its customer base producers have an incentive to encourage minimal demand per customer through the efficient use of energy since they will not make any revenue from excess demand beyond the regulated revenue cap gains in efficiency generally result in an increase in the revenue cap imposed on a company as well advantages and disadvantages of revenue cap regulationrevenue cap regulation can encourage improvements in efficiency both in production by the regulated company and by users of the utility they can also encourage a company to reduce its costs in order to maximize profit on the maximum revenue it is allowed to earn however revenue caps may also encourage firms to set prices above where they would be in an unregulated environment and they may discourage utility companies from adding customers regardless of the benefit to society | |
what is a revenue deficit | a revenue deficit occurs when realized net income is less than the projected net income this happens when the actual amount of revenue and the actual amount of expenditures do not correspond with budgeted revenue and expenditures this is the opposite of a revenue surplus which occurs when the actual amount of net income exceeds the projected amount understanding revenue deficita revenue deficit not to be confused with a fiscal deficit measures the difference between the projected amount of income and the actual amount of income if a business or government has a revenue deficit that means its income isn t enough to cover its basic operations when that happens it may make up for the revenue it needs to cover by borrowing money or selling existing assets to remedy a revenue deficit a government can choose to raise taxes or cut expenses similarly a company with a revenue deficit can make improvements by cutting variable costs such as materials and labor fixed costs are more difficult to adjust because most are established by contracts such as a building lease a revenue deficit is not indicative of a loss of revenue disadvantages of revenue deficitif not remedied a revenue deficit could adversely affect the credit rating of a government or business that s because consistently running a deficit could imply that a government is unable to meet its current and future recurring obligations it also implies that the government or business will have to disinvest or cover the shortage by borrowing running a revenue deficit places many planned government expenditures in jeopardy as there are not enough funds to cover the costs often a government with a revenue deficit is using savings allocated to other divisions of the economy for its expenditures example of revenue deficitcompany abc projects its revenue to be 100 million and expenditures to be 80 million for a projected net income of 20 million at the end of the year the company finds that its actual revenue is 85 million and its expenditures are 83 million for a realized net income of 2 million that resulted in a revenue deficit of 18 million the projections for both the expenditures and revenues were off which could negatively affect future operations and cash flows if the subject of this example were a government funding for required public expenditures such as for infrastructure and schools could be seriously compromised by identifying and employing cost cutting measures the company can avoid revenue deficits in the future it can explore more cost efficient ways of doing business such as finding suppliers who can supply materials at a lower cost or by vertically integrating processes along its supply chain the company can also invest in training its workforce to be more productive | |
how is a revenue deficit different from fiscal deficit | a revenue deficit records the difference between the projected amount of income and what the income actually was a fiscal deficit is when a government is spending beyond its means or there is a shortfall in income compared with spending | |
how is a revenue deficit calculated | you can calculate a business or government s revenue deficit by taking the total revenue expenditure and subtracting it from total revenue receipts | |
how can a revenue deficit be reduced | a business or government can remedy a revenue deficit by borrowing or raising money or by cutting expenses or selling assets the bottom linea revenue deficit represents the difference when projected revenue exceeds actual revenue revenue deficits can occur for a variety of reasons in business external factors can lead to lower than expected sales revenue governments might face revenue deficits when tax revenue falls short of projections | |
what is a revenue generating unit rgu | a revenue generating unit rgu is an individual service subscriber who generates recurring revenue for a company this is used as a performance measure for management analysts and investors rgus are tracked by telecom companies cable companies and other businesses that have a base of subscribers for a service rgu growth can occur organically or through acquisitions understanding revenue generating units rgus revenue generating units rgus are subscribers either individuals or businesses but most commonly applied to individuals who pay for monthly services such as mobile phones internet streaming services or cable tv rgus as a term has become interchangeable with customer relationships customers or simply subscribers where users are the units in question whatever a company decides to name them it compiles this data segments and analyzes rgu figures are often used to calculate average revenue per unit user arpu another key metric for the telecom and cable industries a company is interested in net additions to rgus it will analyze where rgus were added geographically and in which product lines the company will attempt to attribute these gains in subscribers to a particular marketing campaign or change in the competitive landscape similarly if there were rgu losses it would try to determine the reasons and take steps to address the attrition finding rgu dataliberty global group is a good example of a company that breaks down its rgu data its quarterly 10 q and annual 10 k filings contain rgu tables that segment cable service type voice video data mobile service type prepaid postpaid and by countries where the company operates net additions or losses of rgus are then discussed in the company s md a or management discussion and analysis 1average revenue per unit arpu the average revenue per unit is equivalent to total revenue divided by average units or users during a period the period end date is not the measure date for the denominator because the number of units can fluctuate intra period instead the beginning of the period and the end of the period numbers are typically averaged however the number of units or users may not remain constant throughout the standard time period it can vary somewhat from day to day as new users appear or old users cease to take advantage of a service therefore the number of units for a given period must be estimated in order to give the most accurate arpu figure possible for that period in order to accurately calculate arpu one must first define a standard time period most telephone and communications carriers for example calculate arpu on a month to month basis the total revenue generated during the standard time period should then be divided by the number of units or users | |
what is a revenue officer | a revenue officer is an employee of a government or a public agency who collects delinquent taxes or fees the job is performed on a case by case basis and generally involves directly contacting individuals or businesses that are in arrears on payments at the federal level revenue officers are employed by the internal revenue service irs in the united states and the canada revenue agency cra in canada state and local tax departments also employ revenue officers in some cases the job title may be tax collector 1in the u s revenue officers are not revenue agents the latter job title is held by auditors who review tax filings to identify any errors or discrepancies responsibilities of a revenue officerrevenue officers are primarily involved in collecting debts owed to the agencies for which they work their roles in the u s and in canada differ somewhat in canada excise tax revenue officers have audit advisory and legal roles in the u s the primary responsibility of revenue officers who work for the irs is collecting delinquent and overdue tax returns an irs revenue officer also a revenue officer with the irs may also file for extensions on the statutes of limitations for tax collection and initiate administrative and judicial action this position is often confused with that of a revenue agent who conducts audits of tax returns 2there have been reports of phone scammers claiming to be irs revenue officers the irs has a consumer site with regular updates on the latest tax related scams 3special considerationswhile they are government employees irs revenue officers do not carry firearms or have the authority to arrest taxpayers one of their primary duties is to help create a payment plan for collecting any unpaid taxes the officer may also seek an unannounced in person visit with the delinquent taxpayer this is known as a field audit the bureau of labor statistics bls groups together examiners collectors and revenue agents into one category in its occupational outlook handbook these professionals earned an average annual salary of 56 780 per year in 2021 that translates to 27 30 per hour the number of jobs in the field in 2021 totaled 55 300 job growth in this field is expected to decline by 7 by 2031 4revenue officers vs revenue agentswhile a revenue officer actually collects taxes revenue agents handle tax audits revenue officers for tax agencies cover the more difficult tax cases when the irs isn t able to collect by means of letters phone calls tax levies or garnishments they send revenue officers these officers have the authority to seize and sell assets to cover tax liabilities they can also approve or reject payment plans the role of a revenue agent is to determine tax liability via an audit the audit that agents carry out is also known as an examination as such these individuals work directly with taxpayers their representatives tax preparers and tax lawyers 5irs revenue officers carry two forms of official identification a pocket commission and a standardized federal identity credential known as an hspd 12 card 6frequently asked questions | |
how can i become a revenue officer | a bachelor s degree is required preferably with a concentration in mathematics statistics or economics | |
how much do revenue officers make | these professionals earned an average annual salary of 56 780 per year in 2021 this is a job in public service so substantial salary differences can be expected depending on the town city or state that is doing the hiring 7 | |
