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why do companies issue bonus shares | companies typically issue bonus shares for several key reasons first they encourage more retail investor participation in their stock by lowering the price per share and adding liquidity second they provide an alternative to issuing a dividend payment for rewarding investors and finally they reflect that the company is in a financially sound position to keep growing and generating shareholder value we will further discuss these reasons when looking at the advantages of issuing bonus shares advantages of issuing bonus sharesencouraging retail participation increasing the number of outstanding shares adds liquidity and decreases a company s stock price making its shares more affordable and easier to trade for retail investors lower priced shares allow investors to acquire more units while increased liquidity reduces slippage costs 1alternative to paying dividends companies generating irregular profits may issue bonus shares rather than cash dividends to build shareholder confidence bonus issues may be particularly appealing for smaller companies that want to attract more investors but don t have earnings consistent enough to pay regular dividends 3displaying financial health a company that issues bonus shares demonstrates that it has sufficient share reserves and or profits to reward prospective investors and current shareholders share issues also signal that a company is in a financially sound position to keep growing and adding shareholder value favorable tax treatment bonus shares aren t taxed when issued making them more favorable than a cash dividend from a taxation perspective with the latter subject to a tax rate of 10 to 37 however investors are still required to pay capital gains tax on bonus shares if selling them for a net gain 4disadvantages of issuing bonus sharesopportunity cost a company could use earnings set aside for a bonus issue for other purposes that may add more shareholder value for example retained earnings could be used for a strategic acquisition into a new growth market or to fund updated equipment and machinery lost opportunities also have the potential to create bad press for a company which may negatively impact investor sentiment 3negative impact on dividends issuing bonus shares does not generate cash for the company which could result in a decline in future dividend payments potentially upsetting shareholders additionally some investors who receive bonus shares may think that the company may prioritize that form of reward over a cash dividend in the future no immediate financial benefit unlike a cash dividend payment shareholders don t immediately benefit financially because the company s stock price drops proportionally to the additional bonus shares issued for example assume an investor buys 100 shares of xzy ltd stock for 10 each and the company has a one for one bonus issue after the bonus issue the investor now holds 200 shares 100 original shares 100 bonus shares as a result of the additional bonus shares added to the outstanding supply they are now worth 5 each 10 2 not providing the investor with any immediate financial gain stock splits vs bonus sharesstock splits and bonus shares have many similarities and differences when a company declares a stock split the number of shares increases but the investment value remains the same companies typically declare a stock split as a method of infusing additional liquidity into shares increasing the number of shares trading and making shares more affordable to retail investors | |
what are the main reasons why a company would issue bonus shares | companies issue bonus shares to make their stock more attractive for retail investors provide an alternative to a cash dividend and or reflect a position of financial health in a nutshell a company issues bonus shares to boost investment and reward shareholders 1 | |
what are some drawbacks of issuing bonus shares | a company could potentially better utilize earnings set aside for a bonus issue to fund other activities that may generate a greater return on investment for shareholders additionally bonus shares could reduce dividend payments as they don t generate cash for a company | |
does a bonus issue affect a company s share price | yes the company s share price proportionally adjusts to the number of bonus shares issued for example if a company s stock price was at 10 and it had a one for one bonus issue the stock price would readjust to 5 to reflect the additional bonus shares 2 | |
do i still need to pay tax on my bonus shares | no and yes investors aren t taxed on bonus shares when a company issues them however they must still pay capital gains tax if selling them for a net profit before filing a tax return investors should inform their accountant if they have received bonus shares to ensure that they are managed correctly from a taxation standpoint 2the bottom linebonus issue of shares refers to a company allocating additional shares from earnings or existing reserves to stockholders a bonus issue increases a company s outstanding shares but not its market capitalization as the stock price adjusts proportionally to the additional shares issued companies primarily have bonus issues to attract retail investors provide an alternative to a dividend and or project a sound financial position on the flip side earnings set aside for bonus issues could lead to lost opportunities that generate better shareholder value although investors aren t directly taxed at the time that a company issues bonus shares capital gains tax applies if they are sold for a net profit | |
what is book building | book building is the process by which an underwriter attempts to determine the price at which an initial public offering ipo will be offered an underwriter normally an investment bank builds a book by inviting institutional investors such as fund managers and others to submit bids for the number of shares and the price s they would be willing to pay for them understanding book buildingbook building has surpassed the fixed pricing method where the price is set prior to investor participation to become the de facto mechanism by which companies price their ipos the process of price discovery involves generating and recording investor demand for shares before arriving at an issue price that will satisfy both the company offering the ipo and the market it is highly recommended by all the major stock exchanges as the most efficient way to price securities the book building process comprises these steps even if the information collected during the book building process suggests a particular price point is best that does not guarantee a large number of actual purchases