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what are some examples of time series | a time series can be constructed by any data that is measured over time at evenly spaced intervals historical stock prices earnings gross domestic product gdp or other sequences of financial or economic data can be analyzed as a time series | |
how do you analyze time series data | statistical techniques can be used to analyze time series data in two key ways to generate inferences on how one or more variables affect some variable of interest over time or to forecast future trends unlike cross sectional data which is essentially one slice of a time series the arrow of time allows an analyst to make more plausible causal claims | |
what is the distinction between cross sectional and time series data | a cross section looks at a single point in time which is useful for comparing and analyzing the effect of different factors on one another or describing a sample time series involves repeated sampling of the same data over time in practice both forms of analysis are commonly used and when available they are used together | |
how are time series used in data mining | data mining is a process that turns reams of raw data into useful information by utilizing software to look for patterns in large batches of data businesses can learn more about their customers to develop more effective marketing strategies increase sales and decrease costs time series such as a historical record of corporate filings or financial statements are particularly useful here to identify trends and patterns that may be forecasted into the future the bottom linea time series is a sequence of numerical data points in successive order in investing it tracks the movement of the chosen data points at regular intervals and over a specified period of time in investing a time series records chosen data points such as a security s price at regular intervals and tracks their movement over a specified period of time time series analysis can be useful to see what factors influence certain variables from period to period it can also provide insights into how an asset security or economic variable changes over time a variety of financial and economic data such as historical stock prices earnings and gdp can be analyzed as a time series | |
what is time value | time value refers to the portion of an option s premium that s attributable to the amount of time remaining until the expiration of the option contract the premium of any option consists of two components its intrinsic value and its extrinsic value time value is a component of an option s extrinsic value beside implied volatility iv it relates to derivatives markets it shouldn t be confused with the time value of money tvm which describes the discounting of money s purchasing power over time the basics of time valuethe price or cost of an option is an amount of money known as the premium an option buyer pays this premium to an option seller in exchange for the right granted by the option the choice to exercise the option to buy or sell an asset or to allow it to expire worthless 1the intrinsic value is the difference between the price of the underlying asset and the strike price of the option the intrinsic value for a call option is equal to the underlying price minus the strike price the intrinsic value for a put option which is the right to sell an asset is equal to the strike price minus the underlying price 1an option s total premium is based on its intrinsic plus extrinsic value a key part of extrinsic value is known as time value a contract normally loses value as it approaches its expiration date because there s less time for the underlying security to move favorably an option with one month to expiration that s out of the money otm will have more extrinsic value than that of an otm option with one week left to expiration the more time that remains until the option expires the greater its time value in most cases the contract will more time to become profitable another factor that affects extrinsic value and time value is implied volatility iv iv measures the amount an underlying asset may move over a specified period the extrinsic value will also increase if the iv increases the extrinsic value would rise as investors figure that dramatic moves boost the possibility of the asset moving their way if an investor purchases a call option with an annualized iv of 20 and the iv jumps to 30 the following day time value might be expressed like this as an equation the amount of a premium that s more than the option s intrinsic value is referred to as its time value the option has an intrinsic value of 94 1 044 950 and a time value of 3 97 94 if alphabet inc stock is priced at 1 044 per share and the alphabet inc 950 call option is trading at 97 image by sabrina jiang investopedia 2020the significance of time valuemore time that remains until expiration generally means a greater time value of the option investors are willing to pay a higher premium for more time because the contract will have longer to profit from a favorable move in the underlying asset conversely the less time that remains on an option the less of a premium investors are willing to pay the probability that the option has a chance to be profitable is shrinking it s safer to sell or hold an option that still has time value left for this reason rather than exercising it that remaining time value would otherwise be lost adding time to an option or increasing the iv theoretically has the same fundamental effect they increase the probability that an option will finish in the money itm an option generally loses one third of its time value during the first half of its life and the remaining two thirds of its time value during the second half time value decreases over time at an accelerating pace a phenomenon known as time decay or time value decay an option price s sensitivity to time decay is known as its theta 2 | |
what is a call option | a call option gives a trader the right but not the obligation to buy a security at a contracted price but they must do so by the expiration date the seller of the option is obligated to comply with that stated price 3 | |
what does in the money mean | an option is in the money or itm when it has both time value and intrinsic value the price of the underlying asset in a call option is higher than the strike price 4 | |
what does delta mean in trading | delta is a measurement of how much the price of an option is likely to go up or down based on the price of the underlying security it s gauged by each 1 change an option s price should increase by 0 15 for each dollar change in the security s price if the delta is 0 15 5the bottom linetime value is the portion of an option s premium that s affected by the amount of time remaining until an option contract expires it s composed of extrinsic and intrinsic values and can be calculated by a relatively simple math equation investors are typically willing to pay more for more time because time gives an asset a sufficient lifespan to manage a profitable move less time often means less money for the seller | |
what is the time value of money tvm | the time value of money tvm is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earning potential in the interim because money can grow when it is invested a delayed payment is a lost opportunity for growth the time value of money is a core principle of finance it is also referred to as the present discounted value understanding the time value of money tvm most investors would rather receive money today than wait to receive the same amount in the future that s because a sum of money once invested can grow over time for example money deposited into a high yield savings account will earn interest over the ensuing months and years that interest will be added to the principal earning even more interest that s what s known as the power of compound interest in addition if money is not invested its value can erode over time if you hide 1 000 in a mattress for three years you will not only lose out on any additional money you could have earned by investing it but it will have even less buying power than it once did because inflation will have reduced its value the concept of the time value of money is often attributed to martin de azpilcueta a spanish theologian and economist of the 16th century 12time value of money formulathe basic time value of money formula doesn t calculate tvm itself instead it shows the change in the value of money over a period of time it calculates the future value of a sum of money based on based on these variables the tvm formula is f v p v 1 i n n t where f v future value of money p v present value of money i interest rate n number of compounding periods per year t number of years begin aligned fv pv big 1 frac i n big n times t textbf where fv text future value of money pv text present value of money i text interest rate n text number of compounding periods per year t text number of years end aligned fv pv 1 ni n twhere fv future value of moneypv present value of moneyi interest raten number of compounding periods per yeart number of years this allows you to see the difference between the future value and the present value in most cases the future value will be higher which is why it is better to receive that money now rather than at a later date the tvm formula may change slightly depending on the situation for example in the case of annuity or perpetuity payments the generalized formula will have additional or fewer factors the time value of money doesn t take into account any capital losses that you may incur or any negative interest rates that may apply in these cases you may be able to use negative growth rates to calculate the time value of moneyexamples of time value of moneyassume a sum of 10 000 is invested for one year at 10 interest compounded annually the future value of that money is f v 10 000 1 10 1 1 1 11 000 begin aligned fv 10 000 times big 1 frac 10 1 big 1 times 1 11 000 end aligned fv 10 000 1 110 1 1 11 000 the formula can also be rearranged to find the value of the future sum in present day dollars for example the present day dollar amount compounded annually at 7 interest that would be worth 5 000 one year from today is p v 5 000 1 7 1 1 1 4 673 begin aligned pv big frac 5 000 big 1 frac 7 1 big big 1 times 1 4 673 end aligned pv 1 17 5 000 1 1 4 673 the number of compounding periods has a dramatic effect on the tvm calculations taking the 10 000 example above if the number of compounding periods is increased to quarterly monthly or daily the ending future value calculations are this shows that the tvm depends not only on the interest rate and time horizon but also on how many times the compounding calculations are computed each year | |
how does the time value of money relate to opportunity cost | opportunity cost is key to the concept of the time value of money money can grow only if it is invested over time and earns a positive return money that is not invested loses value over time to inflation therefore a sum of money that is expected to be paid in the future no matter how confidently its payment is expected is losing value in the meantime there is an opportunity cost the opportunity to invest and earn to being paid in the future rather than in the present | |
why is the time value of money important | the concept of the time value of money can help guide investment decisions for instance suppose a business can choose between project a and project b they are identical except that project a promises a 1 million cash payout in year one whereas project b offers a 1 million cash payout in year five the payouts are not equal the 1 million payout received after one year has a higher present value than the 1 million payout after five years | |
how is the time value of money used in finance | it would be hard to find a single area of finance where the time value of money does not influence the decision making process the time value of money is the central concept in discounted cash flow dcf analysis which is one of the most popular and influential methods for valuing investment opportunities it is also an integral part of financial planning and risk management activities pension fund managers for instance consider the time value of money to ensure that their account holders will receive adequate funds in retirement | |
how does inflation relate to the time value of money | the value of money changes over time and several factors can affect it inflation which is the general rise in prices of goods and services has a negative impact on the future value of money that s because when prices rise your money doesn t go as far even a slight increase in prices means that your purchasing power drops so that dollar you earned in 2019 and kept in your piggy bank buys less today than it would have back then the bottom linethe future value of money isn t the same as present day dollars and the same is true about money from the past this phenomenon is known as the time value of money tvm both businesses and individuals can use the concept to make smart investment decisions | |
what is time weighted rate of return twr | the time weighted rate of return twr is a measure of the compound rate of growth in a portfolio the twr measure is often used to compare the returns of investment managers because it eliminates the distorting effects on growth rates created by inflows and outflows of money the time weighted return breaks up the return on an investment portfolio into separate intervals based on whether money was added or withdrawn from the fund the time weighted return measure is also called the geometric mean return which is a complicated way of stating that the returns for each sub period are multiplied by each other formula for twruse this formula to determine the compounded rate of growth of your portfolio holdings t w r 1 h p 1 1 h p 2 1 h p n 1 where t w r time weighted return n number of sub periods h p end value initial value cash flow initial value cash flow h p n return for sub period n begin aligned twr left 1 hp 1 times 1 hp 2 times dots times 1 hp n right 1 textbf where twr text time weighted return n text number of sub periods hp dfrac text end value text initial value text cash flow text initial value text cash flow hp n text return for sub period n end aligned twr 1 hp1 1 hp2 1 hpn 1where twr time weighted returnn number of sub periodshp initial value cash flow end value initial value cash flow hpn return for sub period n investopedia crea taylor | |
what does twr tell you | it can be difficult to determine how much money was earned on a portfolio when there are multiple deposits and withdrawals made over time investors can t simply subtract the beginning balance after the initial deposit from the ending balance since the ending balance reflects both the rate of return on the investments and any deposits or withdrawals during the time invested in the fund in other words deposits and withdrawals distort the value of the return on the portfolio the time weighted return breaks up the return on an investment portfolio into separate intervals based on whether money was added or withdrawn from the fund the twr provides the rate of return for each sub period or interval that had cash flow changes by isolating the returns that had cash flow changes the result is more accurate than simply taking the beginning balance and ending balance of the time invested in a fund the time weighted return multiplies the returns for each sub period or holding period which links them together showing how the returns are compounded over time | |
when calculating the time weighted rate of return it is assumed that all cash distributions are reinvested in the portfolio daily portfolio valuations are needed whenever there is external cash flow such as a deposit or a withdrawal which would denote the start of a new sub period in addition sub periods must be the same to compare the returns of different portfolios or investments these periods are then geometrically linked to determine the time weighted rate of return | because investment managers that deal in publicly traded securities do not typically have control over fund investors cash flows the time weighted rate of return is a popular performance measure for these types of funds as opposed to the internal rate of return irr which is more sensitive to cash flow movements examples of using the twras noted the time weighted return eliminates the effects of portfolio cash flows on returns to see this how it works consider the following two investor scenarios investor 1 invests 1 million into mutual fund a on december 31 on august 15 of the following year their portfolio is valued at 1 162 484 at that point august 15 they add 100 000 to mutual fund a bringing the total value to 1 262 484 by the end of the year the portfolio has decreased in value to 1 192 328 the holding period return for the first period from december 31 to august 15 would be calculated as the holding period return for the second period from august 15 to december 31 would be calculated as the second sub period is created following the 100 000 deposit so that the rate of return is calculated reflecting that deposit with its new starting balance of 1 262 484 or 1 162 484 100 000 the time weighted return for the two time periods is calculated by multiplying each subperiod s rate of return by each other the first period is the period leading up to the deposit and the second period is after the 100 000 deposit investor 2 invests 1 million into mutual fund a on december 31 on august 15 of the following year their portfolio is valued at 1 162 484 at that point august 15 they withdraw 100 000 from mutual fund a bringing the total value down to 1 062 484 by the end of the year the portfolio has decreased in value to 1 003 440 the holding period return for the first period from december 31 to august 15 would be calculated as the holding period return for the second period from august 15 to december 31 would be calculated as the time weighted return over the two time periods is calculated by multiplying or geometrically linking these two returns as expected both investors received the same 9 79 time weighted return even though one added money and the other withdrew money eliminating the cash flow effects is precisely why time weighted return is an important concept that allows investors to compare the investment returns of their portfolios and any financial product difference between twr and rora rate of return ror is the net gain or loss on an investment over a specified time period expressed as a percentage of the investment s initial cost 1 gains on investments are defined as income received plus any capital gains realized on the sale of the investment however the rate of return calculation does not account for the cash flow differences in the portfolio whereas the twr accounts for all deposits and withdrawals in determining the rate of return limitations of the twrdue to changing cash flows in and out of funds on a daily basis the twr can be an extremely cumbersome way to calculate and keep track of the cash flows it s best to use an online calculator or computational software another often used rate of return calculation is the money weighted rate of return | |