what is a chief revenue officer | a chief revenue officer cro is a senior executive in a corporation some companies appoint a chief revenue officer to oversee all revenue generating functions of the business they oversee the strategy for revenue generation over the long term the cro reports to the chief financial officer cfo this is a relatively new job title born in silicon valley to maximize revenue opportunities created by digital products and services it is particularly common in the software as a service saas industry | |
what is revenue passenger mile | a revenue passenger mile rpm is a transportation industry metric that shows the number of miles traveled by paying passengers and is typically an airline traffic statistic revenue passenger miles are calculated by multiplying the number of paying passengers by the distance traveled for example an airplane with 100 passengers that flies 250 miles has generated 25 000 rpm understanding revenue passenger milerevenue passenger miles are the backbone of most transportation metrics rpm is often compared to available seat miles asm a measure of an airplane s total carrying capacity available to generate income by dividing rpm by asm an airline can calculate load factors the load factor is a percentage indicating how effective the airline is at selling seats and earning revenue higher load factors obviously are desired because empty seats are an opportunity cost for an airline rpm is an asset utilization metric that calculates the rate of utilization or occupancy of the airplane by the travelers this metric overlooks the dollar amount factor that s because even if the load factor is high it will remain to be known what fare price is needed to determine the dollar amount of revenues the department of transportation s dot bureau of transportation statistics maintains datasets of aggregate rpm as well as asm for domestic and international flights for february 2021 domestic and international u s air carrier rpm was 26 5 billion against 49 5 billion asm which translated into a load factor of 0 53 rpm shows traffic volume but it goes hand in hand with asm to give airline management critical data about how many seats it must fill to achieve greater profitability 1airline rpm reportingairlines report rpm statistics on a monthly and year to date basis three of the largest u s carriers each had over 55 billion rpm in 2020 american airlines recorded 71 2 billion rpm delta airlines registered 61 2 billion rpm and united airlines had 57 1 billion rpm in conjunction with the asm data it was demonstrated that american was the most efficient in loading its fleet during the year american s load factor was 0 64 slightly higher than united s 0 60 and delta s 0 56 2rpm around the worldas more people take to the skies to travel within their own countries and to foreign lands rpm or rpk for countries on the metric system will only grow this is especially true for developing countries that are just beginning massive build outs of their airport infrastructure to keep pace with their economic growth rates this airline traffic statistic will help governments plan airport capacity and slots for individual airlines aircraft makers led by the duopoly of boeing and airbus keep an eye on the longer term trends in rpm to plan their future production of planes whether based in asia europe or latin america airline companies need to compile this key traffic volume statistic to assist in their forward business strategies to attract passengers in the intensely competitive market | |
what is revenue per available room revpar | revenue per available room revpar is a metric used in the hospitality industry to measure hotel performance the measurement is calculated by multiplying a hotel s average daily room rate adr by its occupancy rate revpar is also calculated by dividing a hotel s total room revenue by the total number of available rooms in the period being measured an increase in a property s revpar most likely indicates an improvement in occupancy rate understanding revenue per available room revpar revpar is a metric used in the hospitality industry to assess a property s ability to fill its available rooms at an average rate an increase in a property s revpar means that its average room rate or its occupancy rate is improving however an increase in revpar does not necessarily mean better performance revpar fails to consider the size of a hotel therefore revpar alone is not a good measure of overall performance a hotel may have a lower revpar but still have more rooms that earn higher revenues in addition certain larger rooms i e penthouses may overcompensate for lower quality rooms that are not being checked or are unavailable like other financial metrics revpar is best suited as a comparison tool a hotel can compare its own revpar statistics over time to see whether the metric fluctuates with seasons or changes due to consumer preference in addition revpar can be used to compare against other hotels in the area to get a better sense of how one hotel may be performing compared to other keep in mind that this financial performance is limited to just revenue and does not consider expenses it may be difficult to compare revpar with other hotels because the revenue and occupancy information may not be readily available therefore management must be prepared to set internal revpar targets | |
how to calculate revpar | there are two ways to calculate revpar first hotel management can take the total amount of room rent revenue and divide it by the total rooms available to have been rented note that the total rooms available includes rooms that were available but were not occupied for this calculation revpar total revenue number of rooms available begin aligned textbf revpar frac textbf total revenue textbf number of rooms available end aligned revpar number of rooms availabletotal revenue alternatively hotel management can calculate revpar by taking the average daily rate of revenue and multiply it by the occupancy rate this method is more appropriate and more accurate for fully occupied hotels with limited rooms that are unavailable as it is based on total occupancy not total availability revpar average daily rate occupancy rate begin aligned textbf revpar textbf average daily rate times textbf occupancy rate end aligned revpar average daily rate occupancy rate either formula returns a dollar amount that is theoretically lower than the actual actual daily rate as a hotel can not be or at least should not be occupied past 100 | |
how to improve revpar | increasing revpar means a hotel is earning more money for every room it has there are many ways hotel management can strive to make these improvements some hotels require a minimum stay should their rooms be booked by a third party i e expedia to compensate for the fees they ll need to pay the third party booking company the hotel can earn more money by requiring a longer stay alternatives to revparrevpar is a common metric useful in comparing figures across brands and locations however revpar does not use any profitability measures or information on profits focusing solely on revpar therefore can lead to declines in both revenue and profitability as it does not inform users of expenses many hotel managers prefer to use the average daily rate as a performance measure since it is among the main drivers of hotel occupancy therefore with accurately priced rooms the occupancy rate should increase and a property s revpar should also naturally increase properties may also opt for a similar but slightly different formula by only considering the occupied rooms and measuring revpor in addition there are several other per available room metrics used in the hotel industry total revenue per available room trevpar is similar to revpar however it also includes revenue earned by amenities such as spas pools entertainment areas and restaurants though trevpar faces the same downside as revpar by not considering expenses it also gives a greater holistic view about what revenue is earned for every available room calculation total revenue number of available rooms begin aligned textit calculation frac textit total revenue textit number of available rooms end aligned calculation number of available roomstotal revenue adjusted revenue per room factors in variable costs and variable revenue it manipulates average daily rate by subtracting the variable expenses such as the cleaning utility water internet tv and supplies expenses however arpar also factors in additional revenue such as room service that may otherwise be subtracted from revpar arpar starts to factor in expenses though it still omits many overhead costs needed to operate a hotel calculation adr vcpor arpor or where adr average daily rate vcpor variable cost per occupied room arpor additional revenue per occupied room or occupancy rate begin aligned textit calculation adr textit vcpor textit arpor times textit or textbf where text adr text average daily rate text vcpor text variable cost per occupied room text arpor text additional revenue per occupied room text or text occupancy rate end aligned calculation adr vcpor arpor orwhere adr average daily ratevcpor variable cost per occupied roomarpor additional revenue per occupied roomor occupancy rate gross operating profit per available room takes a larger view at an operating property by factoring in even more expenses especially those for rooms that are not occupied the downside to goppar is it may include expenses that are not controllable by hotel management calculation gross operating profit number of available rooms begin aligned textit calculation frac textit gross operating profit textit number of available rooms end aligned calculation number of available roomsgross operating profit revpar exampleimagine a hotel has a total of 150 rooms of which the average occupancy rate is 90 the average cost for a room is 100 a night a hotel wants to know its revpar so it can accurately assess its performance the hotel manager can calculate the revpar as follows 100 per night 90 occupancy rate 90 begin aligned 100 text per night times 90 text occupancy rate 90 end aligned 100 per night 90 occupancy rate 90 the hotel s revpar is therefore 90 00 per day to find the monthly or quarterly revpar multiply the daily revpar by the number of days in the desired period this calculation assumes all rooms are the same price the hotel manager can make key assessments and decisions regarding the hotel property based on the revpar the manager can see how well the hotel is filling its rooms and how wisely the average hotel room is priced with a 90 revpar but a 100 average room the hotel manager could reduce the average rate to 90 to help realize full capacity | |