once the ipo is open to buyers further it is not a requirement that the ipo be offered at that price suggested during the analysis accelerated book buildingan accelerated book build is often used when a company is in immediate need of financing in which case debt financing is out of the question this can be the case when a firm is looking to make an offer to acquire another firm basically when a company is unable to obtain additional financing for a short term project or acquisition due to its high debt obligations it can use an accelerated book build to obtain quick financing from the equity market with an accelerated book build the offer period is open for only one or two days and with little to no marketing in other words the time between pricing and issuance is 48 hours or less a book build that is accelerated is frequently implemented overnight with the issuing company contacting a number of investment banks that can serve as underwriters on the evening prior to the intended placement the issuer solicits bids in an auction type process and awards the underwriting contract to the bank that commits to the highest backstop price the underwriter submits the proposal with the price range to institutional investors in effect placement with investors happens overnight with the security pricing occurring most often within 24 to 48 hours ipo pricing riskwith any ipo there is a risk of the stock being overpriced or undervalued when the initial price is set if it is overpriced it may discourage investor interest if they are not certain that the company s price corresponds with its actual value this reaction within the marketplace can cause the price to fall further lowering the value of shares that have already been secured in cases where a stock is undervalued it is considered to be a missed opportunity on the part of the issuing company as it could have generated more funds than were acquired as part of the ipo | |
what is a book runner | a book runner or bookrunner is the primary underwriter or lead coordinator when an investment bank issues new equity debt or securities instruments the book runner is the lead underwriting firm that runs or is in charge of the books in investment banking book runners may also coordinate with others in order to mitigate their risk such as those that represent companies in large leveraged buyouts lbos understanding book runnersbook runners are the lead underwriters involved in different parts of the financial industry including initial public offerings ipos and lbos as such they re also known in the industry as lead arrangers or lead managers with ipos the book runner assesses a company s financials and current market conditions to arrive at the initial value and quantity of shares to be sold to private parties while most often done during an ipo book runners may also do this through a secondary offering to reduce its risk the book runner syndicates with other underwriting firms for the issuance of the new equity debt or security this is fairly common in the investment banking industry and is a temporary arrangement between entities the book runner serves as lead underwriter working with other investment banks to establish an underwriter syndicate thereby creating the initial sales force for the shares these shares are then sold to institutional and retail clients these new shares carry a hefty commission as much as 6 to 8 for the underwriter syndicate with the majority of shares held by the lead underwriter a book runner often syndicates with other underwriting firms to reduce their risk the lead left book runner also called managing underwriter or syndicate manager is listed first among the other underwriters participating in the issuance the lead left book runner plays the most important role in the transaction and will typically assign parts of the new issue to other underwriting firms for placement while retaining the most significant portion for themselves this book runner s name is also the first bank to be listed on the prospectus in the upper left hand corner book runners also work with large leveraged buyouts which often involve multiple businesses lbos take place when a company makes an acquisition using borrowed capital in these cases the book runner represents one of the participating companies and coordinates with the other participating firms one company generally takes the responsibility of running or managing the books though more than one book runner also called a joint book runner can control a security issuance special considerationsin the securities industry an underwriter represents a particular business entity most often an investment bank the underwriter guarantees that all documentation and reporting requirements are met they also work with potential investors to market the upcoming offering and gauge public interest an underwriting institution may offer guarantees regarding the amount of stock to be purchased they may also buy securities to meet the minimum guarantee a book runner performs the same duties as an underwriter while also coordinating the efforts of multiple involved parties and information sources in this regard the book runner functions as a central point for all information regarding the potential offering or issue this pivotal position may allow the book runner and his associated firm to know new information before it is widely known responsibilities of book runnersdetermining the final offering price is one of the biggest responsibilities of an underwriter first the price determines the size of the proceeds to the issuer second it determines how easily the underwriter can sell the securities to buyers the issuer and lead book runner usually work together to determine the price once they agree on a price for the securities and the securities and exchange commission sec makes the registration statement effective the underwriters call the subscribers to confirm their orders if demand is particularly high the underwriters and the issuer may raise the price and reconfirm the sale with subscribers one responsibility of the book runner is to create a book containing a working list this is useful in tracking information about parties interested in participating in the new offering or issue this information is used to help determine an opening price for an initial public offering as well as to gain insight into the level of interest expressed by potential investors being the lead underwriter for a stock offering especially an ipo can bring a large payday if the market shows a high demand for the shares the stock issuer will often allow the lead underwriter to create an over allotment of shares if demand is high which can bring in even more money to the underwriting firm this is called a greenshoe option there are substantial risks involved in underwriting stock offerings for instance any company could plummet in the open market once public trading begins this is why large investment banks look to conduct many diverse offerings in the course of a year the more transactions and offerings take place the more the risk is spread out between them instead of concentrated on the outcomes of a single company s offering | |