what is the times revenue method | the times revenue method determines the maximum value of a company as a multiple of its revenue for a set period of time the multiple varies by industry and other factors but is typically one or two in some industries the multiple might be less than one understanding the times revenue methodthe value of a business might be determined for various reasons including to aid financial planning or in preparation for selling the business it can be challenging to calculate the value of a business especially if the value is largely determined by potential future revenues several models can be used to determine the value or a range of values to facilitate business decisions the times revenue method attempts to value a business by valuing its cash flow the times revenue method is used to determine a range of values for a business the figure is based on actual revenues over a certain period of time for example the previous fiscal year a multiplier provides a range that can be used as a starting point for negotiations the multiplier used in business valuation depends on the industry 1small business valuation often involves finding the absolute lowest price someone would pay for the business known as the floor this is often the liquidation value of the business s assets then a ceiling is set this is the maximum amount that a buyer might pay such as a multiple of current revenues once the floor and ceiling have been calculated the business owner can determine the value or what someone may be willing to pay to acquire the business the value of the multiple used for evaluating the company s value using the times revenue method is influenced by a number of factors including the macroeconomic environment and industry conditions the times revenue method is also referred to as the multiples of revenue method who can benefit from the times revenue method the times revenue method is ideal for young companies with earnings that are volatile or non existent also companies that are poised to have a speedy growth stage such as software as a service firms will base their valuations on the times revenue method the multiple used might be higher if the company or industry is poised for growth and expansion since these companies are expected to have a high growth phase with a high percentage of recurring revenue and good margins they would be valued in the three to four times revenue range the multiplier might be one if the business is slow growing or doesn t show much growth potential a company with a low percentage of recurring revenue or consistently low forecasted revenue such as a service company may be valued at 0 5 times revenue criticism of the times revenue methodthe times revenue method is not always a reliable indicator of the value of a firm this is because revenue does not mean profit the times revenue method fails to consider the expenses of a company or whether the company is producing positive net income moreover an increase in revenue does not necessarily translate into an increase in profits a company may experience 10 year over year growth in revenue yet the company may be experiencing 25 year over year growth in expenses valuing a company only on its revenue stream fails to consider what it costs to generate its revenue to get a more accurate picture of the current real value of a company earnings must be factored in thus the multiples of earnings or earnings multiplier is preferred to the multiples of revenue method the times revenue method can be calculated forward or backward you can divide the purchase price by annual revenue to arrive at the multiple or you can multiple annual revenues by a desired times revenue target to arrive at a potential target price example of times revenue methodin fiscal year 2021 x formerly twitter reported annual revenue of 5 077 billion annual revenue for grew from 2020 to 2021 by over 1 3 billion 2 in 2022 elon musk announced his intention to acquire the company for 44 billion 3 this decision was later reversed and solidified via securities and exchange commission filings 4the acquisition occurred at a company valuation of approximately 8 7 times revenue this means that at an acquisition price of 44 billion musk paid 8 7 times the annual revenue of x 5 1 billion the company s net annual loss for the same period demonstrates a glaring weakness of the times revenue model in 2021 it incurred an annual loss of 221 million its second consecutive year of negative profit 2 although the times revenue valuation method indicates a value of 8 7 the method fails to consider that the company was not a profitable company at the time as a postscript x recorded 4 4 billion in revenue in 2022 an 11 decline its estimated loss for the year was 152 million that number presumably reflects some of the severe cost cutting initiated by musk after his takeover but also could include some of the estimated cost of repaying the 13 billion in loans musk took out in order to finance the purchase 5in april 2023 it ceased to exist as a separate corporate entity and was merged int x corp a wholly owned subsidiary of x holdings corp which is owned by musk 6 | |
how do you calculate times revenue | times revenue is calculated by dividing the selling price of a company by the prior 12 months revenue of the company the result indicates how many times of annual income a buyer was willing to pay for a company 1 | |
what is a good times revenue multiple | every company industry and sector will have different guidelines on what constitutes a good times revenue valuation 1 companies in higher growth industries will often sell for higher multiples due to the greater potential of future revenue alternatively companies of different sizes may be valued differently due to the inherent risk of a newer business compared to an established company | |
how is the times revenue method used | times revenue is used to set a benchmark purchase price of a company using only the revenue of the business a buyer can estimate a fair selling price by imputing what times revenue they are willing to pay alternatively a seller may have a purchase price in mind but must check times revenue for reasonableness | |
is a low times multiple bad | a low times multiple isn t necessarily bad it simply means the company is being valued lower than other companies if a seller is motivated to sell having a low times multiple may be a good thing as it may be seen by buyers as a cheaper potentially bargain price compared to companies with much higher multiples the bottom linethe times revenue method of valuing a company has the virtue of being straightforward it s revenue for a certain period multiplied by a set factor usually one or two to arrive at a figure that reflects the company s value it has a big drawback though cash flow does not equal profits and a valuation based on the times revenue method does not reflect the costs of doing business there is another drawback that is shared by every method of valuation all are by necessity based on past performance and none can accurately predict future sales | |
what is tina | tina is an acronym for there is no alternative it is often used by investors to justify a lackluster performance by stocks on the grounds that other asset classes offer even worse returns acceptance of tina can lead to the tina effect a phenomenon in which stocks rise only because investors see no viable alternative place to put their money in particular during times when bonds are performing poorly stocks appear to be the only choice in periods when stock prices soar and bond returns languish tina has been used to justify investing in anything other than stocks or bonds such as cryptocurrencies and non fungible tokens nfts 1origins of tinaherbert spencer who lived from 1820 to 1903 was a british intellectual who strongly defended classical liberalism he believed in laissez faire government and positivism or the ability of technological and social progress to solve society s problems spencer considered that darwin s theory of the survival of the fittest should apply to human interactions to critics of capitalism free markets and democracy he frequently responded there is no alternative tina can evoke positive or negative connotations on the positive side believing that there is no alternative to some course of action can rally support around the chosen path on the other hand such a belief may create a sense of resignation in those who disapprove of the chosen path the tina effect in politicsmargaret thatcher a conservative who served as britain s prime minister from 1979 to 1990 used tina as a political slogan she deployed the phrase when responding to critics of her market oriented policies of deregulation political centralization spending cuts and a rollback of the welfare state actually there were alternatives to this approach including the policies advocated by the opposition labour party to thatcher however free market neoliberalism had no alternative after the collapse of the soviet union american political scientist francis fukuyama argued that thatcher s view had been permanently vindicated with communism discredited he wrote no ideology could ever seriously compete with capitalism and democracy again the end of history that marx promised had arrived albeit in a form he failed to predict 2tina made its mark on the politics of india when prime minister narendra modi led his party to a resounding victory in 2014 he embraced the phrase and it soon became associated with his policies the inevitable backlash came with his opponents adopting their own acronym nota for none of the above 3the tina effect on investmentsa different interpretation of the tina effect has been heard among investors in recent years and the phrase now refers to a lack of satisfactory alternatives to an investment that is seen as questionable for example late in a bull market investors might become concerned with the possibility of a reversal and be unwilling to allocate a major share of their portfolios to stocks on the other hand if bonds offer low yields and illiquid assets such as private equity or real estate are also unattractive investors may hold stocks despite their concerns rather than revert to cash if enough participants are of the same mind the market can experience a tina effect continuing to rise despite an apparent lack of drivers simply there are no other options for making money british fund manager terry smith believes that the tina logic is particularly appealing rightly or wrongly in periods of inflation in a 2022 letter to investors smith writes that stocks are seen by some investors as the least poorly performing sector in such conditions because of the ability of at least some companies to continue to grow revenue in real terms and generate real returns on capital above the rate of inflation 4 | |
what is tit for tat | in game theory tit for tat refers to a strategy that players may use when confronted with a payoff matrix like that of a prisoner s dilemma formulated by mathematician and psychologist anatol rapoport the strategy involves participants in an iterated prisoner s dilemma following a course of action consistent with their opponent s previous turn 1for example if provoked a player subsequently responds with retaliation if unprovoked the player cooperates the tit for tat strategy is not exclusive to economics it is used in many fields including psychology and sociology in biology it is likened to reciprocal altruism understanding tit for tattit for tat is a strategy that can be implemented in games with repeated moves or in a series of similar games the concept revolves around game theory an economic framework that explains how humans interact with each other in competitive environments there are two types of game theory cooperative game theory and uncooperative game theory cooperative game theory involves participants negotiating and cooperating to achieve the best outcome non cooperative game theory involves no negotiation or cooperation between opposing parties tit for tat posits that a person is more successful if they cooperate with another person implementing a tit for tat strategy occurs when one agent cooperates with another agent in the very first interaction and then mimics their subsequent moves this strategy is based on the concepts of retaliation and altruism when faced with a dilemma an individual cooperates when another member has an immediate history of cooperating and defaults when the counterparty previously defaulted example of tit for tatthe prisoner s dilemma is a famous economic scenario used to explain the field of social science it helps show people the balance between cooperation and competition in business politics and general social settings in the traditional version of the game two individuals are arrested and presented with a dilemma if both confess they each serve five years in jail if prisoner one confesses and prisoner two does not prisoner two serves seven years and prisoner one goes free if both agents do not confess they each serve three years the tit for tat strategy would be one in which one prisoner begins with cooperation electing to not confess and the other follows suit this can be iterated over multiple games for example two competing economies can use a tit for tat strategy so that both participants benefit one economy starts with cooperation by not imposing import tariffs on the other economy s goods and services to induce good behavior the idea is that the second economy responds by also choosing not to impose import tariffs if the second economy reacts by implementing tariffs the first economy retaliates by implementing tariffs of its own to discourage the behavior | |
what is tit for tat in business | in business tit for tat can refer to a strategy of mutual cooperation between parties operating in good faith during negotiations such as a sale of property for instance can reduce costs and maximize payoffs for both parties within a transaction on the flip side if one party decides to stop cooperating the counterparty may choose to do the same this can increase costs on both sides and even ultimately spoil negotiations | |
what is tit for tat in trade | in the context of trade countries may elect to impose tariffs to increase the price of imports relative to domestic products trade wars can arise between two countries when each imposes and raises tariffs on the other in an iterative manner such situations rise out of distrust between countries and can increase costs and slow economic growth over the long run | |
why is tit for tat best strategy | in many cases tit for tat strategies may maximize payoffs for different parties this is especially the case when confronted with a prisoner s dilemma in which cooperation can result in mutual benefit and retaliation can lead to the least desirable results for both parties the bottom linein game theory tit for tat refers to a strategy of cooperation in which players mirror each others moves through repeated iterations when confronted with a payoff matrix like that of a prisoner s dilemma the tit for tat strategy can produce and maximize mutual benefit however if a player chooses an unfavorable action the other player may then retaliate leading to mutual detriment in economics this is often reflected during trade wars in which countries impose escalating tariffs on each others exports | |
what is title insurance | title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property the most common type of title insurance is lender s title insurance which the borrower purchases to protect the lender the other type is owner s title insurance which is often paid for by the seller to protect the buyer s equity in the property understanding title insurancea clear title is necessary for any real estate transaction title companies must do a search on every title to check for claims or liens of any kind against them before they can be issued a title search is an examination of public records to determine and confirm a property s legal ownership and determine whether there are any claims on the property erroneous surveys and unresolved building code violations are two examples of blemishes that can make the title dirty title insurance protects both lenders and homebuyers against loss or damage occurring from liens encumbrances or defects in a property s title or actual ownership common claims filed against a title are back taxes liens from mortgage loans home equity lines of credit helocs easements and conflicting wills unlike traditional insurance which protects against future events title insurance protects against claims for past occurrences 1a basic owner s title insurance policy typically covers the following hazards 2in lieu of title insurance some private transactions can involve a warranty of title which is a guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property types of title insurancethere are two types of title insurance lender s title insurance and owner s title insurance including extended policies almost all lenders require the borrower to purchase a lender s title insurance policy to protect the lender in the event that the seller was not legally able to transfer the title of ownership rights a lender s policy only protects the lender against loss an issued policy signifies the completion of a title search offering some assurance to the buyer 3since title searches are not infallible and the owner remains at risk of financial loss there is a need for additional protection in the form of an owner s title insurance policy while lender s title insurance is required for you to get your mortgage loan owner s title insurance which is purchased by the seller to protect the buyer against defects in the title is optional you might consider owner s title insurance once you own your home since as you continue to pay down your mortgage you now own a greater percentage of your property as a result you have more to lose if a claim comes up this is especially important if you plan on spending a long period of time in your home purchasing title insurancean escrow or closing agent initiates the insurance process upon completion of the property purchase agreement there are four major u s title insurance underwriters fidelity national financial inc first american title insurance co old republic national title insurance co and stewart title guaranty co there are also regional title insurance companies from which to choose the cost of owner s title insurance ranges from 500 to 3 500 depending on the state where you live the insurance provider you choose and the purchase price of your home 4often a lender s policy and an owner s policy are required together to guarantee that everyone is adequately protected at closing the parties purchase title insurance for a one time fee the real estate settlement procedures act respa prohibits sellers from requiring purchase from a specific title insurance carrier to prevent abuse 5while your lender lawyer or real estate agent may recommend a title insurance company it s always a good idea to comparison shop risks of not having title insurancehaving no title insurance exposes transacting parties to significant risk in the event that a title defect is present consider a homebuyer searching for the house of their dreams only to find after closing unpaid property taxes from the prior owner without title insurance the financial burden of this claim for back taxes rests solely with the buyer they will either pay the outstanding property taxes or risk losing the home to the taxing entity under the same scenario with title insurance the coverage protects the buyer for as long as they own or have an interest in the property 1similarly lender s title insurance covers banks and other mortgage lenders from unrecorded liens unrecorded access rights and other defects in case of a borrower s default if there are any issues with the property s title a lender would be covered up to the mortgage amount real estate investors should make sure that a property does not have a bad title before proceeding with any purchase homes in foreclosure for example may have a number of outstanding issues buyers may consider purchasing owner s title insurance to protect themselves against unforeseen claims against the title | |