what does revpar tell you | revpar is a metric used in the hospitality industry to assess a property s ability to fill its available rooms at an average rate an increase in a property s revpar means that its average room rate or its occupancy rate is improving since it tells you the revenue per available room whether it s occupied or not it can aid hoteliers in accurately pricing their rooms additionally revpar can form the basis for measuring properties against each other | |
where does revpar fail | an increase in revpar does not necessarily mean better performance so using this alone to measure overall performance might lead to inaccurate results also revpar fails to consider the size of a hotel a hotel may have a lower revpar but still have more rooms that earn higher revenues additionally growth in revpar does not mean that a hotel s profits are increasing this is because revpar does not use any profitability measures or information on profits | |
should revpar be high or low | for almost all hotels revpar should be higher as this indicates a company is earning more revenue per available room however there are several things to consider first even though the hotel may be able to charge more revpar does not consider expenses and a company may be better suited avoiding certain expenses and charging less second a hotel s revpar should be in line with its strategic plan and business motel hotels aiming to be budget friendly may want to have a fairly low revpar otherwise they ll be known for their higher prices and their operating model may have failed the bottom linethe hotel industry often utilizes revpar revenue per available room to gauge how a hotel s financial performance is going revpar does not measure a hotel s profitability and some hotels may want to be considerate of not having a revpar too high to best match consumer preferences revpar can be used to compare against competitors track over time or assess where the hotel can immediately improve operationally | |
what is revenue per available seat mile rasm | revenue per available seat mile rasm is a unit of measurement commonly used to compare the efficiency of various airlines it is obtained by dividing operating income by available seat miles asm generally the higher the rasm the more profitable the airline under question revenue is represented in cents and is not solely limited to ticket sales as other factors of efficiency and profitability are taken into account understanding revenue per available seat mile rasm revenue per available seat mile rasm is a term airlines use to describe and evaluate their financial performance revenue per available seat mile rasm is more encompassing than total revenue because it factors in all operating revenue in terms of capacity rather than just passenger revenue revenue per available seat mile rasm has been adopted as a favorite standard unit of measurement by most airlines and investment analysts that follow the airlines critics contend however that airlines like most businesses have traditionally favored the use of metrics that can cast them in the best possible light by explicitly including all sources of revenue rasm includes the myriad of revenue sources air carriers have experimented with including fees or charges for baggage seat selection food and drink and wi fi airlines list their rasm also referred to as operating unit revenue in their quarterly and annual financial statements calculating revenue per available seat mile rasm the rasm represents the total operating revenue per seat empty or full flown per mile in order to calculate their rasm for a given period an airline divides its total operating revenues by the available seat miles rasm total operating revenues available seat miles total operating revenue is the income the airline generates from its primary business activities this includes the money airlines make from selling tickets and money from seat upgrades baggage fees food and beverages and reservation change fees available seat miles asm measures the carrying capacity of an airplane that s available to generate revenue to calculate seat miles the airline multiplies the available seats on a plane by the number of miles that plane will fly per flight airlines include income derived from their normal everyday business operations in their rasm calculation and exclude one time operating adjustments or events such as the sale of company assets revenue per available seat mile rasm vs cost per available seat mile casm cost per available seat mile casm also known as unit cost or operating expenses per asm is another common metric airlines use to measure efficiency and performance casm is a measure of cost efficiency and represents the average cost to fly an aircraft seat either empty or ticketed one mile casm differs from rasm in a significant way while rasm focuses on revenues earned casm focuses on expenses impacting an airline s bottom line airlines include various operating costs in their casm calculation such as operating expenses maintenance expenses administration and overhead one criticism of casm is that some airlines exclude fuel costs in their calculation which then calls into question the accuracy of the metric to calculate casm the airlines divide their operating costs by the available seat miles the casm is measured in cents airlines generally report this metric on their quarterly and annual financial statements a low casm indicates the airline is efficient at managing its costs which could lead to higher profit margins this contrasts with rasm which measures the revenue or income the airline generates airlines aim for a high and growing rasm as a measurement of financial strength special considerationsrevenue per available seat mile rasm is an especially important metric for low cost airlines many of these airlines discount the cost of their basic fares significantly in order to attract customers very similar to the loss leader strategy common in retail sales the airlines know the revenue they generate from these basic fares will probably not be enough to maintain profitability instead the airline will need to become adept at upselling or enticing the customer to purchase additional items such as inflight entertainment meals and beverages because rasm includes these forms of revenue it s an important metric in tracking an airline s financial performance | |
what is revenue per employee | revenue per employee calculated as a company s total revenue divided by its current number of employees is an important ratio that roughly measures how much money each employee generates for the firm the revenue per employee ratio is most useful when looking at historical changes in a company s own ratio or when comparing it against that of other companies in the same industry as part of a fundamental analysis | |
how revenue per employee works | revenue per employee is a meaningful analytical tool because it measures how efficiently a particular firm utilizes its employees ideally a company wants the highest ratio of revenue per employee possible because a higher ratio indicates greater productivity revenue per employee also suggests that a company is using its resources in this case its investment in human capital wisely by developing workers who are very productive companies with high revenue per employee ratios are often profitable some analysts use a variation of the revenue per employee ratio in this ratio they replace revenue with net income a ratio similar to revenue per employee is sales per employee which is calculated by dividing a company s annual sales by its total employees factors affecting the ratio of revenue per employeebecause labor demand varies from industry to industry it is most meaningful to compare a business s revenue per employee with that of other companies in its industry especially with its direct competitors this ratio has little value out of context traditional banking for example requires many employees to staff brick and mortar locations and answer customer questions this contrasts with online banks which conduct business on the internet and have no need to staff physical locations with employees thus a banker would want to compare its company s revenue per employee ratio with that of similar types of banking institutions companies in labor intensive industries like agriculture and hospitality typically have lower revenue per employee ratios than companies that require less labor revenue per employee is affected by a company s employee turnover rate where turnover is defined as the percentage of the total workforce that leaves voluntarily or is fired each year and must be replaced turnover is different from employee attrition which refers to workers who retire or whose jobs are eliminated because of downsizing employee turnover typically requires a company to interview hire and train new workers during these onboarding processes companies frequently become less productive because existing workers may need to mentor a new employee and share part of the workload the company s expenses also often grow during the onboarding process as they bring in outside experts pay for special courses or training seminars and pay employees to spend more time at work even though they are being less productive startup companies that are hiring to fill key positions might still have relatively small revenue such firms tend to have lower revenue per employee ratios than more established companies that can leverage hiring for those same key positions over a larger revenue base if a growing company needs to take on more help management would ideally be able to grow its revenue at a faster rate than its labor costs which often is reflected in steadily rising revenue per employee ratios ultimately increased efficiency in managing its revenue per employee should lead to a company s expanding margins and improved profitability special considerationsinvestors interested in calculating a company s revenue per employee can find the required revenue and employee numbers in the company s financial statements and annual reports the ratio itself is easy to calculate and comparing revenue per employee between different companies is a fairly straightforward process in general companies with higher revenue per employee numbers operate streamlined and efficient organizations have lower overhead costs and are more productive than their competitors there are several other ratios an investor should also consider when analyzing a company as a potential investment investors should review a company s profitability ratios such as profit margin return on assets roa and return on equity roe | |