what is a leveraged buyout | a leveraged buyout is when one company buys another using a large amount of borrowed money to fund the purchase often the assets of the company being purchased are used as collateral for the loans taken out by the buyer | |
what is the difference between a book runner and a lead manager | a book runner is responsible for the entire underwriting process during the an ipo or a leveraged buyout a lead manager is responsible for finding buyers for an ipo and ensure there are no barriers to the sale these roles are often filled by the same firm | |
do underwriters always work for investment banks | underwriters are responsible for assessing risk during financial transactions and deciding whether they or the company they work for will assume that risk investment banks are one type of company that employs underwriters insurers and other financial institutions also employ underwriters the entire underwriting department of an investment bank can serve as book runner the bottom linea book runner is the primary underwriter when an investment bank issues new equity debt or securities instruments they are the lead underwriting firm that runs or is in charge of the books for example during an ipo the book runner usually works with other investment banks to establish an underwriter syndicate thereby creating the initial sales force for shares this reduces risk but also decreases the share of profit that each part of the syndicate makes however because the book runner takes on the most responsibility during the offering they also usually get the highest commission from the transaction | |
what is the book to bill ratio | a book to bill ratio is the ratio of orders received to units shipped and billed for a specified period generally a month or quarter it is a widely used metric in the technology industry specifically in the semiconductor equipment sector investors and analysts closely watch this ratio for an indication of the performance and outlook for individual companies and the technology sector as a whole a ratio above 1 implies more orders were received than filled indicating strong demand while a ratio below 1 implies weaker demand formula for the book to bill ratiothe formula to calculate the book to bill ratio is book to bill orders received orders shipped text book to bill frac text orders received text orders shipped book to bill orders shippedorders received understanding the book to bill ratioa book to bill ratio is typically used for measuring supply and demand in volatile industries such as the technology sector the ratio measures the number of orders coming in compared with the number of orders going out a company fulfilling orders immediately as they come in has a book to bill ratio of 1 for example company a books 500 orders for parts and then ships and bills all 500 orders the booked and billed orders have a ratio of 1 or 500 500 the book to bill ratio reveals how quickly a business fulfills the demand for its products the ratio also shows the strength of a sector such as aerospace or defense manufacturing it may also be used when determining whether to purchase stock in a company if a business has a ratio of less than 1 there may be more supply than demand for example company b books 500 orders for parts and then ships and bills 610 orders including some orders from the previous month the booked and billed orders have a ratio of 0 82 for every dollar of orders the company billed only 0 82 of orders were booked that month however if the ratio is greater than 1 there may be more demand than can be efficiently supplied for example company c books 500 orders for parts and then ships and bills 375 orders the book to bill ratio is 1 3 or 500 375 in contrast a business with a ratio of 1 is meeting supply and demand adequately by shipping and billing orders as they are received real world example of the book to bill ratioas a historical example asmpt limited a hong kong based semiconductor and electronics solutions manufacturer reported in april 2024 that its book to bill ratio had moved above 1 after seven quarters asmpt attributed the improvement to bookings growing 17 quarter over quarter coming from semiconductors and surface mount technology 1 | |
what is the difference between bookings and billings | bookings represent a customer s intent to commit to a purchase from your business billings represent the collection of your customer s money when the purchase is complete | |
what is a good book to bill ratio | a book to bill ratio greater than 1 is typically considered to be a good sign of high demand in an industry however it is important to know which performance indicator you are interested in if you need to know whether a business has enough supply to cover demand a book to bill ratio of exactly 1 means it is meeting its customers demand in a timely manner | |
why would a company have a book to bill ratio of less than 1 | a company may have a book to bill ratio of less than 1 if it is shipping out more units than it has received orders for in the current period whether that s a month or a quarter etc if a company ships out more units than it receives orders for in the same period it means it is fulfilling orders from a previous period that is indicative of a decreasing demand for the product the bottom linethe book to bill ratio can help managers and investors learn whether a company is meeting demand has more demand for its products than it is filling or has more supply of its products than demand for them this metric is used widely in the technology industry and helps assess the performance and outlook of individual companies and of an industry sector as a whole | |
what is the book to market ratio | the book to market ratio is one indicator of a company s value the ratio compares a firm s book value with its market value a company s book value is calculated by looking at the company s historical cost or accounting value a firm s market value is determined by its share price in the stock market and the number of shares it has outstanding which is its market capitalization nono flores investopediaunderstanding the book to market ratiothe book to market ratio compares a company s book value with its market value the book value is the value of assets minus the value of the liabilities the market value of a company is the market price of one of its shares multiplied by the number of shares outstanding the book to market ratio is a useful indicator for investors who need to assess the value of a company the formula for the book to market ratio is the following book to market common shareholders equity market cap text book to market frac text common shareholders equity text market cap book to market market capcommon shareholders equity | |