what are the types of title insurance | there are two types of title insurance lender s title insurance and owner s title insurance including extended policies almost all lenders require the borrower to purchase a lender s title insurance policy to protect the lender in the event that the seller was not legally able to transfer the title of ownership rights a lender s policy only protects the lender against loss since title searches are not infallible and the owner remains at risk of financial loss there is a need for additional protection in the form of an owner s title insurance policy owner s title insurance often purchased by the seller to protect the buyer against defects in the title is optional | |
how do i buy title insurance | an escrow or closing agent initiates the insurance process upon completion of the property purchase agreement often a lender s policy and an owner s policy are required together to guarantee that everyone is adequately protected at closing the parties purchase title insurance for a one time fee the cost of owner s title insurance ranges from 500 to 3 500 depending on the state where you live the insurance provider you choose and the purchase price of your home 4 | |
why should i buy title insurance | having no title insurance exposes transacting parties to significant risk in the event that a title defect is present consider a homebuyer searching for the house of their dreams only to find after closing unpaid property taxes from the prior owner without title insurance the financial burden of this claim for back taxes rests solely with the buyer with title insurance the coverage protects the buyer for as long as they own or have an interest in the property similarly the lender s title insurance covers banks and other mortgage lenders from unrecorded liens unrecorded access rights and other defects the bottom linetitle insurance is a type of indemnity insurance that protects the insured from financial loss when there are claims filed against a title such as outstanding liens back taxes and conflicting wills the two types of title insurance are lender s title insurance and owner s title insurance lender s title insurance is purchased by the borrower to protect the lender from these claims and is the most common type of title insurance lenders almost always require the borrower to buy lender s title insurance that s because the risk of not having this type of coverage is too great leaving the buyer potentially vulnerable to financial risk if there s a problem with the title owner s title insurance is usually bought by the seller to protect the buyer against defects in the title and is less frequently purchased | |
what is a title search | the term title search refers to the examination of public records to determine and confirm a property s legal ownership title searches are conducted through many sources including deeds tax liens land records court judgments among others normally conducted by title companies searches can be ordered by individuals and businesses at any time to find out what if any claims or liens are on the property in question a clean title is required for any real estate transaction to be completed transactions cannot be completed if a title search determines there is a lien on the property | |
how title searches work | as noted above a title search determines whether there is a clean title on a piece of property or whether there are liens or other defects such as public record errors which prevent it from being transferred between parties the process normally takes place for real estate transactions such as the buying and selling of homes or for the purchase and sale of automobiles a title search is usually performed by a title company or an attorney on behalf of a prospective buyer who may want to make an offer on the property the process may also be initiated by a lender or other entity to verify property ownership in order to determine whether there are claims or judgments against the property this process is normally conducted before approving a loan or other credit that uses that property as collateral in order to perform the search the requesting entity conducts research using public records and legal documents to identify the vested owner the liens or other judgments on the property the loans on the property and the property taxes due while it is possible for a prospective buyer or another individual to conduct a title search on their own it is not generally recommended legal documents can be confusing and gaining access to courthouse records can be a difficult process homeowners who want to refinance their home loans may also choose to conduct a title search special considerationsan attorney or a title company will search public records on a property s ownership before you close a deal on the purchase of a home as a prospective homebuyer once the search is finished you will receive a preliminary title report if there are any issues or problems with the title you can point them out to the seller depending on the exact nature of the issue you can decide whether you want to go through with the purchase of the property you will likely want to include your attorney and real estate agent in these discussions some problems discovered via a title search are easily cleared up while others may take so long that they jeopardize your loan commitment a title search confirms a property s legal ownership and identifies whether there are any claims on the property while a clean title proves sole ownership of a piece of property or land a dirty title indicates that there is a cloud of uncertainty or discredit hanging over the property or land erroneous surveys and unresolved building code violations are examples of title search findings that could result in a dirty or defective title designation for instance a dirty title may have unknown liens on it or a filing clerk at the county office could have misspelled or misapplied some information when it came time to register the title in lieu of title insurance some private transactions can involve a warranty of title which is a guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property even a company or professional experienced in conducting title searches can occasionally miss something or there can be a paperwork error that leads to a document being overlooked mistakes can happen and these mistakes can be costly if you discover there s an issue with the property after you complete the purchase this is why buyers often purchase title insurance which can protect you and your mortgage lender from financial loss if a title related problem arises during or after the sale title insurance protects against loss or damage occurring from liens encumbrances or defects in the title or actual ownership of a property unlike traditional insurance which protects against future events title insurance protects against claims for past occurrences a basic owner s title insurance policy typically covers the following hazards example of a title searchhere s a hypothetical example to show how title searches work let s assume that you want to move to a bigger home you ve seen a few properties but there s one that piques your interest just a little more than the others you decide to make an offer as the buyer you want to ensure that the property is free and clear of any liens encumbrances and other defects that can prevent you from completing the purchase so you hire a title company to do the work for you the title company will take a few steps to determine if the title to your prospective home is clean or defective this involves gathering legal documents relevant to the property by scouring through public records as well as going to courthouses and county offices the company amasses all the information it finds to you you can go through with the transaction if the title is clear but if there are any defects the transaction cannot be completed some defects may be easier to clear up than others such as clerical errors versus liens against the home | |
how do you do a title search | title searches are normally conducted using a title company this company is responsible for searching through public records to see if there are any liens against a property the company is commonly hired during the sale and purchase of a home and may also assist in the closing process individuals can also conduct title searches on their own by going through public records online or in person through a county clerk s or tax assessor s office | |
how long does a title search take to complete | the average title search can take anywhere between 10 and 14 days to complete but it may take longer for title searches to be executed on older properties can someone do a title search on their own title searches are normally done by title companies but you can certainly do a title search on your own before you start make sure you have the correct information such as the street and legal address of the property once you have this information check through public records online or in person you can go to the office where the title is recorded usually the country clerk s office and or the tax assessor s office to see if there are any outstanding liens on the property keep in mind that it can be a long and tedious process it can also be costly too | |
what does a title search tell me | a title search tells you the name of the legal owner of a property and if there are any outstanding claims or liens against the property liens may be filed by lenders and other financial institutions contractors tax collectors and any other entity that has a financial and legal claim against the property | |
what is to be announced tba | to be announced or tba in bond trading is a term that describes forward settling of mortgage backed securities mbs trades pass through securities issued by freddie mac fannie mae and ginnie mae trade in the tba market and the term tba is derived from the fact that the actual mortgage backed security that will be delivered to fulfill a tba trade is not designated at the time the trade is made these securities are announced 48 hours prior to the established trade settlement date 1tba may also be used to denote a pending corporate announcement or other pieces of information that is yet to be determined tbd understanding tbaa tba serves as a contract to purchase or sell an mbs on a specific date but it does not include information regarding the pool number number of pools or the exact amount that will be included in the transaction an mbs is a bond that is secured or backed by mortgage loans loans with similar traits are grouped together to form a pool and that pool is subsequently sold to stand as collateral for the associated mbs 1interest and principal payments are issued to investors at a rate based on the principal and interest payments made by the borrowers of the associated mortgages investors receive interest payments on a monthly basis instead of semiannually the settlement procedures of mbs tba trades are established by the securities industry and financial markets association 2this is because the tba market assumes mbs pools to be relatively interchangeable the tba process increases the overall liquidity of the mbs market by taking thousands of different mbss with different characteristics and trading them through a handful of contracts the buyers and sellers of tba trades agree on these parameters issuer maturity coupon price par amount and settlement date 3each type of agency pass through security is given a trade settlement date for each month trade counterparties are required to exchange pool information by 3 p m est 48 hours prior to the established settlement date trades are allocated in 1 million lots 45the tba market is the second most traded secondary market after the u s treasury market 4 | |
what is a tobacco tax cigarette tax | a tobacco or cigarette tax is a tax imposed on all tobacco products by various levels of government often with the alleged goal of reducing tobacco use or at least generating revenues earmarked to fund related healthcare programs the terms tobacco tax and cigarette tax are used interchangeably understanding tobacco tax cigarette taxesin the u s and other countries federal state and local governments impose a tax on some or all tobacco products types of tobacco products include cigarettes pipe tobacco cigars hookah shisha tobacco snuff etc excise taxes are usually levied on the sale and production for sale of tobacco products resulting in the price offered to buyers being higher relative to the cost of other goods and services producers manufacturers and wholesalers pay the excise tax and in a bid to recover the tax paid on these products raise the sale price to the final consumers taxes may also take the form of a sales tax value added tax vat or duty tax with consumers once again mainly responsible for footing a portion or all of these bills tax authorities often slap high taxes on what they consider to be morally objectionable vices such as tobacco and alcohol the idea is to punish consumers and hopefully discourage them from continuing the activity these efforts aren t always successful though because demand for tobacco and many other sin taxed goods is known to be highly price inelastic most of the effect of the tax tends to be reflected in price increases rather than reduced consumption at least in the short run limitations of tobacco tax cigarette taxesthe world health organization who admits that on average a 10 increase in price including taxes of tobacco products would account for only a 4 to 5 drop in cigarette demand these estimates may be generous and most independent research finds much smaller effects the center for tobacco control research and education for example points out that cigarette taxes are among the least effective means to reduce smoking since smoking is an addictive habit increasing the price of tobacco products1 does little to curb the number of sales made instead most tobacco consumers simply pay the higher price including the tax and continue smoking this often results in a large revenue windfall for the taxing authority or for organized crime groups that smuggle in untaxed products but a comparatively small effect on actually reducing tobacco consumption in some cases this may even create incentives for governments to at least tolerate if not encourage tobacco use as it becomes a major cash cow for general spending budgets advantages and disadvantages of tobacco tax cigarette taxeson one hand it could be argued that increased tax revenues from smoking is a good thing as it boosts the amount of money to spend on improving public services it s also reasonable to suggest that this extra capital can go to funding healthcare programs and specifically covering the expenses of treating sick smokers who controversially cost the state hundreds of billions of dollars a year still tobacco or cigarette tax isn t without controversy often it can lead to the perverse incentive phenomenon of bootleggers and baptists first described by economist bruce yandle where an effective political coalition of moral crusaders and economic beneficiaries can effectively push for increasing tobacco taxes regardless of whether the tax is actually effective at its ostensible goal of reducing tobacco use this can especially be the case when some or all tobacco tax revenue is earmarked for specific spending such as healthcare or schools thereby creating a concentrated interest group that benefits from ongoing tobacco revenue | |
what is the tobin tax | the tobin tax is a tax levied on spot currency conversions with the intention of disincentivizing short term currency speculation named after economist james tobin in contrast to a consumption tax paid by consumers the tobin tax is meant to apply to financial sector participants as a means of controlling the stability of a given country s currency it is more formally known today as a financial transactions tax ftt or less formally a robin hood tax understanding the tobin tax | |
when fixed exchange rates under the breton woods system were replaced with flexible exchange rates in 1971 there was a massive movement of funds between different currencies that threatened to destabilize the economy in addition the rise in short term currency speculation encouraged by the nature of the free currency market increased the economic costs incurred by countries exchanging currencies | the tobin tax proposed by james tobin in 1972 seeks to mitigate or eliminate these issues the tax has been adopted by a number of european countries and the european commission to discourage short term currency speculation and stabilize currency markets the currency transactions tax does not impact long term investments it is only imposed on the excessive flow of money that moves regularly between financial markets through the actions of speculators in search of high short term interest rates the tax is paid by banks and financial institutions that profit from market volatility by taking excessive short term speculative positions in the currency markets the tobin tax was originally introduced by american economist james tobin 1918 2002 recipient of the nobel memorial prize in economics in 1981 according to tobin to work effectively such a tax should be adopted internationally and be uniform and the proceeds donated to developing countries although tobin suggested a rate of 0 5 other economists have put forward rates ranging from 0 1 to 1 but even at a low rate if every financial transaction taking place globally was subject to the tax billions in revenue could be raised the original intent of imposing the tobin tax has been skewed over the years by different countries implementing it while tobin s proposed tax on currency exchanges was intended to curb destabilizing capital flows across borders which makes it difficult for countries to implement independent monetary policies by moving money quickly back and forth between countries with different interest rates some countries now impose the tobin tax as a means of generating revenue for economic and social development example of the tobin taxfor example in 2013 italy adopted the tobin tax not because it was faced with exchange rate instability but because it was facing a debt crisis an uncompetitive economy and a weak banking sector by extending its currency transaction tax to high frequency trading hft the italian government sought to stabilize markets reduce financial speculation and raise revenue the tobin tax has been controversial since its introduction opponents of the tax indicate it would eliminate any profit potential for currency markets as it is likely to decrease the volume of financial transactions slowing global economic growth and development in the long run proponents state that the tax would help stabilize currency and interest rates because many countries central banks do not have the cash in reserve that would be needed to balance a currency selloff | |