what is revenue recognition | revenue recognition is a generally accepted accounting principle gaap that identifies the specific conditions in which revenue is recognized and determines how to account for it revenue is typically recognized when a critical event has occurred when a product or service has been delivered to a customer and the dollar amount is easily measurable to the company investopedia michela buttignolunderstanding revenue recognitionrevenue is at the heart of all business performance regulators know how tempting it is for companies to push the limits on what qualifies as revenue especially when not all revenue is collected when the work is complete for example attorneys charge their clients in billable hours and present the invoice after work is completed construction managers often bill clients on a percentage of completion method the revenue recognition principle a feature of accrual accounting requires that revenues are recognized on the income statement in the period when realized and earned not necessarily when cash is received the revenue generating activity must be fully or essentially complete for it to be included in revenue during the respective accounting period also there must be a reasonable level of certainty that earned revenue payment will be received lastly according to the matching principle the revenue and its associated costs must be reported in the same accounting period the revenue recognition principle of asc 606 requires that revenue is recognized when the delivery of promised goods or services matches the amount expected by the company in exchange for the goods or services 1accounting for revenuerevenue accounting is fairly straightforward when a product is sold and the revenue is recognized when the customer pays for the product however accounting for revenue can get complicated when a company takes a long time to produce a product as a result there are several situations in which there can be exceptions to the revenue recognition principle analysts therefore prefer that the revenue recognition policies for one company are also standard for the entire industry having a standard revenue recognition guideline helps to ensure that an apples to apples comparison can be made between companies when reviewing line items on the income statement revenue recognition principles within a company should remain constant over time as well so historical financials can be analyzed and reviewed for seasonal trends or inconsistencies accounting standards codification asc 606on may 28 2014 the financial accounting standards board fasb and international accounting standards board iasb jointly issued accounting standards codification asc 606 this highlights how revenue from contracts with customers is treated providing a uniform framework for recognizing revenue from this source 2the old guidance was industry specific which created a system of fragmented policies the updated revenue recognition standard is industry neutral and therefore more transparent it allows for improved comparability of financial statements with standardized revenue recognition practices across multiple industries 2there are five steps needed to satisfy the updated revenue recognition principle ifrs reporting criteriathere are certain conditions that businesses must meet as per ifrs requirements according to the ifrs these requirements fall into three different categories that are needed for contracts to exist the table below highlights each one 4performance indicates the seller has fulfilled a majority of their expectations in order to get payment collectability refers to the seller s expectation to be paid measurability on the other hand relates to the matching principle wherein the seller can match the expenses with the money earned from the transaction gaap revenue recognition principlesgenerally accepted accounting principles require that revenues are recognized according to the revenue recognition principle which is a feature of accrual accounting this means that revenue is recognized on the income statement in the period when realized and earned not necessarily when cash is received the revenue generating activity must be fully or essentially complete for it to be included in revenue during the respective accounting period also there must be a reasonable level of certainty that earned revenue payment will be received lastly according to the matching principle the revenue and its associated costs must be reported in the same accounting period | |
do all businesses need to follow revenue recognition principles | revenue recognition is generally required of all public companies in the u s according to generally accepted accounting principles the requirements for tend to vary based on jurisdiction for other companies in many cases it is not necessary for small businesses as they are not bound by gaap accounting unless they intend to go public | |
why is revenue recognition important | public companies are required to report their financial statements based on gaap accounting revenue recognition is one of the principles associated with gaap reporting this principle means that revenue must be recognized at the moment it is earned this is an important consideration for two reasons not only does it prevent companies from cooking their books but it also provides an accurate picture of the financial health of a corporation | |
what is needed to satisfy the revenue recognition principle | the five steps needed to satisfy the updated revenue recognition principle are 1 identify the contract with the customer 2 identify contractual performance obligations 3 determine the amount of consideration price for the transaction 4 allocate the determined amount of consideration price to the contractual obligations and 5 recognize revenue when the performing party satisfies the performance obligation 3the bottom linerevenue is a key metric for any business certain businesses must abide by regulations when it comes to the way they account for and report their revenue streams public companies in the u s must abide by generally accepted accounting principles which sets out principles for revenue recognition this prevents anyone from falsifying records and paints a more accurate portrait of a company s financial situation | |
what is a reversal | a reversal is a change in the price direction of an asset a reversal can occur to the upside or downside following an uptrend a reversal would be to the downside following a downtrend a reversal would be to the upside reversals are based on overall price direction and are not typically based on one or two periods bars on a chart certain indicators such a moving average oscillator or channel may help in isolating trends as well as spotting reversals reversals may be compared with breakouts | |
what does a reversal tell you | reversals often occur in intraday trading and happen rather quickly but they also occur over days weeks and years reversals occur in different time frames which are relevant to different traders an intraday reversal on a five minute chart doesn t matter to a long term investor who is watching for a reversal on daily or weekly charts yet the five minute reversal is very important to a day trader an uptrend which is a series of higher swing highs and higher lows reverses into a downtrend by changing to a series of lower highs and lower lows a downtrend which is a series of lower highs and lower lows reverses into an uptrend by changing to a series of higher highs and higher lows trends and reversals can be identified based on price action alone as described above or other traders prefer the use of indicators moving averages may aid in spotting both the trend and reversals if the price is above a rising moving average then the trend is up but when the price drops below the moving average that could signal a potential price reversal trendlines are also used to spot reversals since an uptrend makes higher lows a trendline can be drawn along those higher lows when the price drops below the trendline that could indicate a trend reversal if reversals were easy to spot and to differentiate from noise or brief pullbacks trading would be easy but it isn t whether using price action or indicators many false signals occur and sometimes reversals happen so quickly that traders aren t able to act quickly enough to avoid a large loss example of how to use a reversalthe chart shows an uptrend moving with a channel making overall higher highs and higher lows the price first breaks out of the channel and below the trendline signaling a possible trend change the price then also makes a lower low dropping below the prior low within the channel this further confirms the reversal to the downside the price then continues lower making lower lows and lower highs a reversal to the upside won t occur until the price makes a higher high and higher low a move above the descending trendline though could issue an early warning sign of a reversal referring to the rising channel the example also highlights the subjectivity of trend analysis and reversals several times within the channel the price makes a lower low relative to a prior swing and yet the overall trajectory remained up difference between a reversal and a pullbacka reversal is a trend change in the price of an asset a pullback is a counter move within a trend that doesn t reverse the trend an uptrend is created by higher swing highs and higher swing lows pullbacks create the higher lows therefore a reversal of the uptrend doesn t occur until the price makes a lower low on the time frame the trader is watching reversals always start as potential pullbacks which one it will ultimately turn out to be is unknown when it starts limitations in using reversalsreversals are a fact of life in the financial markets prices always reverse at some point and will have multiple upside and downside reversals over time ignoring reversals may result in taking more risk than anticipated for example a trader believes that a stock which has moved from 4 to 5 is well positioned to become much more valuable they rode the trend higher but now the stock is dropping to 4 3 then 2 reversal signs were likely evident well before the stock reached 2 likely they were visible at before the price reached 4 therefore by watching for reversals the trader could have locked in profit or kept themselves out of a now losing position | |
when a reversal starts it isn t clear whether it is a reversal or a pullback once it is evident it is a reversal the price may have already moved a significant distance resulting in a sizable loss or profit erosion for the trader for this reason trend traders often exit while the price is still moving in their direction that way they don t need to worry about whether the counter trend move is a pullback or reversal | false signals are also a reality a reversal may occur using an indicator or price action but then the price immediately resumes to move in the prior trending direction again | |