what does the book to market ratio tell you | if the market value of a company is trading higher than its book value per share it is considered to be overvalued if the book value is higher than the market value analysts consider the company to be undervalued the book to market ratio is used to compare a company s net asset value or book value to its current or market value the book value of a firm is its historical cost or accounting value calculated from the company s balance sheet book value can be calculated by subtracting total liabilities preferred shares and intangible assets from the total assets of a company in effect the book value represents how much a company would have left in assets if it went out of business today some analysts use the total shareholders equity figure on the balance sheet as the book value the market value of a publicly traded company is determined by calculating its market capitalization which is simply the total number of shares outstanding multiplied by the current share price 1 the market value is the price that investors are willing to pay to acquire or sell the stock in the secondary markets since it is determined by supply and demand in the market it does not always represent the actual value of a firm | |
how to use the book to market ratio | the book to market ratio identifies undervalued or overvalued securities by taking the book value and dividing it by the market value the ratio determines the market value of a company relative to its actual worth investors and analysts use this comparison ratio to differentiate between the true value of a publicly traded company and investor speculation in basic terms if the ratio is above 1 then the stock is undervalued if it is less than 1 then the stock is considered overvalued a ratio above 1 indicates that the stock price of a company is trading for less than the worth of its assets a high ratio is preferred by value managers who interpret it to mean that the company is a value stock that is it is trading cheaply in the market compared with its book value a book to market ratio below 1 implies that investors are willing to pay more for a company than its net assets are worth this could indicate that the company has healthy future profit projections and investors are willing to pay a premium for that possibility technology companies and other companies in industries that do not have a lot of physical assets tend to have a low book to market ratio difference between the book to market ratio and the market to book ratiothe market to book ratio also called the price to book ratio is the reverse of the book to market ratio like the book to market ratio it seeks to evaluate whether a company s stock is overvalued or undervalued by comparing the market price of all outstanding shares with the net assets of the company a market to book ratio above 1 means that the company s stock is overvalued a ratio below 1 indicates that it may be undervalued the reverse is the case for the book to market ratio analysts can use either ratio to run a comparison on the book and market value of a firm | |
how do i calculate the book to market ratio | divide a company s book value by its market value the quotient is the book to market ratio | |
how is the book to market ratio used | the book to market ratio compares a company s net asset value or book value to its current or market value if the company s market value is trading higher than its book value per share it is considered to be overvalued if the book value is higher than the market value the company is considered to be undervalued for whom is the book to market ratio useful and how investors and analysts use the book to market ratio to differentiate between the true value of a publicly traded company and investor speculation the ratio identifies undervalued or overvalued securities and determines the market value of a company relative to its actual worth the bottom linethe book to market ratio compares a firm s book value with its market value the calculation helps investors find a company s value | |
what is the book to market ratio | the book to market ratio is one indicator of a company s value the ratio compares a firm s book value with its market value a company s book value is calculated by looking at the company s historical cost or accounting value a firm s market value is determined by its share price in the stock market and the number of shares it has outstanding which is its market capitalization nono flores investopediaunderstanding the book to market ratiothe book to market ratio compares a company s book value with its market value the book value is the value of assets minus the value of the liabilities the market value of a company is the market price of one of its shares multiplied by the number of shares outstanding the book to market ratio is a useful indicator for investors who need to assess the value of a company the formula for the book to market ratio is the following book to market common shareholders equity market cap text book to market frac text common shareholders equity text market cap book to market market capcommon shareholders equity | |
what does the book to market ratio tell you | if the market value of a company is trading higher than its book value per share it is considered to be overvalued if the book value is higher than the market value analysts consider the company to be undervalued the book to market ratio is used to compare a company s net asset value or book value to its current or market value the book value of a firm is its historical cost or accounting value calculated from the company s balance sheet book value can be calculated by subtracting total liabilities preferred shares and intangible assets from the total assets of a company in effect the book value represents how much a company would have left in assets if it went out of business today some analysts use the total shareholders equity figure on the balance sheet as the book value the market value of a publicly traded company is determined by calculating its market capitalization which is simply the total number of shares outstanding multiplied by the current share price 1 the market value is the price that investors are willing to pay to acquire or sell the stock in the secondary markets since it is determined by supply and demand in the market it does not always represent the actual value of a firm | |