what is the tokyo price index topix | the tokyo price index commonly referred to as topix is a metric for stock prices on the tokyo stock exchange tse topix is a capitalization weighted index that lists all firms in the first section of the tse a section that organizes all large firms on the exchange into one group the second section of the tse pools all of the smaller remaining companies understanding the tokyo price index topix the tokyo stock exchange tse is the largest stock exchange in japan and is responsible for calculating and publishing the topix compared to the nikkei or japan s nikkei 225 stock average the topix is considered a more appropriate representation of all the japanese stock markets because it reflects a fairer depiction of price changes and includes the largest companies trading on the tse in comparison the nikkei is weighted by price and is composed of only the top 225 blue chip companies listed on the tse the sector indices of topixtopix shows the current market capitalization of companies assuming that market capitalization as of the base date jan 4 1968 is 100 points the measure is used to determine the overall trend in the stock market and is used as a benchmark for investors the sector indices of topix are composed of indices created by dividing the constituents of topix into 33 categories these categories are determined according to the industrial sectors defined by the securities identification code committee they include but are not limited to construction textiles and apparels nonferrous metals machinery electric power and gas land and air transportation retail trade banks securities and commodity futures real estate insurance agriculture and forestry pharmaceuticals and iron and steel topix has some subindices that are also published by the tse these include but are not limited to the topix new index series size based topix subindices topix sector indices the tokyo stock exchange composite index series the tokyo stock exchange dividend focus 100 index the tokyo stock exchange reit property sector index series and the tokyo stock exchange mothers index topix as free float indexin a series of three phases topix transitioned from a system that weighted companies based on a collective total figure of outstanding shares to a system that weights companies based on the total number of shares available for trade this is known as a free float topix s transition began in 2005 and was completed in the summer of 2006 although this transition is essentially a technicality it has had a substantial impact on the actual weight of companies listed in the index this is because a large majority of companies in japan also have significant holdings of shares in their business partners to maintain sophisticated and strong business alliances and these shares are no longer included in the index s company weight calculation the japanese practice of business partners having close relationships with one another and sometimes taking equity stakes in each other is called keiretsu which translated literally means headless combine special considerationsone of several topix indices is the topix core 30 index the capitalization weighted index tracks the performance of 30 stocks in the topix index that have large market capitalizations and are the most liquid the index started on april 1 1998 with a base value of 1 000 the list of companies in the topix core 30 include some of japan s most well known names such as honda motor canon mitsubishi corp sony and toyota motor investors cannot directly purchase an index however there are exchange traded funds etfs that enable investors to invest in a basket of securities that tracks the performance of the topix the nomura asset management company runs the topix core 30 exchange traded fund etf the fund s investment objective is to construct a portfolio that is similar in composition to the topix core 30 providing corresponding price and yield performance | |
what is a tombstone | a tombstone is a written advertisement of a public offering placed by investment bankers who are underwriting the issue it gives basic details about the issue and lists each of the underwriting groups involved in the deal the tombstone provides investors with some general information and directs the prospective investors to a link where they can obtain a prospectus | |
how a tombstone works | in order to raise money a company s management can sell equity shares in the company through a public offering a tombstone is one component of the disclosure requirements for security offerings required by the securities and exchange commission sec the tombstone is simply an announcement that securities are available for sale tombstone ad vs prospectuswhile a tombstone ad is just a brief announcement alerting investors to the upcoming security sale a prospectus goes into greater detail and gives investors the information they need to make an investing decision when a company issues securities to the public the sec requires that each investor receive a prospectus the prospectus requirement applies to an initial public offering ipo which refers to the first time an issuer sells any type of security to the general public the prospectus requirement also applies to all seasoned issues a seasoned issue also known as a secondary offering is when an established company that already trades on the stock exchange issues new shares of stock for sale a tombstone for a secondary offering is mailed to all investors who already own the security and all secondary offerings are sold using a prospectus the preliminary prospectus doesn t include price information but is used to gauge market interest in the security being proposed the final prospectus however includes price information as well as the number of shares the company will sell the role of underwritersan underwriter is responsible for managing the legal and accounting process of creating a prospectus the prospectus includes the issuer s most recent set of audited financial statements as well as a legal opinion regarding the existence of any pending legal matters a prospectus goes into great detail about a firm s marketing production and sales process and it explains why the company is raising more capital in addition to the underwriters there may be many other members of the syndicate who are brought in to sell the securities to their customers the underwriter s sales force also sells the newly issued securities examples of tombstone informationthe tombstone describes the types of securities that are offered the date they are available the number of shares or bonds to be sold and how the securities can be purchased if a new debt security receives a credit rating that rating can be included in the tombstone a tombstone advertisement gets its name from the black border and heavy black print one typically has in print media the tombstone lists the syndicate members who are involved in the underwriting of the security with the primary members listed in larger type at the top of the advertisement a syndicate member s level of involvement is based on the work the member performs on the security offering and the percentage of the total issue that the member s firm sells to the public if a syndicate member is listed at the top of a tombstone for a popular issuer of stock that document helps the syndicate firm market its expertise to other companies | |
what does tomorrow next tom next mean | tomorrow next tom next is a short term foreign exchange forex transaction where a currency is simultaneously bought and sold over two separate business days in tomorrow next the first business day is tomorrow in one business day and the next is the following day two business days from today a tom next transaction allows investors and traders to maintain their position without being forced to take physical delivery | |
how tomorrow next tom next works | the currency or foreign exchange market is the largest and most liquid market in the world with 7 5 trillion in over the counter daily trades in april 2022 1 the market is open 24 hours a day five days a week it is a complex market that requires a great deal of expertise and knowledge to avoid risk and taking large losses the goal of trading in this market is to buy currencies at low prices and sell them when the value rises to generate a profit in most markets trades end with the investor taking delivery of the financial asset in question forex trades result in physical or electronic delivery of the currency the delivery date for currencies is typically two days or t 2 after a trade order is placed this is referred to as the spot date a trader can extend the trade past this date which is referred to as tomorrow next by rolling over their position to tom next traders can keep their positions open overnight and avoid taking delivery of the currency this allows them to execute a simultaneous trade they can complete an fx swap which means they can buy and sell a currency over two business days in this case the first day is tomorrow and the second is the day after that traders who don t roll over their position are forced to take physical delivery of that currency because this is rarely the case a tom next transaction is essentially the extension of a trader s position if the two currencies have identical interest rates then they will be swapped at the same rate special considerationsdepending on what currency the trader holds they will either be charged or earn a premium traders and investors who hold high yielding currencies will roll it over at a more favorable rate minimal because of the interest rate differential this differential is known as the cost of carry the transactions of tom next trades are executed by dealers in the interbank market depending on the direction of their transaction the trader will either buy and sell or sell and buy the currency they roll over a tom next transaction is generally handled by the forwards trading desk or the short term interest rate stir team tomorrow next transactions are also used in the commodities derivatives market although this terminology is not often used there the principle of rolling over a position is perhaps even more important in commodities trading because if it is not done a trader is required to take delivery of the underlying commodity at expiration example of tomorrow next tom next here s a hypothetical example to show how the idea of tomorrow next works let s say that a trader is long on the eur usd pair which trades at 1 53 1 euro buys 1 53 u s dollars on its expiration date the trader issues a tom next instruction to continue holding onto the pair suppose the swap interest rates for the pair are in the range of 0 010 to 0 015 at the end of the trading day after the purchase and sale of shares the trader is offered an interest rate of 0 010 the new price of the trader s position becomes 1 52 the following day | |
what is a tomorrow next trade | tomorrow next is a term used in the currency or forex markets it allows traders to postpone delivery by rolling over their position in the market two business days later by doing so traders can simultaneously avoid taking delivery and holding the currency put simply it allows traders to extend the settlement of a currency trade by one more day | |
what are some of the risks involved with currency trading | risk is inherent in any type of trading some of the risks associated with trading currencies include economic liquidity and exchange rate risks geopolitical issues counterparty risks and transaction risk can also affect currency rates | |
is currency trading good for beginners | foreign exchange can be complicated because it requires a good working knowledge of how currency markets work experience and skills are also key as they can help traders navigate some of the intricacies of this market and avoid major losses investors need to understand currency pairs risks involved and how to balance the risks in the market with the potential for rewards | |
what do t 1 t 2 and t 3 mean | t 1 t 2 t 3 are abbreviations commonly used to denote settlement dates for certain financial transactions the t indicates the transaction date while the numbers refer to how many days it takes after the transaction to settle so a t 1 transaction settles one business day after the transaction date while a t 2 and t 3 settle two and three business days later respectively if a transaction takes place on a wednesday the t 1 settlement date occurs on thursday a t 2 transaction initiated on a friday settles on tuesday since saturday and sunday aren t business days the bottom linemost trades end with taking delivery of the financial instrument being traded but there are cases where the trader wants to avoid taking possession of the asset this is common in the currency or forex market currency traders commonly use the tomorrow next strategy to avoid taking delivery and extend their position in a currency doing so allows them to complete an fx swap this means they can simultaneously buy and sell a currency those who don t use this tactic may be forced to settle their transactions by accepting the currency | |
what is a tontine | tontine is the name of an early system for raising capital in which individuals pay into a common pool of money and receive dividends based on their share of returns from investments made with the pooled money as members of the group died they were not replaced with new investors so the proceeds were divided among fewer and fewer members the surviving investors profited from the deaths of people they knew a feature that many considered macabre understanding a tontinealthough they seem alien today tontines have a storied pedigree that reaches back at least half a millennium the name comes from a 17th century italian financier lorenzo de tonti 1 it is not clear whether he actually invented the tontine but tonti did famously pitch a tontine scheme to the french government in the 17th century as a way for king louis xiv to raise money for this reason historians suggest that tonti s idea originated with the financial folkways of his native italy the idea didn t catch on at first and tonti eventually landed in the bastille a few decades later in the late middle ages tontines became widespread in europe as a financing tool for the royal courts because levying taxes was often out of the question european monarchs borrowed predominantly via tontines to fund their internecine wars at the height of their popularity in the 1900s tontines represented almost two thirds of the insurance market in the united states and accounted for more than 7 5 of the nation s wealth by 1905 there were an estimated nine million active tontine policies in the u s in a country of only 18 million households 2tontine insurance policies were banned in the united states in 1906 3despite their popularity tontines had acquired a bad rap in the u s because of several well publicized insurance scandals so to some they remain synonymous with greed and corruption in europe tontines are regulated under directive 2002 83 ec of the european parliament and tontines are still common in france tontine processas an investor in a tontine you paid a lump sum upfront similar to the concept of principal except that it was never paid back and you received annual dividend payments until your death when an investor died his shares were divided among the surviving members of the tontine in this way a tontine s characteristics are similar to a group annuity and a lottery in a tontine the longer you live and the fewer fellow investors who remain living the larger your annual payment the last investor alive would collect the entire dividend when all the investors died the tontine ended and the government usually absorbed the remaining capital in most places in the united states using tontines to raise capital or obtain lifetime income is consistently upheld as being legal however outdated legislation in two states has fostered the incorrect perception that selling tontines in the broader u s is illegal tontines in the united statesin 19th century america tontines were a popular vehicle for increasing life insurance sales historians generally credit tontines with single handedly underwriting the insurance industry s ascendance in america popular culture served to amplify both the fashionability and the dark side of tontines as agatha christie robert louis stevenson and p g wodehouse all wrote stories about tontine participants conspiring to kill one another to claim the big payoff at the beginning of the american republic u s treasury secretary alexander hamilton proposed using tontines as a way to reduce the national debt 2 hamilton s tontine had an unusual payout structure that froze investor payments to the final beneficiaries when the survivor pool was reduced to 20 of the original group these beneficiaries would still receive a dividend but it would no longer increase as their co beneficiaries died off hamilton s tontine proposal was ignored by congress however as rapidly as their popularity rose in america tontines downfall was equally precipitous shortly after 1900 several spectacular insurance industry embezzlement scandals all but wiped the tontine from the u s consciousness a second glance at tontines today a growing number of financial advisors academics and fintech firms think that it might be time to take a second look at these financial arrangements one such academic is moshe milevsky an associate professor of finance at york university s schulich school of business in toronto who would like to see tontines make a comeback milevsky thinks that tontines are attractive because they provide the regular income of an annuity even more income for living members and because of tontines structure and relatively low costs they produce higher yields than annuities tontines may also offer a solution to longevity risk the danger that you ll outlive your money moreover advocates say that with automation and developments like blockchain technology today s tontines could boast something that was missing in previous versions transparency and with that less possibility of fraud the market for tontines is as large as for life insurance especially with baby boomers looking for an alternative to their vanished pensions so instead of something that belongs hidden in the pages of a murder mystery a modern version of the tontine could be a viable way for people to finance their final years tontines could even provide a safer and more affordable way for american companies to revive the pension interestingly some believe that the fall of the