what is a reverse auction | a reverse auction is a type of auction in which sellers bid for the prices at which they are willing to sell their goods and services it is the opposite of a regular auction where a seller puts up an item and buyers place bids until the close of the auction at which time the item goes to the highest bidder understanding a reverse auctionin a reverse auction the buyer puts up a request for a required good or service sellers then place bids for the amount they are willing to be paid for the good or service with the winner being the seller prepared to accept the lowest amount reverse auctions gained popularity with the emergence of internet based online auction tools that enabled multiple sellers to connect with a buyer on a real time basis today reverse auctions are used by large corporations and government entities as a competitive procurement method for raw materials supplies and services like accounting and customer service image by sabrina jiang investopedia 2020example of a reverse auctionbidding for government contracts is an example of reverse auctions in this type of auction governments specify requirements for the project and bidders which are approved contractors come up with a cost structure to finish the project for instance when the u s department of defense dod has a need for a certain service or good such as say 50 fighter jets it posts a message reaching out to potential suppliers in this message the dod outlines what it needs and by when and invites interested contractors to submit price proposals within a set time frame the winner is generally the party willing to do the job specified for less 12reverse auctions are a way for companies and governments to invite competition and push down the price for a good or service that they need caveats of a reverse auctionit is important to note that the reverse auction does not work for every good or service goods and services that can be provided by only a few sellers are not necessarily ideal for reverse auctions in other words a reverse auction works only when there are many sellers that offer similar goods and services to ensure the integrity of a competitive process in addition there could be a tendency to focus on the lowest bids by sellers with less regard for the quality of the goods or services the adage cheap for a reason has the potential to apply in such instances where a buyer suffers from the suboptimal quality of the lowest priced set of goods or services purchased through a reverse auction last but not least a buyer must be thorough in communicating all of the specifications to the auction participants a failure to do so could leave the purchaser with a winning bid that does not capture all of the sought after attributes | |
how does a reverse auction work | in a reverse auction a buyer puts out a request for a specific good or service inviting businesses to compete against each other with bids for the amount they are willing to accept to deliver what is being requested by the specified time line in the end the contract goes to the seller prepared to accept the lowest amount | |
what are the benefits of a reverse auction | reverse auctions help buyers to lower purchase costs through increased competition and avoid having to individually negotiate with several different suppliers | |
when should you hold a reverse auction | reverse auctions generally work best when there are many sellers in the market and price is a key factor | |
what is the difference between a forward auction and a reverse auction | forward auctions are the opposite of a reverse auction in a forward auction the auction is initiated by the seller and the buyers bid the price up the bottom linereverse auctions can make a lot of sense when there are many sellers in the market and price is the most important factor they save time and money which is no small thing for a business although sometimes this can come at the cost of sacrificing quality detailed contract specifications should rule out suboptimal quality goods and services winning bids however depending on the good or service in question sometimes it is better and generally more efficient over the long run to pay a little more for greater quality the old adages you get what you pay for and cheap for a reason apply here for some goods and services this may not be an issue for others it is a game changer | |
what is reverse culture shock | reverse culture shock is the emotional and psychological distress suffered by some people when they return home after a number of years overseas this can result in unexpected difficulty in readjusting to the culture and values of the home country now that the previously familiar has become unfamiliar in a business context the advent of globalization has resulted in more and more employees being sent on lengthy assignments to other countries with the number of expatriates who live and work in countries other than their own having increased in recent years reverse culture shock is a phenomenon that is on the rise understanding reverse culture shockthe degree of reverse culture shock may be directly proportional to the length of time spent overseas the longer the time spent abroad the greater the shock factor upon the eventual return home another factor that may influence the magnitude of reverse culture shock is the extent of the difference in cultures between the expatriate s home country and the foreign country if personal contacts back home express disinterest in hearing about the new experiences of the individual who is overseas it may widen the divide between them which can lead to reverse culture shock | |
how reverse culture shock may occur | as an individual spends time overseas and gets more acclimated with their surroundings they may grow more accustomed to the local norms than what they experienced at home for instance it is a local custom to remove one s shoes before entering a residence in numerous cultures adapting to such a custom may create a habit that is hard to break upon a return home there may be a change in the pace of work and leisure that is initially disruptive to the lifestyle then later becomes part of their new routine this interchange in lifestyles may cause the traveler to put their native behavior and customs under scrutiny on a psychological and interpersonal level the degree of reverse culture shock may be increased or lessened by the amount of communication that is maintained with family friends or coworkers in their home country if there is little regular dialogue between the parties it may be easier to detach from the customs and demeanor of the home nation in favor of the new culture episodes of reverse culture shock typically are less severe for individuals who have traveled overseas and returned home more frequently and developed a perspective on interacting with other cultures | |
what is a reverse ico | a reverse initial coin offering ico is a method used by existing established real world businesses to issue a token to decentralize the business ecosystem raise funds and get into cryptocurrency these enterprises have existing products and services and they cater to real world customers essentially a reverse ico acts like an initial public offering ipo allowing an existing enterprise to launch cryptocurrency tokens and seek funds through crowdsourcing in the last several years this similarity has prompted the u s securities and exchange commission sec to argue that token issues through icos may be securities and not currencies 1understanding reverse icosthe process for a reverse ico works exactly the same way as for a standard ico often a company launches an ico when it is looking to secure funding the company generates crowdsourced funding by selling tokens to investors in a similar way to an ipo the major difference between an ico and a reverse ico is that in the latter case the company issuing the token is already well established in another business area and offers a crypto token for sale to raise cash and enter into the decentralized realm of the digital currency world companies can launch reverse icos for a variety of reasons preexisting companies can sell tokens to interested investors to decentralize business to launch a new business line in the blockchain industry or simply to raise funds because some ipos are available only to accredited investors they have a smaller pool of potential funders compared with a reverse ico 2potential issues with reverse icoswhile there are numerous potential benefits for a business launching a reverse ico there are also potential issues some of them significant the use of reverse ico tokens as money is somewhat dubious as businesses conducting reverse icos were able to grow and thrive using conventional fiat currency the possibility that every business would ask you to convert your fiat money into their proprietary token as if you were required to load up your starbucks gift card before you were permitted to buy a cup of coffee is not practical to put it generously another problem with reverse icos is how to understand their tokens are they a medium of exchange or are they securities this was the problem that the kik messaging app had when it launched a reverse ico in 2017 that raised 100 million the sec sued kik over the process alleging that the company sold tokens to u s investors without properly registering the offer and sale 3the sec sued kik claiming that it misled investors because their reverse ico was actually just another form of security like a stock but unlike a stock there is no return on investment in kik s coin kin 4in 2020 a federal district court entered a final judgment on the sec s lawsuit against kik among other penalties kik was required to pay a 5 million penalty 5the sec filed a suit against kik interactive over the latter s reverse ico of the kin token the suit alleged that kik sold tokens without properly registering the sale of securities this suit may have deterred other companies from launching reverse icos reverse icos a fad during the crypto bubbleduring the height of the crypto bubble in 2017 and 2018 companies that said they were adding blockchain to their businesses increased in value a notorious example from early 2018 is long island iced tea corp which changed its name to long island blockchain and saw a huge spike in the value of its shares that were listed on the nasdaq despite the fact that the company had no apparent business in blockchain it has since been delisted and some of its top shareholders have been charged with insider trading 6because existing businesses face regulatory hurdles if they want to raise capital by selling stock and because banks often have stringent requirements that businesses prove their good credit and viability the reverse ico seemed like an easy unregulated way to raise money with few strings and no oversight the temptation to do so was even stronger when parody coins like ponzicoin which openly warned investors that the ico was a scam still made an estimated 250 000 78the sec went so far as to create a fake ico page selling a made up shitcoin called howeycoin a play on the howey test that the sec uses to determine what constitutes a security to teach unwary investors to read the fine print before they invest 9 the agency s suit against kik may be one reason why the reverse ico market has dried up since the bursting of the crypto bubble the future of reverse icosthe possibility of a reverse ico isn t totally dead however the meta reverse ico proposal for its libra token ran into resistance from states and central banks when it was announced in 2019 and as of 2022 the libra project later renamed diem and sold to silvergate bank appeared to have been postponed indefinitely 10other organizations may also find value in creating a blockchain based token system that doesn t appear to be an illegal or legally gray attempt to dodge securities regulation but the appeal of reverse icos as they existed in 2017 has largely worn off | |