how to use the book to market ratio | the book to market ratio identifies undervalued or overvalued securities by taking the book value and dividing it by the market value the ratio determines the market value of a company relative to its actual worth investors and analysts use this comparison ratio to differentiate between the true value of a publicly traded company and investor speculation in basic terms if the ratio is above 1 then the stock is undervalued if it is less than 1 then the stock is considered overvalued a ratio above 1 indicates that the stock price of a company is trading for less than the worth of its assets a high ratio is preferred by value managers who interpret it to mean that the company is a value stock that is it is trading cheaply in the market compared with its book value a book to market ratio below 1 implies that investors are willing to pay more for a company than its net assets are worth this could indicate that the company has healthy future profit projections and investors are willing to pay a premium for that possibility technology companies and other companies in industries that do not have a lot of physical assets tend to have a low book to market ratio difference between the book to market ratio and the market to book ratiothe market to book ratio also called the price to book ratio is the reverse of the book to market ratio like the book to market ratio it seeks to evaluate whether a company s stock is overvalued or undervalued by comparing the market price of all outstanding shares with the net assets of the company a market to book ratio above 1 means that the company s stock is overvalued a ratio below 1 indicates that it may be undervalued the reverse is the case for the book to market ratio analysts can use either ratio to run a comparison on the book and market value of a firm | |
how do i calculate the book to market ratio | divide a company s book value by its market value the quotient is the book to market ratio | |
how is the book to market ratio used | the book to market ratio compares a company s net asset value or book value to its current or market value if the company s market value is trading higher than its book value per share it is considered to be overvalued if the book value is higher than the market value the company is considered to be undervalued for whom is the book to market ratio useful and how investors and analysts use the book to market ratio to differentiate between the true value of a publicly traded company and investor speculation the ratio identifies undervalued or overvalued securities and determines the market value of a company relative to its actual worth the bottom linethe book to market ratio compares a firm s book value with its market value the calculation helps investors find a company s value | |
what is book value per share bvps | book value per share bvps measures the book value of a firm on a per share basis bvps is found by dividing equity available to common shareholders by the number of outstanding shares book value equals a firm s total assets minus its total liabilities investopedia madelyn goodnightmeasuring book value per share bvps the book value per share bvps metric helps investors gauge whether a stock price is undervalued by comparing it to the firm s market value per share bvps is what shareholders receive if the firm is liquidated all tangible assets are sold and all liabilities are paid b v p s total equity preferred equity total shares outstanding bvps frac text total equity text preferred equity text total shares outstanding bvps total shares outstandingtotal equity preferred equity a company s stock is considered undervalued when bvps is higher than a company s market value or current stock price if the bvps increases the stock is perceived as more valuable and the price should increase if a company s share price falls below its bvps a corporate raider could make a risk free profit by buying the company and liquidating it if book value is negative where a company s liabilities exceed its assets this is known as a balance sheet insolvency since preferred stockholders have a higher claim on assets and earnings than common shareholders preferred stock is subtracted from shareholders equity to derive the equity available to common shareholders example of bvpsassume that xyz manufacturing has a common equity balance of 10 million and 1 million shares of common stock are outstanding this means that the bvps is 10 million 1 million shares or 10 per share if xyz can generate higher profits and use those profits to buy assets or reduce liabilities the firm s common equity increases the company generates 500 000 in earnings and uses 200 000 of the profits to buy assets its common equity increases along with bvps if xyz uses 300 000 of its earnings to reduce liabilities common equity also increases another way to increase bvps is for a company to repurchase common stock from shareholders many companies use earnings to buy back shares assume xyz repurchases 200 000 shares of stock and 800 000 shares remain outstanding if common equity is 10 million bvps increases to 12 50 per share | |
what does book value per share bvps tell investors | bvps is the sum that shareholders would receive if the firm is liquidated investors use bvps to gauge whether a stock price is undervalued by comparing it to the firm s market value per share | |
how can companies increase bvps | a company can use a portion of its earnings to buy assets that would increase common equity along with bvps or it could use its earnings to reduce liabilities which would also increase its common equity and bvps | |
how does bvps differ from market value per share | the calculation for bvps uses historical costs however the market value per share a forward looking metric accounts for a company s future earning power as a company s potential profitability or its expected growth rate increases the corresponding market value per share will also increase the bottom linebook value per share bvps tells investors the book value of a firm on a per share basis investors use bvps to gauge whether a stock price is undervalued by comparing it to the firm s market value per share book value refers to a firm s net asset value nav or its total assets minus its total liabilities | |
what is book value per common share | book value per common share or simply book value per share bvps is a method to calculate the per share book value of a company based on common shareholders equity in the company the book value of a company is the difference between that company s total assets and total liabilities and not its share price in the market | |