american tontine in the early 20th century had a lot to do with the rise of the corporate pension as milevsky told the washington post in 2015 this tontines might be the iphone of retirement products 2today most people do not rely on pensions to fund their retirement nor are they abundantly investing in traditional retirement accounts such as annuities to supplement retirement income often retirees are dependent on their insufficient life savings and nominal social security payments these factors have many wondering what alternatives exist to help annuities popularity has dwindled over the years as people fear they will not realize a return on their investment before death tontines shift the focus from one s morbidity to the morbidity of the group members an easier scenario to digest in addition tontines have fewer fees resulting in higher payouts to participants although payments are not fixed like annuities they will not decrease reduced costs and the potential for higher payments throughout retirement are attractive features that have some rethinking of whether tontines should be revived at least some proponents argue that people should have the option of participating in one real world examplestontines often took the form of subscriptions the proceeds of which were used to fund private or public works projects which sometimes featured the tontine in their name in 1775 english freemasons used a tontine to finance the first freemasons hall the freemasons tontine in great queen street london 4 today this building called the united grand lodge of england ugle houses more than 200 000 member freemasons and is a place for all to gather in fellowship as equals 5 the public is welcome and the ugle offers historical lectures tours and other programs the ugle also offers this space for rent and it is a favorite spot for shooting films conferences and trade and fashion shows investors in this tontine came primarily from the property owning commercial and professional classes they were largely male but with a significant number of widows and spinsters at its inception in 1775 this tontine raised 5 000 6 344 at a nominal interest rate of 5 per annum for an annual dividend of 250 317 6the freemasons tontine was a well organized business and published a printed prospectus containing the terms of the tontine it also maintained a register that included the group s written history and a list of the 100 original subscribers along with detailed demographic data the freemasons tontine is unusual in that these records have survived for their 87 year duration 1775 1862 the shrewsbury architect john hiram haycock built the tontine hotel the tontine in ironbridge in 1780 using a tontine to finance its construction 7 the hotel stands close to the famous iron bridge that spans the river severn which gives the town its name the iron bridge opened in 1781 was the first major bridge in the world to be made of the then new material cast iron 8 a wonder of the industrial age in 1934 the iron bridge was designated as a scheduled ancient monument and closed to vehicular traffic and in 1986 the bridge was declared a world heritage site the tontine hotel s sole original purpose was to accommodate the many tourists who came to see the iron bridge the tontine was also used frequently as a meeting place for local industrialists and businessmen today the tontine hotel is still a vital meeting place for travelers tourists and businessmen in addition to a bar and restaurant the tontine offers high quality bed and breakfast accommodations in shropshire about a 30 minute drive from both shrewsbury and wolverhampton 9 the center of ironbridge is less than a five minute walk from the hotel the tontine seems not to have inherited any ghoulish associations with the tontine operations of old as it is a favorite spot for couples and families alike the new york stock exchange has roots that go back to a spring day in 1792 when a group of 24 men met outside of 68 wall street at water street in the shade of a huge sycamore or buttonwood tree 10 they set down the rules they would trade by and called it the buttonwood agreement later that year the financiers moved their trading operations into a room on the second floor of a building that became the tontine coffee house early in 1793 a tontine of course financed the construction of the tontine coffee house by selling 203 shares at 200 each 11 in 1817 the growth of this tontine s investments had in effect morphed into the big board and it moved to a larger space the tontine coffee house was one of new york city s busiest hubs for buying and selling stocks transacting business deals and holding heated political debates and other forums in addition to serving as a home for the merchants exchange the tontine coffee house was a social gathering spot and a landmark building which appeared often in the memoirs of illustrious financiers and newspaper stories as the site of important public meetings the original building financed by the tontine survived the great fire of 1835 but was torn down and replaced in the middle 1850s the member death that triggered the tontine coffee house s dissolution occurred in november 1870 but accounting disputes delayed the proceedings and the property was finally sold at a court ordered auction in january 1881 the sale brought the city only 138 550 which was much less than anticipated 12 | |
what is too big to fail | too big to fail describes a business or business sector so ingrained in a financial system or economy that its failure would be disastrous the government will consider bailing out a corporate entity or a market sector such as wall street banks or u s carmakers to prevent economic disaster 1investopedia yurle villegasfinancial institutionsa bailout of wall street banks and other financial institutions deemed too big to fail occurred during the global financial crisis of 2007 2008 1 following the collapse of lehman brothers congress passed the emergency economic stabilization act eesa in october 2008 4the rescue measures included the 700 billion troubled asset relief program tarp which authorized the u s government to purchase distressed assets to stabilize the financial system 5 following the assistance regulations under the dodd frank wall street reform and consumer protection act of 2010 were imposed on financial institutions 32 too big to fail became a common phrase during the 2007 2008 financial crisis which led to financial sector reform in the united states and globally 1bank reformfollowing bank failures in the 1920s and early 1930s the federal deposit insurance corp fdic was created to monitor banks insure customer deposits and provide americans with confidence that their savings would be safe the fdic insures individual accounts in member banks for up to 250 000 per depositor 6the 21st century saw new challenges for banks which had developed financial products and risk models that were inconceivable in the 1930s the 2007 2008 financial crisis exposed unknown consumer and economic risks passed in 2010 dodd frank was created to help prevent future bailouts of the financial system it included new regulations regarding capital requirements proprietary trading and consumer lending dodd frank also imposed higher requirements for banks collectively labeled systemically important financial institutions sifis 78the 2007 2008 financial crisis affected banks around the world global regulators also implemented reforms with the majority of new regulations focused on too big to fail banks examples of global sifis include mizuho the bank of china bnp paribas deutsche bank and credit suisse global bank regulations are led by the basel committee on banking supervision the bank for international settlements and the financial stability board 9companies considered too big to failbanks that the u s federal reserve fed has said could threaten the stability of the u s financial system include 10other entities that were deemed as too big to fail during the financial crisis of 2007 2008 and required government intervention were 1115 years following the banking crisis of 2008 the big banks are bigger than ever in early 2023 jpmorgan chase took over the deposits and substantial assets from the failure of first republic bank critique of the too big to fail theorynumerous policies and regulations were imposed to prevent future financial disasters and curtail government intervention the dodd frank act passed in july 2010 requires banks to limit their risk taking by holding larger financial reserves banks must keep a ratio of higher quality assets or capital requirements in the event of distress within the bank or the wider financial system the consumer financial protection bureau cfpb addressed the subprime mortgage crisis and implemented mortgage lending practices that make it easier for consumers to understand the terms of a mortgage agreement critics have argued that regulations harm the competitiveness of u s firms and contend that regulatory compliance requirements unduly burden community banks and smaller financial institutions that did not play a role in the financial crisis 12in 2018 some provisions of dodd frank were loosened under president trump with the passage of the economic growth regulatory relief and consumer protection act 13 | |
is too big to fail a new concept | this term was publicized by u s rep stewart mckinney r conn in a 1984 congressional hearing discussing the intervention of the federal deposit insurance corp fdic with the continental illinois bank although the term was previously used it became more widely known during the global financial crisis of 2007 2008 when wall street received a government bailout 14 | |
what protections mitigate too big to fail | regulations have been put in place to require systemically important financial institutions to maintain adequate capital and submit to enhanced supervision and resolution regimes after the 2008 collapse of large financial institutions policies were enacted including the emergency economic stabilization act of 2008 eesa and the dodd frank wall street reform and consumer protection act of 2010 813 | |
how did the troubled assets relief program assist banks that were too big to fail | the eesa established the troubled assets relief program tarp authorizing the treasury secretary to purchase and to make and fund commitments to purchase troubled assets from any financial institution on such terms and conditions as are determined by the secretary proponents believed vital to minimize the economic damage created by the sub prime mortgage meltdown 15the bottom lineto protect the u s economy from a disastrous financial failure that might have global repercussions the government may step in to financially bail out a systemically critical business or an economic sector such as transportation or the auto industry during the 2007 2008 global financial crisis policymakers and regulators in the u s deemed some banks and corporations too big to fail and provided rescue measures through the emergency economic stabilization act of 2008 13 | |
what is the top line | the top line is a reference to gross figures reported by a company such as sales or revenue it is called the top line because it is displayed at the very top of a company s income statement and is reserved for the reporting of gross sales or revenue a company that increases its revenue or sales is said to be generating top line growth the opposite of the top line is the bottom line investopedia michela buttignolunderstanding the top linethe top line is a record of a company s revenue that reflects the full sales price of goods or services sold to consumers within the statement period it is placed at the top of the income statement as subsequent line items reference an expense or loss that must be deducted from the gross figure expenses can include any payments made in order to support the production of goods or rendering of a service capital losses incurred through the sale of a capital asset at a loss can also be deducted common expenses include but are not limited to the cost of materials required to manufacture the goods that were sold as well as any operating expenses applicable taxes are also deducted from this running total once the costs have been subtracted from the top line then a business arrives at its profits also known as the bottom line importance of the top linethe top line is one of the most important figures in a company s financial statements it shows how much business a company does in the specified period it reflects the pure demand for a company s goods or services without any other effects the top line reflects a company s growth by showing if a company is selling more goods or services over time if it is revenue will be increasing if it is not growing or growing but not by the desired amount it is an indicator to a company that changes need to be made this can include the marketing strategy quality of the product pricing or the customer s overall engagement with the company top line vs bottom linethe top line is a gross figure of all revenue earned in the statement period while the bottom line refers to the net figure after taking into account the costs of earning the revenue the bottom line reflects the net income which is often listed as the last or bottom line on a company s income statement the bottom line reflects what remains once all of the necessary expenses have been deducted from the top line and reflects the amount of profit that was generated during the statement period both the top line and the bottom line are important but they both provide very different insights the top line is primarily a growth indicator and a company s ability to sell its goods while the bottom line reflects many internal aspects such as costs operating expenses and generally how a company carries out its business a company s top line could be strong generating high revenues but if its production processes and other variables generate high costs the bottom line could turn out to be low indicating minimal profits special considerationstop line growth refers to an increase in the gross revenue brought into a company and does not necessarily guarantee an increase in profit growth in revenue may lead to growth in the bottom line only if it is not offset by increased expenses | |
what is top down investing | top down investing is an investment analysis approach that focuses on the macro factors of the economy such as gdp employment taxation interest rates etc before examining micro factors such as specific sectors or companies understanding top down investingtop down investing prioritizes macroeconomic national or market level factors it can be contrasted with the bottom up approach which starts first with a company s fundamentals where most of the emphasis is put and then works its way up through the structural hierarchy looking at macro global economic factors last if at all | |
when looking at the bigger picture investors use macroeconomic variables such as gdp trade balances currency movements inflation interest rates and other aspects of the economy after looking at the big picture conditions around the world analysts next examine the general market conditions to identify high performing sectors industries or regions within the macroeconomy the goal is to find particular industrial sectors that are forecast to outperform the market | based on these factors top down investors allocate investments to outperforming economic regions rather than betting on specific companies for example if economic growth in asia is better than the domestic growth in the united states an investor might shift their assets internationally by purchasing exchange traded funds etfs that track specific asian countries from this point they can drill down into specific companies to choose potentially successful ones as investments by looking last at their fundamentals top down investing can make more efficient use of an investor s time by looking at large scale economic aggregates before choosing regions or sectors and then specific companies as opposed to starting out with the entire universe of individual companies stocks however it may also miss out on a large number of potentially profitable opportunities by eliminating specific companies that outperform the general market top down vs bottom upbottom up investing is the opposite strategy to top down practitioners of the bottom up approach ignore macroeconomic factors and instead look at microeconomic factors that affect specific companies they re watching top down investing may produce a more long term strategic portfolio and favor passive indexing strategies while a bottom up approach may lead to more tactical actively managed strategies top down portfolios often consist largely of index funds that track specific regions or industrial sectors and may include commodities currencies and some individual stocks bottom up style portfolios often have a much larger share of individual stocks for example a bottom up investor chooses a company and then looks at its financial health supply demand and other factors over a specified time period although there is some debate as to whether the top down approach is better than the bottom up strategy many investors have found top down strategies useful in determining the most promising sectors in a given market top down investing exampleas an example of top down investing ubs group ag ubs hosted its 2016 ubs cio global forum in beverly hills ca to help investors navigate the economic environment at the time the forum addressed macroeconomic factors that affect markets including international government policy central bank policy international market performance and the effects of the brexit vote on the global economy the way in which ubs addressed these economic factors points to a top down investment strategy jeremy zirin a wealth manager who is part of ubs wealth management americas reflected on the benefits of top down investing at the forum consumer discretionary stocks looked attractive to zirin and his team who implemented a top down approach to identify strong consumer discretionary investments his team took into account the above macroeconomic factors and saw that consumer discretionary was insulated from international risks and was bolstered by american consumers spending power identifying this sector allowed him and his team ultimately to identify home depot hd as a good investment | |
what is top down investing | top down investing is an investment analysis approach that focuses on the macro factors of the economy such as gdp employment taxation interest rates etc before examining micro factors such as specific sectors or companies understanding top down investingtop down investing prioritizes macroeconomic national or market level factors it can be contrasted with the bottom up approach which starts first with a company s fundamentals where most of the emphasis is put and then works its way up through the structural hierarchy looking at macro global economic factors last if at all | |