what is a reverse ico | a reverse ico refers to the launch and sale of a cryptocurrency token by a preexisting company reverse icos can be used to generate funds for the company to facilitate decentralizing through a new crypto token or to expand into the blockchain and cryptocurrency industries | |
how does a reverse ico differ from a regular ico | a reverse ico and an ico are essentially quite similar both involve the launch and sale of a new cryptocurrency token the company launching the token is what distinguishes these two events a company launching an ico is typically just starting out while one putting on a reverse ico is usually well established and looking for additional funds or a new business line | |
what are some issues with reverse icos | reverse icos can be fraught with potential legal troubles the sec has said that reverse icos may constitute the sale of securities and that proper registration is required during the height of the cryptocurrency craze some companies used reverse icos or investor interest in blockchain more broadly to generate quick funding without necessarily providing an apparent business service relating to the crypto industry for these reasons among others reverse icos have become significantly less popular in recent years | |
what is a reverse morris trust | a reverse morris trust rmt is a tax optimization strategy in which one company that wishes to sell assets to another company can do so without paying taxes on any gains made from the disposal the rmt requires that a parent company first spin off a subsidiary or other unwanted asset into a separate company this entity is then merged with a firm that is interested in acquiring the asset | |
how a reverse morris trust works | rmts originated as a result of a 1966 ruling in a lawsuit against the internal revenue service irs which created a tax loophole to avoid taxes when selling unwanted assets 1the rmt starts with a parent company that decides to divest itself of certain assets it no longer desires it seeks to sell these assets to a third party company the parent company either has an existing wholly owned subsidiary or creates one it transfers the assets to the subsidiary it then spins off or splits off the subsidiary next that subsidiary and the third party company merge to create an unrelated company the unrelated company then issues shares to the original parent company s shareholders the parent company can also receive debt securities and cash from the transaction if those shareholders control at least 50 1 of the voting right and economic value in the unrelated company the rmt is complete the parent company has effectively transferred the assets tax free to the third party company tax savingsthe rmt transaction provides a company and its shareholders with the opportunity to divest specific assets without receiving a tax bill as part of the transaction the company can receive cash and reduce its debt with no consequential capital gains tax a key tax avoidance feature of the rmt is that after the formation of the merged and unrelated company stockholders of the original parent company must own at least 50 1 of the shares and voting rights of the merged firm this makes the rmt only attractive for third party companies that are about the same size or smaller than the spun off subsidiary to qualify for tax free treatment the transaction must meet the requirements set forth by irc section 355 2the difference between a morris trust and a reverse morris trust is that with the former the parent company merges directly with the target company and no subsidiary is used benefits of a reverse morris trustexamples of a reverse morris trust a telecom company wishes to sell old landlines to smaller companies in rural areas because it doesn t want to spend the time or resources required to upgrade those lines to broadband or fiber optic lines in 2007 verizon communications announced a planned sale of certain landline operations in the northeast to fairpoint communications to meet the tax free transaction qualification verizon transferred unwanted landline operation assets to a separate subsidiary and distributed its shares to its existing shareholders 3verizon then completed the rmt transaction with fairpoint that gave the original verizon shareholders a majority stake in the newly merged company and fairpoint s original management the green light to run the newly formed business 3 lockheed martin divested its information systems global solutions isgs business segment in 2016 like verizon it used the rmt by forming a new offshoot company that then merged with leidos holdings a defense and information technology company 4leidos holdings paid a 1 8 billion cash payment while lockheed martin reduced approximately 3 of its outstanding common shares lockheed martin stockholders involved in the transaction then owned a 50 5 stake in leidos overall the transaction was valued at an estimated 4 6 billion 4 | |
how does a reverse morris trust work | a reverse morris trust is a strategic way to divest a division tax free provided that all legal requirements are met under irs section 355 to use a reverse morris trust a company will create a subsidiary or use an existing one for this division then merge it with another company importantly shareholders of the parent company must own over 50 of the newly created company | |
are reverse morris trusts commonly used | only a few reverse morris trusts are used each year part of the reason for this is that certain irs requirements apply to rmts such as only certain companies can apply and they must have generated positive income in the five years prior to the transaction the bottom linea reverse morris trust is a transaction in which one company sells off unwanted assets by transferring them to a subsidiary and immediately merging that subsidiary with a third party company that wants to buy it the parent company and its shareholders incur no federal income tax liability as a result the rmt offers a tax efficient way to create value for shareholders of the parent company as well as the third party company | |
what is a reverse repurchase agreement rrp | a reverse repurchase agreement rrp or reverse repo is the sale of securities with the agreement to repurchase them at a higher price at a specific future date a reverse repo refers to the seller side of a repurchase agreement rp or repo these transactions which often occur between two banks are essentially collateralized loans the difference between the original purchase price and the buyback price along with the timing of the transaction often overnight equates to interest paid by the seller to the buyer the reverse repo is the final step in the repurchase agreement closing the contract | |
how reverse repurchase agreements rrps work | repos are classified as a money market instrument and they are usually used to raise short term capital reverse repurchase agreements rrps or reverse repos are the seller end of a repurchase agreement these financial instruments are also called collateralized loans buy sell back loans and sell buy back loans reverse repos are commonly used by businesses like lending institutions or investors to access short term capital when facing cash flow issues in essence the borrower sells a business asset equipment or even shares in its company then at a set future time the lender sells the asset back for a higher price the higher price represents the interest to the buyer for loaning money to the seller during the duration of the deal the asset acquired by the buyer acts as collateral against any default risk that it faces from the seller short term rrps hold smaller collateral risks than long term rrps because over the long term assets held as collateral can often depreciate in value causing collateral risk for the buyer in a macro example of rrps the federal reserve bank uses repos and rrps to provide stability in lending markets through open market operations omos the rrp transaction is used less often than a repo by the fed as a repo puts money into the banking system when it is short whereas an rrp borrows money from the system when there is too much liquidity the fed conducts rrps to maintain long term monetary policy and control capital liquidity levels in the market part of the business of repos and rrps is growing with third party collateral management operators providing services to develop rrps to provide quick funding to businesses in need as quality collateral is sometimes difficult to find businesses are taking advantage of their assets as a quality way to fund expansion and equipment acquisition through the use of tri party rrps resulting in repo agreement opportunities for investors this industry is known as collateral management optimization and efficiency reverse repurchase agreements vs buy or sell backsan rrp differs from buy or sell backs in a simple way buy or sell back agreements legally document each transaction separately providing clear separation in each transaction in this way each transaction can legally stand on its own without the enforcement of the other rrps on the other hand have each phase of the agreement legally documented within the same contract and ensure the availability and right to each phase of the agreement lastly in an rrp although collateral is in essence purchased the collateral generally never changes physical location or actual ownership if the seller defaults against the buyer then the collateral would need to be physically transferred repos and reverse repos are two sides of the same coin reflecting the role of each party in the transaction repo refers to the buyer side of a repurchase agreement while reverse repo refers to the seller side example of reverse repurchase agreementslet s say bank abc currently has excess cash reserves and it is looking to put some of that money to work meanwhile bank xyz is facing a reserve shortfall and needs a temporary cash boost bank xyz may enter a reverse repo agreement with bank abc agreeing to sell securities for the other bank to hold overnight before buying them back at a slightly higher price from the perspective of bank abc which buys the securities and agrees to sell them back at a premium the next day the transaction is a repurchase agreement | |