should the company dissolve the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all creditors are paid | the formula for book value per common share is the book value per common share formula below is an accounting measure based on historical transactions b v p s t o t a l s h a r e h o l d e r e q u i t y p r e f e r r e d e q u i t y t o t a l o u t s t a n d i n g s h a r e s bvps frac total shareholder equity preferred equity total outstanding shares bvps total outstanding sharestotal shareholder equity preferred equity | |
what does bvps tell you | the book value of common equity in the numerator reflects the original proceeds a company receives from issuing common equity increased by earnings or decreased by losses and decreased by paid dividends a company s stock buybacks decrease the book value and total common share count stock repurchases occur at current stock prices which can result in a significant reduction in a company s book value per common share the common share count used in the denominator is typically an average number of diluted common shares for the last year which takes into account any additional shares beyond the basic share count that can originate from stock options warrants preferred shares and other convertible instruments example of bvpsas a hypothetical example assume that xyz manufacturing s common equity balance is 10 million and that 1 million shares of common stock are outstanding which means that the bvps is 10 million 1 million shares or 10 per share if xyz can generate higher profits and use those profits to buy more assets or reduce liabilities the firm s common equity increases if for example the company generates 500 000 in earnings and uses 200 000 of the profits to buy assets common equity increases along with bvps on the other hand if xyz uses 300 000 of the earnings to reduce liabilities common equity also increases the difference between market value per share and book value per sharethe market value per share is a company s current stock price and it reflects a value that market participants are willing to pay for its common share the book value per share is calculated using historical costs but the market value per share is a forward looking metric that takes into account a company s earning power in the future with increases in a company s estimated profitability expected growth and safety of its business the market value per share grows higher significant differences between the book value per share and the market value per share arise due to the ways in which accounting principles classify certain transactions for instance consider a company s brand value which is built through a series of marketing campaigns u s generally accepted accounting principles gaap require marketing costs to be expensed immediately reducing the book value per share 1 however if advertising efforts enhance the image of a company s products the company can charge premium prices and create brand value market demand may increase the stock price which results in a large divergence between the market and book values per share the difference between book value per share and net asset value nav while bvps considers the residual equity per share for a company s stock net asset value or nav is a per share value calculated for a mutual fund or an exchange traded fund or etf for any of these investments the nav is calculated by dividing the total value of all the fund s securities by the total number of outstanding fund shares nav is generated daily for mutual funds total annual return is considered by a number of analysts to be a better more accurate gauge of a mutual fund s performance but the nav is still used as a handy interim evaluation tool limitations of bvpsbecause book value per share only considers the book value it fails to incorporate other intangible factors that may increase the market value of a company s shares even upon liquidation for instance banks or high tech software companies often have very little tangible assets relative to their intellectual property and human capital labor force these intangibles would not always be factored in to a book value calculation correction jan 23 2023 this article has been edited from a previous version that incorrectly stated that debtors are paid after assets are liquidated in fact creditors are paid after assets are liquidated | |
what is a bookie | a bookie short or slang for bookmaker is someone who facilitates gambling most commonly on sporting events a bookie sets odds accepts and places bets and pays out winnings on behalf of other people understanding bookiesbookies do not usually make their money by placing bets themselves rather they charge a transaction fee on their customers bets known as the vigorish vig for short bookies may also lend money to bettors a bookie can be an individual or an organization although the term bookie has been associated with illegal activity with the expansion of sports betting being a bookmaker has become a legitimate occupation however bookmaking and placing bets through a bookmaker can still be illegal the legality of different types of gambling is largely determined by state governments 1in 2018 the supreme court gave states permission to legalize betting on sports if they wish to do so a landmark ruling that paved the way for bookies to make lots of money without running afoul of the law 2history of bookies and sports bettingthroughout most of the 20th and 21st centuries sports betting in the u s was only completely legal in nevada though it was legal in certain forms in delaware montana and oregon as a result a black market developed for the rest of the country whereby illegal operations of bookies provided opportunities for betting some bookies were involved in organized crime while others operated independently simply taking bets for a few friends family members or colleagues 3however in 2018 the u s supreme court struck down the professional and amateur sports protection act which was a federal law preventing states from deciding on their own whether to allow sports betting the ruling opened the door for its practice throughout the country if states decide in favor of it 2 previously nevada was the only state to offer comprehensive legal sports betting 4since that ruling many states have moved to legalize sports betting 5 this has prompted record gambling revenues throughout the country with combined revenue from traditional gambling sports betting and igaming amounting to 52 99 billion in 2021 the highest grossing year ever and an increase of more than 21 from the previous annual record in 2019 6 according to reporting by forbes in august 2021 sports betting companies have been announcing a flurry of acquisitions seeking to capitalize 