when looking at the bigger picture investors use macroeconomic variables such as gdp trade balances currency movements inflation interest rates and other aspects of the economy after looking at the big picture conditions around the world analysts next examine the general market conditions to identify high performing sectors industries or regions within the macroeconomy the goal is to find particular industrial sectors that are forecast to outperform the market | based on these factors top down investors allocate investments to outperforming economic regions rather than betting on specific companies for example if economic growth in asia is better than the domestic growth in the united states an investor might shift their assets internationally by purchasing exchange traded funds etfs that track specific asian countries from this point they can drill down into specific companies to choose potentially successful ones as investments by looking last at their fundamentals top down investing can make more efficient use of an investor s time by looking at large scale economic aggregates before choosing regions or sectors and then specific companies as opposed to starting out with the entire universe of individual companies stocks however it may also miss out on a large number of potentially profitable opportunities by eliminating specific companies that outperform the general market top down vs bottom upbottom up investing is the opposite strategy to top down practitioners of the bottom up approach ignore macroeconomic factors and instead look at microeconomic factors that affect specific companies they re watching top down investing may produce a more long term strategic portfolio and favor passive indexing strategies while a bottom up approach may lead to more tactical actively managed strategies top down portfolios often consist largely of index funds that track specific regions or industrial sectors and may include commodities currencies and some individual stocks bottom up style portfolios often have a much larger share of individual stocks for example a bottom up investor chooses a company and then looks at its financial health supply demand and other factors over a specified time period although there is some debate as to whether the top down approach is better than the bottom up strategy many investors have found top down strategies useful in determining the most promising sectors in a given market top down investing exampleas an example of top down investing ubs group ag ubs hosted its 2016 ubs cio global forum in beverly hills ca to help investors navigate the economic environment at the time the forum addressed macroeconomic factors that affect markets including international government policy central bank policy international market performance and the effects of the brexit vote on the global economy the way in which ubs addressed these economic factors points to a top down investment strategy jeremy zirin a wealth manager who is part of ubs wealth management americas reflected on the benefits of top down investing at the forum consumer discretionary stocks looked attractive to zirin and his team who implemented a top down approach to identify strong consumer discretionary investments his team took into account the above macroeconomic factors and saw that consumer discretionary was insulated from international risks and was bolstered by american consumers spending power identifying this sector allowed him and his team ultimately to identify home depot hd as a good investment | |
what is the toronto stock exchange tsx | the term toronto stock exchange tsx refers to a canadian stock exchange located in toronto ontario founded in 1861 the tsx is canada s premier stock exchange with more than 1 500 listed companies including those from the energy mining technology and real estate sectors the exchange is also home to international listings and exchange traded products 1 it became fully electronic after closing its trading floor in 1997 2 in 2007 the tsx merged with the montreal exchange mx to form the tmx group 2understanding the toronto stock exchange tsx the toronto stock exchange is one of the largest stock exchanges in the world and is the third largest in north america after the new york stock exchange nyse and the nasdaq 34 the exchange s history dates back to the mid 1800s it was established in 1861 and was officially incorporated in 1878 under the name toronto stock exchange or tse 2 it became known as the tsx after the company was rebranded in 2002 2the exchange operates monday to friday except for statutory holidays the market opens with regular trading activity taking place between 9 30 a m et and 4 00 p m et trading orders may be entered but not executed during the pre open between 7 00 a m and 9 30 a m et 5as noted above the exchange eliminated its trading floor in 1997 trades on the tsx became electronic similar to the nasdaq in the united states 2 traded instruments include shares in companies investment trusts and exchange traded products etps other financial instruments such as bonds commodities futures options and other derivative products are also actively traded 6 all transactions are executed in the canadian dollar according to the 2020 guide to listing there were 1 572 listed issuers on the exchange 7the exchange launched the tse 300 composite index in 1977 which was similar to the s p 500 2 composed of the most influential stocks on the exchange the name of the index was changed to the s p tsx composite index in 2002 the index is rebalanced on a quarterly basis in march june september and december 8interested in investing in canadian companies try purchasing american depositary receipts adrs which are available for larger canadian corporations special considerationsin 1999 the tsx became canada s only exchange for senior equities two years later it acquired the tsx venture exchange which primarily lists small cap stocks as noted above the exchange is now operated by the tmx group a result of the merger between the tsx and the mx in addition to the tsx the mx and the tsx venture exchange the group also operates the tsx alpha exchange shorcan which specializes in fixed income products in canada and the canadian derivates clearing corporation cdcc 910 the cdcc facilitates the clearing of canadian exchange traded derivative products and other financial instruments 11the tsx and the london stock exchange lse explored the opportunity for a merger the deal fell through in 2011 after it failed to receive the required two thirds majority of votes from shareholders tmx proposed the merger to avoid a takeover by maple group acquisition corporation a consortium of canadian investors including the canadian plan investment board scotia capital and td securities 12 the tmx group agreed to the maple group takeover which was completed in 2012 13 | |
what is tort law | tort law is the area of the law that covers most civil suits in general any claim that arises in civil court with the exception of contractual disputes falls under tort law the concept of tort law is to redress a wrong done to a person and provide relief from the wrongful acts of others usually by awarding monetary damages as compensation the original intent of tort is to provide full compensation for proved harms lawsuits involving contracts fall under contract law tort law requires those who are found to be at fault for harming others to compensate the victims typical harms include the loss of past or future income payment of medical expenses and payment for pain and suffering there may also be additional punitive damages that are meant to punish the plaintiff in excess of full compensation understanding tort lawtort law can be split into three categories negligent torts intentional torts and strict liability torts examples of tort lawin february 2016 a self driving car made by google crashed into a bus in mountain view calif the car sensed a group of sandbags positioned around a storm drain and swerved into another lane to avoid them slamming into the side of a public transit bus this was the first reported case of a self driving car causing an accident not just being a part of one according to liability tort law drivers can seek compensation from a manufacturer for a faulty part of a car usually an airbag or a tire however this liability tort now extends to self driving cars and google and others in the nascent self driving vehicle business could be found liable for the damages 1amy williams filed a negligence lawsuit against quest diagnostics and its subsidiary athena diagnostics for the wrongful death of her two year old son christian millare in 2007 athena diagnostics misclassified a mutation in millare s gene the plaintiff argued that the misclassification led the child s doctors to use the wrong treatment for his symptoms the mutation directly resulted in his seizure and death in 2008 in 2018 11 years after the child s death the south carolina supreme court ruled that a genetic testing lab could be classified as a healthcare provider under state law 2an example of an intentional tort is the ruling between the website gawker and pro wrestler hulk hogan on march 18 2016 hogan was awarded 140 million in damages since it was deemed that gawker intentionally invaded his privacy in order to obtain video evidence of a private act 3tort reformthe issue of tort reform relates to the critical stance taken against many tort cases especially in the united states proponents of tort reform argue that many lawsuits today are frivolous according to the court statistics project approximately 12 5 million civil lawsuits were filed in state trial courts in the united states in 2022 and advocates of tort reform claim that far too many of these are based on flimsy grounds or are filed to intimidate or influence outcomes 4these frivolous cases are expensive and time consuming using up public resources that could be better expended elsewhere advocates of tort reform in the u s have especially focused on lawsuits related to medical malpractice claims and allegations of billing overcharges including the unnecessary use of costly medical tests and the high price of drugs due to patents | |
what is a total bond fund | a total bond fund is a mutual fund or exchange traded fund that seeks to replicate a broad bond index a total bond fund owns many securities across a range of maturities from both public and private sectors the most common index used as a benchmark is the barclays aggregate bond index which captures treasury bonds corporate bonds municipal bonds and high grade mortgage backed securities | |
how a total bond fund works | total bond funds may invest in bonds of similar maturity class and rating to replicate an issue that is not available for purchase by the fund these restrictions exist because of the diversity and relative illiquidity of the bond markets compared with equities markets it is important for a total bond fund to have a similar interest rate and maturity to the base index total bond fund portfolios actually have a bit more freedom in their security selection than a total stock fund does because individual bond issues have less liquidity than stocks some funds have to bypass certain issues that are in the benchmark index while choosing other bonds that are not in the index many total bond funds have a small allocation around 20 of assets from which bonds can be chosen at the discretion of the managers and held in assets outside the barclays index such as international bonds derivatives and lower rated corporate paper this allows fund managers a chance to invest in some noncorrelated assets while keeping the overall risk profile of the fund within the same range as the barclays index the most important risk metrics to keep close to the index are the maturity or more specifically the weighted average maturity as well as the duration or sensitivity to changes in interest rates vanguard total bond market indexthe vanguard total bond market index is designed to provide broad exposure to u s investment grade bonds reflecting this goal the fund invests about 30 in corporate bonds and 70 in u s government bonds of all maturities short intermediate and long term issues as of june 2022 the fund had a 10 year annualized return of 1 34 as with other bond funds one of the risks of the fund is that increases in interest rates may cause the price of the bonds in the portfolio to decrease pricing the fund s nav lower because the fund invests in all segments and maturities of the fixed income market investors may consider the fund their core bond holding | |
what is total cost of ownership | total cost of ownership tco is the purchase price of an asset plus the costs of operation assessing the total cost of ownership means taking a bigger picture look at what the product is and what its value is over time | |
how total cost of ownership works | total cost of ownership is considered by companies and individuals when they are looking to buy assets and make investments in capital projects for a business the cost of purchase and the costs of operations and maintenance are often itemized separately on financial statements the former is booked as a capital expenditure while the latter is part of operating expenditures a comprehensive analysis of the cost of ownership is a common practice for businesses companies use total cost of ownership over the long term as a framework for analyzing business deals looking at total cost of ownership is a way of taking a more holistic approach that assesses the purchase from a broad perspective this analysis includes the initial purchase price as well as all direct and indirect expenses while direct expenses can be easily reported companies most often seek to analyze all potential indirect expenses that can be of significant influence in deciding whether to complete a purchase total cost of ownership looks at the cost of owning an asset over the long term by assessing both its purchase price and the costs of operation example of total cost of ownershipan example of a business investment that requires a thorough analysis of total cost of ownership is an investment in a new computer system the computer system has an initial purchase price additional costs often include new software installation transition costs employee training security costs disaster recovery planning ongoing support and future upgrades using these costs as a guide the company compares the advantages and disadvantages of purchasing the computer system as well as its overall benefit to the company for the long term on a smaller scale individuals also use total cost of ownership when making purchasing decisions while total cost of ownership can be overlooked its analysis is essential in preventing unnecessary future losses that can arise from focusing only on the immediate direct costs of a purchase | |
how to use total cost of ownership | the purchase of a car is one example where cost comparison matters total cost of ownership of a car is not just the purchase price but also the expenses incurred through its use such as repairs insurance and fuel 1the total cost of ownership analysis can be especially important when comparing a used car to a new car a used car that appears to be a great bargain actually might have a total cost of ownership that is higher than that of a new car if the used car requires numerous repairs while the new car has a three year warranty that could cover repair charges in the automotive industry leading consumer resource kelley blue book provides buyers with details on total cost of ownership this industry analysis is provided for various vehicles and includes a variety of expenses such as fuel insurance repairs and depreciation | |
what types of costs should be considered in total cost of ownership tco | the components of tco depend on the item but should always include the initial purchase price costs associated with operating the item ongoing maintenance training needed and how long the item is expected to last before replacement is needed | |
what kinds of purchases benefit from a tco analysis | considering tco is important before purchasing any item but especially larger purchases cars homes and other major purchases should have a tco analysis for businesses a tco analysis could apply to new technology or equipment needed for the job | |
what resources are available to help determine tco | any information source about the operating costs of an item will be helpful consumer reports is a good source for many items including technology and automobiles resources like kelley blue book and edmunds are good sources for information about auto purchases 23the bottom linethe total cost of ownership can be a useful statistic in a number of situations from business operations to personal purchases if you re making a major purchase remember to look beyond the purchase price to the total costs involved with the product such as maintenance or repairs | |
what is the total debt service tds ratio | the total debt service tds ratio total debt obligation divided by gross income is a financial metric that lenders use to determine whether or not to extend credit primarily in the mortgage industry to calculate the percentage of a prospective borrower s gross income already committed to debt obligations lenders consider all required payments for both housing and non housing bills the housing factor in the tds calculation includes everything paid for the home from mortgage payment real estate taxes and homeowners insurance to association dues and utilities the non housing factor includes everything else from auto loans student loans and credit card payments to child support and alimony | |
when applying for a mortgage or any other type of loan all borrowers should be aware that the total debt service tds ratio is a key factor driving approval or rejection and it is just as important as a stable income timely bill payment and a strong credit score | remember the lower your tds ratio the better your chances of approval borrowers with higher tds ratios are more likely to struggle to meet their debt obligations than borrowers with lower ratios all lenders will compare your tds to their benchmark tds range usually from 36 to no more than 43 before they decide whether you can manage an additional monthly payment on top of all other bills many lenders prefer a ratio of 36 or less for loan approval most do not give mortgages to borrowers with tds ratios that exceed 43 1lenders prefer borrowers with total debt service tds ratios of 36 or less borrowers with tds ratios that exceed 43 are rarely approved for mortgages example of the total debt service tds ratioto see how your tds ratio will be determined just add up monthly debt obligations and divide them by gross monthly income here s a hypothetical example an individual with a gross monthly income of 11 000 and monthly debt obligations of 4 225 2 225 for a mortgage 1 000 for a student loan 350 for a motorcycle loan 650 for a credit card balance divide the total debt obligation of 4 225 by income of 11 000 in the percentage formula below to get a tds ratio of 38 4 which is not much higher than the low benchmark 36 and well below the max 43 this individual would most likely get a mortgage | |