how does a reverse repurchase agreement work | in a reverse repurchase agreement rrp or reverse repo a party sells securities to a counterparty with the stipulation that it will buy them back at a slightly higher price the agreement functions much like a collateralized loan the original seller engaging in a reverse repurchase agreement receives an infusion of cash while the original buyer engaging in a repurchase repo agreement essentially provides a loan and earns interest from the higher resale price in general the assets that serve as collateral for the transaction do not physically change hands | |
what is the benefit of a reverse repo | in a reverse repo a party in need of cash reserves temporarily sells a business asset equipment or even shares in another company with the stipulation that it will buy the assets back at a premium like other types of lenders the buyer of the assets in a repo agreement earns money for providing a cash boost to the seller and the underlying collateral reduces the risk of the transaction | |
when the federal reserve uses a reverse repo the central bank initially sells securities and agrees to buy them back later in these cases the fed borrows money from the market which it may do when there is too much liquidity in the system regular repurchase agreements repos in which the fed plays the role of the lender by buying securities and then selling them back are a more common central bank measure to inject additional reserve balances into the banking system the fed is not the only central bank to use this liquidity maintaining method the reserve bank of india also uses repos and reverse repos as they work to stabilize the economy through the liquidity adjustment facility | the bottom linea reverse repurchase agreement rrp or reverse repo refers to the seller side of a repurchase agreement repo the party executing the reverse repo sells assets to the other party while agreeing to buy them back later at a slightly higher price from a practical perspective a reverse repo agreement is akin to taking out a short term loan with the underlying assets serving as collateral | |
what is a reverse stock split | a reverse stock split is a type of corporate action that consolidates the number of existing shares of stock into fewer higher priced shares a reverse stock split divides the existing total quantity of shares by a number such as five or 10 which would then be called a 1 for 5 or 1 for 10 reverse split respectively a reverse stock split also is known as a stock consolidation stock merge or share rollback and is the opposite of a stock split where a share is divided split into multiple parts ryan oakley investopediaunderstanding reverse stock splitsdepending on market developments and situations companies can take several actions at the corporate level that may impact their capital structure one of these is a reverse stock split whereby existing shares of corporate stock are effectively merged to create a smaller number of proportionally more valuable shares since companies don t create any value by decreasing the number of shares the price per share increases proportionally per share price bumping is the primary reason why companies opt for reverse stock splits and the associated ratios may range from 1 for 2 to as high as 1 for 100 reverse stock splits do not impact a corporation s value although they usually are a result of its stock having shed substantial value the negative connotation associated with such an act is often self defeating as the stock is subject to renewed selling pressure reverse stock splits are proposed by company management and are subject to consent from the shareholders through their voting rights advantages and disadvantages of reverse stock splitsthere are several reasons why a company may decide to reduce its number of outstanding shares in the market some of which are advantageous prevent major exchange removal a share price may have tumbled to record low levels which might make it vulnerable to further market pressure and other untoward developments such as a failure to fulfill the exchange listing requirements an exchange generally specifies a minimum bid price for a stock to be listed if the stock falls below this bid price and remains lower than that threshold level over a certain period it risks being delisted from the exchange for example nasdaq may delist a stock that is consistently trading below 1 per share 1 removal from a national level exchange relegates the company s shares to penny stock status forcing them to list on the pink sheets once placed in these alternative marketplaces for low value stocks the shares become harder to buy and sell attract big investors companies also maintain higher share prices through reverse stock splits because many institutional investors and mutual funds have policies against taking positions in a stock whose price is below a minimum value even if a company remains free of delisting risk by the exchange its failure to qualify for purchase by such large sized investors mars its trading liquidity and reputation satisfy regulators in different jurisdictions around the globe a company s regulation depends upon the number of shareholders among other factors by reducing the number of shares companies at times aim to lower the number of shareholders to come under the purview of their preferred regulator or preferred set of laws companies that want to go private may also attempt to reduce the number of shareholders through such measures boost spinoff prices companies planning to create and float a spinoff an independent company constructed through the sale or distribution of new shares of an existing business or division of a parent company might also use reverse splits to gain attractive prices for example if shares of a company planning a spinoff are trading at lower levels it may be difficult for it to price its spinoff company shares at a higher price this issue could potentially be remedied by reverse splitting the shares and increasing how much each of their shares trades for generally a reverse stock split is not perceived positively by market participants it indicates that the stock price has gone to the bottom and that the company management is attempting to inflate the prices artificially without any real business proposition additionally the liquidity of the stock also may take a toll with the number of shares getting reduced in the open market example of a reverse stock splitsay a pharmaceutical company has 10 million outstanding shares in the market which are trading for 5 per share as the share price is lower the company management may wish to artificially inflate the per share price it decides to go for the 1 for 5 reverse stock split which essentially means merging five existing shares into one new share once the corporate action exercise is over the company will have two million new shares 10 million 5 with each share now costing 25 each 5 5 the proportionate change in share price also supports the fact that the company has not created any real value simply by performing the reverse stock split its overall value represented by market capitalization before and after the corporate action should remain the same the previous market cap is the earlier number of total shares times the earlier price per share which is 50 million 5 10 million the market cap following the stock merger is the new number of total shares times the new price per share which is also 50 million 25 2 million the factor by which the company s management decides to go for the reverse stock split becomes the multiple by which the market automatically adjusts the share price in 2002 the largest telecommunications company in the united states at t inc t performed a 1 for 5 reverse stock split in conjunction with plans of spinning off its cable tv division and merging it with comcast corp cmcsa the corporate action was planned as at t feared that the spinoff could lead to a significant decline in its share price and could impact liquidity business and its ability to raise capital 2other regular instances of reverse stock splits include many small often non profitable companies involved in research and development r d which do not have any profit making or marketable product or service in such cases companies undergo this corporate action simply to maintain their listing on a premier stock exchange | |
why would a company undergo a reverse stock split | reverse splits are usually done when the share price falls too low putting it at risk for delisting from an exchange for not meeting certain minimum price requirements having a higher share price can also attract certain investors who would not consider penny stocks for their portfolios | |
what happens if i own shares that undergo a reverse stock split | with a reverse split shareholders of record will see the number of shares they own be reduced but also see the price of each share increase in a comparable manner for instance in a 1 10 reverse stock split if you owned 1 000 shares that were trading at 5 just before the split you would then own 100 shares at 50 each your broker would handle this automatically so there is nothing you need to do a reverse split will not affect your taxes 3 | |
are reverse splits good or bad | reverse splits are often viewed negatively as they signal that a company s share price has declined significantly possibly putting it at risk of being delisted the higher priced shares following the split may also be less attractive to certain retail investors who prefer stocks with lower sticker prices | |
why does the etn i own have so many reverse splits | some exchange traded products like exchange traded notes etns naturally decay in value over time and must undergo reverse splits regularly but these products are not intended to be held for longer than a few hours or days this is because etns are technically debt instruments that hold derivatives on products like commodities or volatility linked instruments and not the actual underlying assets the bottom line | |
when a publicly traded company consolidates shares this is known as a reverse stock split or sometimes as stock consolidation a stock merge or a share rollback the consolidation has no impact on a company s value | for example if five million shares are trading at 10 per share a 1 for 5 reverse split would result in one million shares trading at 50 per share reverse stock splits often are viewed negatively since they often are a means of inflating a stock s price without increasing the value of the company | |