7the amount the american gaming association estimated that americans illegally wagered on sports each year before the 2018 supreme court ruling 8bookies and setting the oddsone of the crucial ways bookies ensure their winnings is by calculating the odds that they will win an event sometimes by employing teams of statisticians and developing complex models the terms lines short for money lines and spreads as in point spreads are critical factors for bookies sometimes these calculations are based on those developed by casino actuaries or those who deal with risk calculations typically they underscore which sports team the bookies believe will win a game or match the lines and spreads can be adjusted in the time leading up to the event based on various bets made in their books and fluctuations in vegas casino bets other unexpected events might impact the odds such as poor weather player injuries and doping scandals the bookie s goal is to maintain balance in the books by adjusting the odds as much as possible so that there s an even amount of people betting on a win or loss if the book is balanced the bookie in effect earns just the vig however if there s a one sided bet on a particular team or outcome the bookie takes on an increased risk of losing money gambling always involves a negative expected return the house always has the advantage | |
is being a bookie illegal in the u s | no not necessarily in 2018 the u s supreme court opened the door for sports betting throughout the country if states decide in favor of it 2 some 33 states have since moved to legalize sports betting effectively ending the need for bookies to operate illegally in those states it is still fully illegal in 17 states 5however that isn t to say that all bookmakers are law abiding betting is still illegal in some states and some bookies may prefer to conduct business under the table to avoid facing obstacles and paying taxes 5 | |
how do bookies make money | bookies make money by charging a fee on each bet they take known as the vigorish or the vig and pay out money when their customers win a bet their goal understandably is to make sure that incomings exceed outgoings that is generally achieved by adjusting the odds so that there s an even amount of people betting on a win or loss | |
how much is a bookie fee | the vig that bookies charge is usually in the region of 10 though it can go higher for high profile bets such as a tight line on the super bowl 9if you or someone you know has a gambling problem call the national problem gambling helpline at 1 800 522 4700 or visit ncpgambling org chat to chat with a helpline specialist the bottom linethe supreme court s 2018 ruling invalidating the professional and amateur sports protection act has led to the rapid expansion of sports betting across the u s with even family friendly companies such as walt disney getting into the act 2 this means that the profession of bookmaker no longer needs to be an illegal one though it still can be in some situations anyone thinking of becoming a bookie however would do well to study the considerable requirements of the job first many skills are required to achieve success in the field while losing money at gambling is an all too easy accomplishment | |
what is the boom and bust cycle | the boom and bust cycle is a process of economic expansion and contraction that occurs repeatedly the boom and bust cycle is a key characteristic of capitalist economies and is sometimes synonymous with the business cycle during the boom the economy grows jobs are plentiful and the market brings high returns to investors in the subsequent bust the economy shrinks people lose their jobs and investors lose money boom bust cycles last for varying lengths of time they also vary in severity understanding the boom and bust cyclesince the mid 1940s the united states has experienced several boom and bust cycles why do we have a boom and bust cycle instead of a long steady economic growth period the answer can be found in the way central banks handle the money supply during a boom a central bank makes it easier to obtain credit by lending money at low interest rates individuals and businesses can then borrow money easily and cheaply and invest it in say technology stocks or houses many people earn high returns on their investments and the economy grows the problem is that when credit is too easy to obtain and interest rates are too low people will overinvest this excess investment is called malinvestment there won t be enough demand for say all the homes that have been built and the bust cycle will set in things that have been overinvested in will decline in value investors lose money consumers cut spending and companies cut jobs credit becomes more difficult to obtain as boom time borrowers become unable to make their loan payments the bust periods are referred to as recessions if the recession is particularly severe it is called a depression according to the national bureau of economic research there were 34 business cycles between 1854 and 2020 with each full cycle lasting roughly 56 months on average 1additional factors in boom and bust cyclesplummeting confidence also contributes to the bust cycle investors and consumers get nervous when the stock market corrects or even a crashes investors sell their positions and buy safe haven investments that traditionally don t lose value such as bonds gold and the u s dollar as companies lay off workers consumers lose their jobs and stop buying anything but necessities that exacerbates the a downward economic spiral the bust cycle eventually stops on its own that happens when prices are so low that those investors that still have cash start buying again this can take a long time and even lead to a depression confidence can be restored more quickly by central bank monetary policy and government fiscal policy government subsidies that make it less expensive to invest may also contribute to the boom bust cycle by encouraging companies and individuals to overinvest in the subsidized item for example the mortgage interest tax deduction subsidizes a home purchase by making the mortgage interest less expensive the subsidy encourages more people to buy homes | |
what causes the boom and bust cycle | although there are many variables that affect economic cycles one of the significant factors is the cost and availability of capital as well as future expectations when it is easy to borrow money businesses are more likely to invest in new equipment and higher workers thereby providing employment and contributing to higher consumption when borrowing becomes expensive businesses are likely to cut costs thereby leading to less economic activity | |