how to calculate total debt service tds ratio in excel | the total debt service tds ratio can also be calculated in excel total debt service tds ratio vs gross debt service gds ratiothe total debt service tds ratio is very similar to another debt to income ratio used by lenders the gross debt service gds ratio the difference between tds and gds is that gds does not factor any non housing payments such as credit card debts or car loans into the equation because it reflects housing expenses only the gds ratio is also referred to as the housing expense ratio gds may be used in other personal loan calculations but it is most commonly used in the mortgage lending process you may also hear gds referred to as housing 1 ratio and tds as housing 2 ratio in practice the tds ratio the gds ratio and a borrower s credit score are the key components analyzed in the underwriting process for a mortgage loan borrowers should generally strive for a gds ratio of 28 or less special considerationsremember there are several other factors in addition to the total debt service tds and gross debt service tds ratios that lenders take into consideration when determining whether to advance credit to certain borrowers for instance a small lender one with less than 2 billion in assets and 500 or fewer mortgages in the past 12 months may offer a qualified mortgage to a borrower with a tds ratio exceeding 43 of course all lenders consider credit histories and credit scores people with high credit scores tend to manage their debts more responsibly they hold a reasonable amount of debt make payments on time and keep account balances low larger lenders may also be more likely to approve mortgages for borrowers with large savings accounts especially if they can make larger down payments lenders may also consider granting additional credit to borrowers with whom they have long standing relationships | |
how do you calculate total debt service tds ratio | to calculate tds first add up all monthly debt obligations then divide that total by gross monthly income in this percentage formula debt divided by income multiplied by 100 if you prefer to calculate in excel the formula looks like this sum debt income 100 | |
how low should my tds be for a mortgage | to be approved for a mortgage you should have a tds ratio of no more than 43 the maximum most lenders allow but ideally your tds should be as close as possible to 36 the low end of the benchmark range that lenders prefer | |
what is the difference between tds total debt service and gds gross debt service | tds and gds are similar ratios but the difference is that gds does not factor any non housing payments such as credit card debts or car loans into the equation | |
what is the total debt to capitalization ratio | the total debt to capitalization ratio is a tool that measures the total amount of outstanding company debt as a percentage of the firm s total capitalization the ratio is an indicator of the company s leverage which is debt used to purchase assets companies with higher debt must manage it carefully ensuring enough cash flow is on hand to manage principal and interest payments on debt higher debt as a percentage of total capital means a company has a higher risk of insolvency the formula for the total debt to capitalization ratio is total debt to capitalization s d l t d s d l t d s e where s d short term debt l t d long term debt s e shareholders equity begin aligned text total debt to capitalization frac sd ltd sd ltd se textbf where sd text short term debt ltd text long term debt se text shareholders equity end aligned total debt to capitalization sd ltd se sd ltd where sd short term debtltd long term debtse shareholders equity | |
what does the total debt to capitalization ratio tell you | every business uses assets to generate sales and profits and capitalization refers to the amount of money raised to purchase assets a business can raise money by issuing debt to creditors or by selling stock to shareholders you can see the amount of capital raised as reported in the long term debt and stockholders equity accounts on a company s balance sheet examples of the total debt to capitalization ratio in useassume for example that company abc has short term debt of 10 million long term debt of 30 million and shareholders equity of 60 million the company s debt to capitalization ratio is calculated as follows total debt to capitalization ratio 1 0 mill 3 0 mill 1 0 mill 3 0 mill 6 0 mill 0 4 4 0 frac 10 text mill 30 text mill 10 text mill 30 text mill 60 text mill 0 4 40 10 mill 30 mill 60 mill 10 mill 30 mill 0 4 40 this ratio indicates that 40 of the company s capital structure consists of debt consider the capital structure of another company xyz which has short term debt of 5 million long term debt of 20 million and shareholders equity of 15 million the firm s debt to capitalization ratio would be computed as follows total debt to capitalization 5 mill 2 0 mill 5 mill 2 0 mill 1 5 mill 0 6 2 5 6 2 5 frac 5 text mill 20 text mill 5 text mill 20 text mill 15 text mill 0 625 62 5 5 mill 20 mill 15 mill 5 mill 20 mill 0 625 62 5 although xyz has a lower dollar amount of total debt compared to abc 25 million versus 40 million debt comprises a significantly larger part of its capital structure in the event of an economic downturn xyz may have a difficult time making the interest payments on its debt compared to firm abc the acceptable level of total debt for a company depends on the industry in which it operates while companies in capital intensive sectors such as utilities pipelines and telecommunications are typically highly leveraged their cash flows have a greater degree of predictability than companies in other sectors that generate less consistent earnings | |
what is the total debt to total assets ratio | the debt ratio or total debt to total assets is calculated by dividing a company s total debt by its total assets it is also called the debt to assets ratio it is a leverage ratio that defines how much debt a company carries compared to the value of the assets it owns using this metric analysts can compare one company s leverage with that of other companies in the same industry this information can reflect how financially stable a company is the higher the ratio the higher the degree of leverage dol depending on averages for the industry there could be a higher risk of investing in that company compared to another investopedia candra huffunderstanding the total debt to total assets ratiothe total debt to total assets ratio analyzes a company s balance sheet the calculation includes long term and short term debt borrowings maturing within one year of the company it also encompasses all assets both tangible and intangible it indicates how much debt is used to carry a firm s assets and how those assets might be used to service that debt therefore it measures a firm s degree of leverage debt servicing payments must be made under all circumstances otherwise the company would breach its debt covenants and run the risk of being forced into bankruptcy by creditors while other liabilities such as accounts payable and long term leases can be negotiated to some extent there is very little wiggle room with debt covenants a company with a high degree of leverage may thus find it more difficult to stay afloat during a recession than one with low leverage the total debt to total assets formula is the quotient of total debt divided by total assets as shown below total debt includes both short term and long term liabilities td ta short term debt long term debt total assets begin aligned text td ta frac text short term debt text long term debt text total assets end aligned td ta total assetsshort term debt long term debt this calculation generally results in ratios of less than 1 0 100 | |
what does the total debt to total assets ratio tell you | total debt to total assets is a measure of the company s assets that are financed by debt rather than equity if the calculation yields a result greater than 1 this means the company is technically insolvent as it has more liabilities than all of its assets combined a result of 0 5 or 50 means that 50 of the company s assets are financed using debt with the other half being financed through equity | |
when calculated over several years this leverage ratio can show a company s use of leverage as a function of time for example a ratio that drops 0 1 every year for ten years would show that as a company ages it reduces its use of leverage | investors use the ratio to evaluate whether the company has enough funds to meet its current debt obligations and to assess whether it can pay a return on its investment creditors use the ratio to see how much debt the company already has and whether the company can repay its existing debts this will determine whether additional loans will be extended to the firm a total debt to total asset ratio greater than one means that if the company were to cease operating not all debtors would receive payment on their holdings real world example of the total debt to total assets ratiolet s examine the total debt to total assets ratio for three companies here s what each company s ratio can tell you about it it s also important to understand the size industry and goals of each company to interpret their total debt to total assets google is no longer a technology start up it is an established company with proven revenue models that make it easier to attract investors meanwhile hertz is a much smaller company that may not be as enticing to shareholders hertz may find investor demands are too great to secure financing turning to financial institutions for capital instead total debt to total assets may be reported as a decimal or a percentage for example google s 30 total debt to total assets may also be communicated as 30 this means that 30 of google s assets are financed through debt limitations of the total debt to total assets ratioone shortcoming of the total debt to total assets ratio is that it does not provide any indication of asset quality since it lumps all tangible and intangible assets together for example in the example above hertz reported 2 9 billion in intangible assets 1 3 billion in ppe and 1 04 billion in goodwill as part of its total 20 9 billion of assets 3 therefore the company had more debt 18 2 billion on its books than all of its 15 7 billion current assets assets that can be quickly converted to cash | |
should all of its debts be called immediately by lenders the company would be unable to pay all its debt even if the total debt to total assets ratio indicates it might be able to | as with all other ratios the trend of the total debt to total assets ratio should be evaluated over time this will help assess whether the company s financial risk profile is improving or deteriorating for example a trend of increasing leverage use might indicate that a business is unwilling or unable to pay down its debt which could signify issues in the future | |
what is a good total debt to total assets ratio | a company s total debt to total assets ratio is specific to that company s size industry sector and capitalization strategy for example start up tech companies are often more reliant on private investors and will have lower total debt to total asset calculations however more secure stable companies may find it easier to secure loans from banks and have higher ratios in general a ratio around 0 3 to 0 6 is where many investors will feel comfortable though a company s specific situation may yield different results | |
is a low total debt to total asset ratio good | a low total debt to total asset ratio isn t necessarily good or bad it simply means that the company has decided to prioritize raising money by issuing stock to investors instead of taking out loans at a bank while a lower calculation means a company avoids paying as much interest it also means owners retain less residual profits because shareholders may be entitled to a portion of the company s earnings | |
how do i calculate total debt to total assets | the total debt to total asset ratio is calculated by dividing a company s total debts by its total assets all debts and assets are considered can a company s total debt to total asset ratio be too high yes a company s total debt to total asset ratio can be too high for example imagine an industry where the debt ratio average is 25 if a business in that industry carries 50 it might be too high but it depends on many factors that must be considered the bottom linethe total debt to total assets ratio compares the total amount of liabilities of a company to all of its assets the ratio is used to measure how leveraged the company is as higher ratios indicate more debt is used as opposed to equity capital to gain the best insight into the total debt to total assets ratio it s often best to compare the findings of a single company over time or the ratios of similar companies in the same industry | |
what is total enterprise value tev | total enterprise value tev is a valuation measurement used to compare companies with varying levels of debt it includes not only a company s equity value but also the market value of its debt while subtracting out cash and cash equivalents tev is considered a more comprehensive alternative to market capitalization and is commonly used to calculate the cost of a target company in a takeover investopedia yurle villegasunderstanding total enterprise value tev some financial analysts use market capitalization analysis to derive the value of a company market capitalization is the value of a company by multiplying the current stock price by the total number of outstanding shares however since companies often have different financial and capital structures tev is generally considered to be a better value measure when comparing companies with different levels of debt and equity tev is the overall economic value of a company it is the value of the operating entity this operating entity is funded by common stock preferred stock debt and cash and so the value of the entity can be calculated by summing up all the financing sources sustaining the business tev is particularly helpful when companies engage in mergers and acquisitions m a if an acquiring firm is interested in a company it would need to know how much debt the target company has on its balance sheet the acquiring firm might need to pay off the debt as part of the takeover also if the acquiring firm had debt on its balance sheet it would be critical to know the amount of outstanding debt for the target company since it could impact whether or not the deal gets done tev is often seen as a more comprehensive way to value a company since it factors in debt and cash which have a significant impact on a company s financial health and value calculating total enterprise value tev tev is calculated as follows 1market capitalization is added to the company s total amount of debt preferred stock is also added because it is a hybrid security which has features of equity and debt preferred shares are treated as debt because they pay dividends and have a higher priority when it comes to claiming earnings versus common stock also preferred shares are repaid similar to debt in the event of an acquisition cash and cash equivalents meanwhile are subtracted from the formula because they reduce the cost of acquiring the company cash equivalents may consist of short term investments commercial paper money market funds and marketable securities with a maturity date of 90 days or less total enterprise value tev vs market capitalizationoften two companies that seem to have similar market capitalizations have very different tevs for example if a company was trying to compare its value to the value of a competitor it would have to look beyond market capitalizations let s say that the competitor has a market capitalization of 100 million but has 50 million in debt the company conducting the comparison might also have a market cap of 100 million but might instead have no debt and 10 million cash on hand based on tev the cost to purchase the competitor would be 150 million whereas the company conducting the comparison would cost 90 million now let s say that instead of a comparison to a competitor the company was looking to acquire the competitor using the market capitalization value we would say that the takeover price for acquiring the company is worth 100 million however tev shows that the cost of acquisition is really 150 million due to the debt of 50 million in addition to the 100 million market cap it s important to remember that the acquiring company would be buying the target company s debt as well as its assets tev is a more accurate measure for valuing the price of a company during a merger or acquisition as it represents the cost to purchase the company using total enterprise value tev to normalize valuesthe tev in addition to being a metric for comparing potential takeover candidates also allows a company or financial analyst to normalize the valuation of a company many financial analysts use the price to earnings p e ratio which measures a company s share price relative to its earnings per share eps to derive a company s value above and beyond its market capitalization however a company s p e ratio does not always provide a complete picture since it only includes the market capitalization and profits or earnings of the company p e ratios can make a company appear expensive compared to another company when in reality that might not be the case should one have a lot of debt on its balance sheet while the other is flush with cash financial analysts can normalize a company s valuation by taking the ebitda earnings before interest tax depreciation and amortization to enterprise value the enterprise value to ebitda metric also known as ev ebitda allows the stock price of public companies to be better evaluated for investment purposes the reason for this is that the calculation includes the components of the p e ratio such as profits and market capitalization as well as all of the components in the tev calculation such as total debt | |
what does total enterprise value tev tell you | tev breaks down the value of a company it goes further than market capitalization by also factoring in a company s debts as well as its cash reserves tev can be thought of as the theoretical total price an acquirer pays to purchase a company and settle all claims against it | |
how do you calculate total enterprise value tev | one way of calculating tev is market capitalization total debt preferred stock cash and cash equivalents there are sometimes other factors in this equation but these are the most common | |
why is cash subtracted from total enterprise value tev | because it reduces the cost of acquiring the company let s say a company wants to acquire another one that s valued at 100 million if the target company were to have 20 million in cash on its books its real purchase cost would be reduced to 80 million as acquiring it would give access to its 20 million in cash all else being equal a higher cash balance leads to a lower tev and vice versa | |
why is debt added to total enterprise value tev | higher debt triggers a higher tev because it represents an added cost that must be paid by any would be acquirer can a company have a negative total enterprise value tev yes it is possible for a company to have more cash than its market value and debt in theory that would make it an attractive investment the bottom linetotal enterprise value tev is one of many useful tools to value companies and not just for m a purposes either this metric better enables investors to compare companies with different capital structures and get a greater sense of which one is potentially undervalued by the market | |