what is a reverse takeover rto | a reverse takeover rto is a process whereby private companies can become publicly traded companies without going through an initial public offering ipo to begin a private company buys enough shares to control a publicly traded company the private company s shareholder then exchanges its shares in the private company for shares in the public company at this point the private company has effectively become a publicly traded company an rto is also sometimes referred to as a reverse merger a reverse ipo or a back door listing | |
how a reverse takeover rto works | by engaging in an rto a private company can avoid the expensive fees associated with setting up an ipo however the company does not acquire any additional funds through an rto and it must have enough funds to complete the transaction on its own while not a requirement of an rto the name of the publicly traded company involved is often changed as part of the process for example the computer company dell dell completed a reverse takeover of vmware tracking stock dvmt in december 2018 and returned to being a publicly traded company it also changed its name to dell technologies 1 additionally the corporate restructuring of one or both of the merging companies is adjusted to accommodate the new business design prior to the rto it is not uncommon for the publicly traded company to have had little to no recent activity existing as more of a shell corporation this allows the private company to shift its operations into the shell of the public entity with relative ease all while avoiding the costs regulatory requirements and time constraints associated with an ipo while a traditional ipo may require months or years to complete an rto may be completed in just weeks for a company that wants to become publicly traded reverse takeovers rtos can be a cheaper and quicker option than an ipo however they tend to pose greater risks for investors sometimes rtos are referred to as the poor man s ipo this is because studies have shown that companies that go public through an rto generally have lower survival rates and performance in the long run compared to companies that go through a traditional ipo to become a publicly traded company special considerationsunlike conventional ipos which can be canceled if the equity markets are performing poorly reverse mergers aren t generally put on hold many private companies looking to complete a reverse merger have often taken a series of losses and a percentage of the losses can be applied to future income as a tax loss carryforward 2 on the flip side reverse mergers can reveal weaknesses in the private company s management experience and record keeping as well many reverse mergers fail they end up not fulfilling the promised expectations when they eventually begin trading a foreign company may an rto as a mechanism to gain entry into the u s marketplace for example if a business with operations based outside of the u s purchases enough shares to have a controlling interest in a u s company it can move to merge the foreign based business with the u s based business | |
what is a reverse triangular merger | a reverse triangular merger is the formation of a new company that occurs when an acquiring company creates a subsidiary the subsidiary purchases the target company and the subsidiary is then absorbed by the target company a reverse triangular merger is more easily accomplished than a direct merger because the subsidiary has only one shareholder the acquiring company and the acquiring company may obtain control of the target s nontransferable assets and contracts understanding reverse triangular mergersin a reverse triangular merger the acquirer creates a subsidiary that merges into the selling entity and then liquidates leaving the selling entity as the surviving entity and a subsidiary of the acquirer the buyer s stock is then issued to the seller s shareholders the process is more or less as follows once this process is complete the acquired target company resumes its normal operations acting as a subsidiary of the purchasing company in a reverse triangular merger at least 50 of the payment is the stock of the acquirer and the acquirer gains all assets and liabilities of the seller 2advantages of a reverse triangular mergerreverse triangular mergers sound more complicated than regular mergers however they are often actually preferred for their simplicity here are some of the main reasons why companies go down this path a reverse triangular merger is attractive when the seller s continued existence is needed for reasons other than tax benefits such as rights relating to franchising leasing or contracts or specific licenses that may be held and owned solely by the seller reverse triangular merger requirementsbecause the acquirer must meet the bona fide needs rule a fiscal year appropriation may be obligated to be met only if a legitimate need arises in the fiscal year for which the appropriation was made since the acquirer must meet the continuity of business enterprise rule the entity must continue the target company s business or use a substantial portion of the target s business assets in a company the acquirer must also meet the continuity of interest rule meaning the merger may be made on a tax free basis if the shareholders of the acquired company hold an equity stake in the acquiring company in addition the acquirer must be approved by the boards of directors of both entities reverse triangular merger tax treatmenta reverse triangular merger like direct mergers and forward triangular mergers may be either taxable or nontaxable depending on how they are executed and other complex factors set forth in section 368 of the internal revenue code if nontaxable a reverse triangular merger is considered a reorganization for tax purposes a reverse triangular merger may qualify as a tax free reorganization when 80 of the seller s stock is acquired with the voting stock of the buyer the non stock consideration may not exceed 20 of the total 24 | |
what are the tax benefits of a reverse triangular merger | with reverse triangular mergers the subsidiary acquires the tax attributes of the target company this means the acquirer can benefit from the target company s tax position such as credits or net operating losses | |
what is an example of a reverse triangular merger | amazon com s purchase of whole foods constituted a reverse triangular merger rather than acquire whole foods directly the e commerce giant used an indirect subsidiary with whole foods then surviving this subsidiary 5 | |
what is a reverse merger | a reverse triangular merger isn t the same as a reverse merger a reverse merger occurs when a private company acquires control of a public company this effectively enables the private company to become a publicly traded one without having to go through the expensive ordeal of an initial public offering ipo the bottom linea reverse triangular merger is a mergers and acquisitions m a strategy that involves a company forming a subsidiary or shell company to purchase another company once the transaction is complete the subsidiary will merge with the acquired company and then be dissolved leaving just the newly acquired company as the subsidiary this strategy is popular for several reasons other than potential tax benefits reverse triangular mergers are also easier to get past shareholders and can offer greater continuity | |
what is a revocable beneficiary | a revocable beneficiary does not have guaranteed rights to receive compensation from an entity such as an insurance policy or a trust fund the policy owner reserves the right to make changes to who receives payment change the terms of the policy or terminate the policy without the need of revocable beneficiary consent most life insurance policies have this feature understanding revocable beneficiaryit is standard to designate children and spouses as beneficiaries of the benefits from a life insurance or trust product however the policyholder may choose whomever they would like as the beneficiary the policyholder may also name their estate another trust account or a charity as the revocable beneficiary after the policyholder s death the named beneficiary will receive the death benefit from an insurance product or gain control of the funds housed in a trust account the life insurance policyholder may earmark the percentage of total payout each primary beneficiary receives the timing of payout and contingencies to meet before policy payout a policyholder is free to change both primary and contingent revocable recipients as often as they please a revocable trust offers a similar situation with estate planning the trust grantor designates a beneficiary which they may change at any time as with an insurance policy the beneficiary of a revocable trust expects to obtain trust assets as designated in the trust agreement however they are not guaranteed anything a policyholder must have completed their last will before they can name an estate as the trustee of their policy tax accountants and estate planners are instrumental in structuring a sound estate or trust account the last will and testament is a legal document stating the wishes of the individual for the distribution of property after their death naming multiple beneficiariesa policyholder may name multiple revocable beneficiaries these recipients can be broken down into primary beneficiaries and contingent beneficiaries a primary beneficiary has first rights to payouts upon the policyholder s death however a contingent beneficiary has rights to the payouts should the primary beneficiary die irrevocable beneficiarya revocable beneficiary is the opposite of an irrevocable beneficiary the latter has guaranteed rights to an insurance policy s payouts unless they agree to their removal from the policy as a beneficiary designating a revocable beneficiary is usually the best course of action as it allows you to change the beneficiary on the policy due to unforeseen circumstances designation of revocable beneficiaries is vital in cases of divorce and with business partnerships if a wife designates her husband as an irrevocable beneficiary of an insurance policy for example the wife remains the beneficiary even if a divorce follows the same scenario may happen if a business lists a partner as an irrevocable beneficiary and later dissolve the relationship to avoid legal troubles the wishes of the policyholder must remain paramount which becomes problematic with an irrevocable beneficiary | |
what is a revocable trust | a revocable trust is a trust whereby provisions can be altered or canceled depending on the wishes of the grantor or the originator of the trust during the life of the trust income earned is distributed to the grantor and only after death does property transfer to the beneficiaries of the trust a revocable trust is helpful since it provides flexibility and income to the living grantor also called the trustor provisions of the trust can be changed and the estate will be transferred to the beneficiaries upon the trustor s death investopedia julie bang |
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