what is the total expense ratio ter | the total expense ratio ter is a measure of the total costs associated with managing and operating an investment fund such as a mutual fund these costs consist primarily of management fees and additional expenses such as trading fees legal fees auditor fees and other operational expenses the total cost of the fund is divided by the fund s total assets to arrive at a percentage amount which represents the ter the ter is also known as the net expense ratio or after reimbursement expense ratio | |
how the total expense ratio ter works | the size of the ter is important to investors as the costs are withdrawn from the fund affecting investors returns for example if a fund generates a return of 7 for the year but has a ter of 4 then the 7 gain is greatly diminished to roughly 3 the ter provides a way for the annual costs of running a particular fund to be covered it takes all of the known costs associated with the fund s operation and expresses them as a single number generally as a percentage drawing its basis from the assets associated with the fund this means that the amount provided as the ter is dependent on the success of the particular fund the funds supplied through the ter are used to support the management trading and legal fees associated with the fund as well as any audit costs or general operating expenses anytime a fund incurs higher or lower operating expenses those changes are likely passed along within the ter the more actively managed the fund the higher the associated ter this is due to increased personnel costs as well as increased transaction based fees the fund manager pays a brokerage fee each time a buy and sell trade is executed by comparison an automated or passive fund has significantly lower costs of operation resulting in a lower ter total expense ratio ter formula and calculationbelow is the formula and the steps to calculate the ter to calculate the ter understanding operating expensesoperating expenses or operating costs cover any outgoing financial obligations associated with the management of the fund and the corresponding transactions this can include employee compensation and brokerage fees in addition to any accountant fees other common expenses include shareholder communications and financial statements record keeping mechanisms and custodial services from the overseeing organization or asset manager a small percentage of the ter may be directed to other business operation costs this can include expenses as simple as space rental and utilities for the business often these expenses are referred to as overhead and include any financial obligation that is not necessarily directed to the actual production of a good or service | |
how does the total expense ratio ter differ from the gross expense ratio ger | the gross expense ratio ger is the total percentage of a mutual fund s assets that are devoted to running the fund in some cases a fund may have agreements in place for waiving reimbursing or recouping some of the fund s fees this is often the case for new funds an investment company and its fund managers may agree to waive certain fees following the launch of a new fund to keep the expense ratio lower for investors the ter represents the fees charged to the fund after any waivers reimbursements and recoupments have been made these fee reductions are typically for a specified time frame after which the fund may incur all full costs | |
what are the limitations of the total expense ratio ter | the ter is meant to capture the entire cost that an investor can expect from owning an investment fund however some charges especially those that are either made only once or made from the investment capital may not be included in the ter these include commission stockbroker fees securities transfer tax and annual advisor fees the bottom linethe total expense ratio ter can help an investor measure the costs associated with managing and operating an investment fund this can be a measure of the fund s efficiency and help to see if it s an appropriate investment | |
what are total liabilities | total liabilities are the combined debts and obligations that an individual or company owes to outside parties everything the company owns is classified as an asset and all amounts the company owes for future obligations are recorded as liabilities on the balance sheet total assets minus total liabilities equals equity investopedia tara anandunderstanding total liabilitiesliabilities can be described as an obligation between one party and another that has not yet been completed or paid for they are settled over time through the transfer of economic benefits including money goods or services liabilities consist of many items ranging from monthly lease payments to utility bills bonds issued to investors and corporate credit card debt money received by an individual or company for a service or product that has yet to be provided or delivered otherwise known as unearned revenue is also recorded as a liability because the revenue has still not been earned and represents products or services owed to a customer future pay outs on things such as pending lawsuits and product warranties must be listed as liabilities too if the contingency is likely and the amount can be reasonably estimated these are referred to as contingent liabilities types of liabilitieson the balance sheet a company s total liabilities are generally split up into three categories short term long term and other liabilities total liabilities are calculated by summing all short term and long term liabilities along with any off balance sheet liabilities that corporations may incur balance sheets that show a percentage as well as a numerical value are known as common size balance sheets short term or current liabilities are liabilities that are due within one year or less they can include payroll expenses rent and accounts payable ap money owed by a company to its customers because payment is due within a year investors and analysts are keen to ascertain that a company has enough cash on its books to cover its short term liabilities long term liabilities or noncurrent liabilities are debts and other non debt financial obligations with a maturity beyond one year they can include debentures loans deferred tax liabilities and pension obligations less liquidity is required to pay for long term liabilities as these obligations are due over a longer timeframe investors and analysts generally expect them to be settled with assets derived from future earnings or financing transactions one year is generally enough time to turn inventory into cash | |
when something in financial statements is referred to as other it typically means that it is unusual does not fit into major categories and is considered to be relatively minor in the case of liabilities the other tag can refer to things like intercompany borrowings and sales taxes | investors can discover what a company s other liabilities are by checking out the footnotes in its financial statements advantages of total liabilitiesin isolation total liabilities serve little purpose other than to potentially compare how a company s obligations stack up against a competitor operating in the same sector however when used with other figures total liabilities can be a useful metric for analyzing a company s operations one example is in an entity s debt to equity ratio used to evaluate a company s financial leverage this ratio reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn a similar ratio called debt to assets compares total liabilities to total assets to show how assets are financed special considerationsa larger amount of total liabilities is not in and of itself a financial indicator of poor economic quality of an entity based on prevailing interest rates available to the company it may be most favorable for the business to acquire debt assets by incurring liabilities however the total liabilities of a business have a direct relationship with the creditworthiness of an entity in general if a company has relatively low total liabilities it may gain favorable interest rates on any new debt it undertakes from lenders as lower total liabilities lessen the chance of default risk | |
what is total quality management tqm | total quality management tqm is the continual process of detecting and reducing or eliminating errors in manufacturing it streamlines supply chain management improves the customer experience and ensures that employees are up to speed with training total quality management aims to hold all parties involved in the production process accountable for the overall quality of the final product or service katie kerpel investopediaunderstanding total quality management tqm total quality management is a structured approach to overall organizational management the focus of the process is to improve the quality of an organization s outputs including goods and services through the continual improvement of internal practices the standards set as part of the tqm approach can reflect both internal priorities and any industry standards currently in place industry standards can be defined at multiple levels and may include adherence to various laws and regulations governing the operation of a particular business industry standards can also include the production of items to an understood norm even if the norm is not backed by official regulations acceptance sampling might be used to check the progress toward the tqm goal example of tqmperhaps the most famous example of tqm is toyota s implementation of the kanban system a kanban is a physical signal that creates a chain reaction resulting in a specific action toyota used this idea to implement its just in time jit inventory process 1the company decided to keep just enough inventory on hand to fill customer orders as they were generated to make its assembly line more efficient all parts of toyota s assembly line are therefore assigned a physical card that has an associated inventory number the card is removed and moved up the supply chain right before a part is installed in a car effectively requesting another of the same part this allows the company to keep its inventory lean and not overstock unnecessary assets effective quality management resulted in better automobiles that could be produced at an affordable price history of tqmtqm s history often dates back to the early 1900s when walter a shewhart introduced modern quality control shewhart produced a landmark piece of industrial work titled economic control of quality of manufactured product in 1931 this exposition is considered one of the founding and basic principles of manufacturing quality control 2further developments in shewhart s work introduced new standards in quality management decades later joseph m juran published a book called what is total quality control the japanese way in 1954 the work was based on juran s experience of being invited to japan by japanese scientists and engineers juran later co authored quality planning and analysis another bestseller in tqm 3another prominent figure in tqm history is w edwards deming posted in japan after world war ii deming became involved with the union of japanese scientists and engineers juse his career work included several tqm frameworks deming s 14 points deming s seven deadly diseases of management and the deming wheel 4primary principles of tqmtqm is considered a customer focused process that focuses on consistently improving business operations management it strives to ensure that all associated employees work toward the common goals of improving product or service quality as well as improving the procedures that are in place for production several guiding principles define tqm under tqm your customers define whether your products are high quality customer input is highly valued because it allows a company to better understand the needs and requirements in the manufacturing process customer surveys may reveal insufficient durability of goods this input is then fed back into tqm systems to implement better raw material sourcing manufacturing processes and quality control procedures employees must buy into the processes and system if tqm is going to be successful this includes clearly communicating across departments and leaders what goals expectations needs and constraints are in place a company adopting tqm principles must be willing to train employees and give them sufficient resources to complete tasks successfully and on time tqm also strives to reduce attrition and maintain knowledgeable workers a company should gradually evolve and strive for incremental small improvements as it learns more about its customers processes and competition this concept of continuous improvement helps a company adapt to changing market expectations it allows for greater adaptability to different products markets customers or regions continuous improvement also drives and widens the competitive advantage that a company has built over related companies tqm s systematic approach relies heavily on process flowcharts tqm diagrams visual action plans and documented workflows every member engaged in the process must be aware and educated on their part of the process to ensure proper steps are taken at the right time of production these processes are then continually analyzed to better understand deficiencies in the process a company s processes and procedures should be a direct reflection of the organization s vision mission and long term plan tqm calls for a system approach to decision making that requires that a company dedicate itself to integrating quality as its core component and making the appropriate financial investments to make that happen the systematic approach of tqm only works if feedback and input are given to evaluate how the process flow is moving management must continually rely on production turnover efficiency and employee metrics to correlate the anticipated outcomes with the actual results tqm relies heavily on documentation and planning and only by utilizing and analyzing data can management understand if those plans are being met one way to utilize data is to integrate systems tqm strategies believe systems should talk to each other conveying useful information across departments and making smart decisions | |
when goods or inventory are used in one area another department should have immediate access to that enterprise resource planning erp information tqm strives to allow everyone to be on the same page at the same time by linking data sources and sharing information across systems | data may transfer between departments freely but there is a human element to coordinating processes and making sure an entire production line is operating efficiently effective communication plays a large part in tqm to motivate employees educate members along a process and avoid process errors whether it is normal day to day operations or large organizational changes successful tqm requires a company wide buy in of every principle the benefits of tqm quickly diminish if a company does not receive complete buy in | |
how to implement tqm | tqm is a unique process there is not a specific formula for implementing a system that suits every business and each type of industry but you can create a checklist of issues that might suit your enterprise and proceed with them in chronological order some may suit your business while others will not select those that you think will provide an advantage advantages and disadvantages of tqmtqm results in a company making a product for less when it s implemented correctly companies that engage in tqm provide more consistent products that yield stronger customer loyalty when they emphasize quality and minimize waste as tqm touches every department across an organization a company may reap substantial savings from materials sourcing production distribution or back office functions companies that successfully implement tqm can usually react more quickly to change and proactively plan ahead to avoid obsolescence a company must fully engage tqm principles to fully reap the benefits of tqm this requires substantial buy in from every department across an organization this level of commitment is very difficult to achieve requires substantial financial investment and necessitates all levels of management to engage in tqm the conversion to tqm may be lengthy and workers may feel resistant to change a company may be required to replace processes employees equipment or materials in favor of an untested partially developed tqm plan more skilled workers may decide to leave the company if they feel tqm processes don t appropriately utilize their skill sets delivers stronger higher quality products to customersresults in lower company wide costsminimizes waste throughout the entire production and sale processenables a company to become more adaptablemay require substantial financial investment to convert to tqm practicesoften requires conversion to tqm practices over a long period of timemay be met with resistance to changerequires company wide buy in to be successfulindustries using tqmtqm originated in the manufacturing sector but its principles can be applied to a variety of industries it provides a cohesive vision for systemic change with a focus on long term change rather than short term goals tqm is used in many industries with this in mind including but not limited to manufacturing banking and finance and medicine these techniques can be applied to all departments within an individual organization this helps ensure that all employees are working toward the goals set forth for the company and improving function in each area involved departments can include administration marketing production and employee training | |
what does total quality management do | tqm oversees all activities and tasks that are necessary to maintain a desired level of excellence within a business and its operations this includes the determination of a quality policy creating and implementing quality planning and assurance and quality control and quality improvement measures | |
what are the principles of tqm | various iterations of tqm have been developed each with its own set of principles certain core elements persist nonetheless these include good leadership emphasis on quality customer priority error correction and improvement as an ongoing process and job training | |
what is a tqm diagram | a tqm diagram is a visual depiction of the business and process layout the diagram usually shows different processes or steps allowing management to see a process analyze weaknesses or risks in the flow and strategically adjust how things are done the bottom linetotal quality management is the strategic framework that encourages everyone in an organization to focus on quality improvement the theory holds that customer satisfaction will increase by being operationally excellent many principles drive tqm but the overall purpose is to eliminate errors streamline processes and maximize efficiency |
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