how does the fed regulate economic cycles | like other central banks the federal reserve attempts to moderate economic cycles by adjusting interest rates when unemployment is high the fed lowers interest rates making it easier for businesses to borrow money and expand their operations when inflation is too high the fed raises interest rates incentivizing businesses to limit their operations | |
how do economists predict the boom and bust cycle | economists watch a variety of economic metrics to anticipate future changes in economic activity in particular changes in the producer prices and durable goods production may act as leading indicators of business activity since companies are likely to reduce production when they expect a downturn another important metric is the monthly jobs report which reflects both employer sentiment and consumer buying power the bottom linethe boom and bust cycle is an informal term for the economic fluctuations between periods of prosperity and depression when the economic climate is favorable businesses are likely to see high profits resulting in higher spending and employment when businesses are less profitable the wider economy is likely to see higher prices and lower employment the effective prediction and moderation of boom and bust cycles has been a major focus of economists and policymakers | |
what is bootstrapping | the term bootstrapping refers to a situation in which an entrepreneur starts a company with little capital when an individual bootstraps they rely on money other than outside investments an individual is said to bootstrap when they attempt to establish and build a company from personal finances or the operating revenues of the new company bootstrapping also describes a procedure used to calculate the zero coupon yield curve from market figures understanding bootstrappingbootstrapping a company occurs when a business owner starts a company from the ground up this means that the owner establishes their business with little to no assets founders typically rely on personal savings sweat equity lean operations quick inventory turnover and a cash runway to become successful for example a bootstrapped company may take preorders for its product thereby using the funds generated from the orders actually to build and deliver the product itself compared to using venture capital bootstrapping can be beneficial because the entrepreneur can maintain control over all decisions on the downside this form of financing may place unnecessary financial risk on the entrepreneur furthermore bootstrapping may not provide enough investment for the company to become successful at a reasonable rate bootstrapping is contrasted with starting a company by raising capital through angel investors or venture capital firms individuals who use these means to start their businesses typically have a proven track record or an idea that others may find profitable and promising with the potential for large returns special considerationsin investment finance bootstrapping is a method that builds a spot rate curve for a zero coupon bond 1 this methodology is essentially used to fill in the gaps between yields for treasury securities or treasury coupon strips for example since the t bills offered by the government are not available for every period the bootstrapping method is used to fill in the missing figures to derive the yield curve the bootstrap method uses interpolation to determine the yields for treasury zero coupon securities with various maturities | |
how to bootstrap a business | there are a few steps that entrepreneurs can follow in order to bootstrap a business we highlight them in this section below before bootstrapping their startup company business owners should first assess whether bootstrapping makes sense for their operations it may not be financially feasible to bootstrap a company that requires high upfront capital investments to form some businesses may also have a slower turnaround of inventory meaning bootstrapped cash may be tied up for a longer period if bootstrapping makes sense an early step for a business owner is to form a business plan this business plan should include a financial budget that outlines the expected cash inflows and outflows for the next few years a business owner may decide that at different stages of company growth a varying amount of capital needs to be bootstrapped a critical aspect of the bootstrapping plan is to determine how revenue will be cycled through a company for example during the start up phase 100 of operations may be funded by bootstrapped cash until the company earns revenue from customers an owner should decide upfront how that revenue will be used such as to channel business growth or to reimburse the owner the main risk is extracting cash too soon not fully developing the company and leaving both the company and owner at risk of loss to bootstrap an owner needs to decide where resources will come from and what options of bootstrapping they want to pursue for example the owner may decide to use their they may also choose to adjust business practices to accommodate the growth period the business owner must be mindful that each of these options has detriments for instance capital may be lost time cannot be recovered and limited business may stunt company growth bootstrapping is often the stage of a company where the big business idea has been created but the underlying resources to foster the idea aren t available yet bootstrapping strategiesnot all bootstrapped operations employ the same strategies there are different opportunities that startups can use to temporarily get the resources they need until operations are more robust here are some of the more common bootstrapping strategies a company often needs upfront capital in the initial stages one of the most common forms of bootstrapping is for the business founder to contribute personal capital as an initial financial investment into the company depending on the industry and business operating strategy a founder must sometimes supply capital at various stages during the early days of a company if an owner or founder doesn t have enough capital on hand they may decide to take out personal loans to finance the company the company likely can t receive a loan or receive nearly as favorable loan terms because it does not have the same established financial history as the founder because this bootstrapping method results in personal debt the owner is personally liable and may have personal assets seized should they go bankrupt and default on the loan the owner may bootstrap during the early days of the company by limiting spending for example the owner may personally deliver goods to customers in their local area instead of paying extra for delivery services in this bootstrapping strategy the owner is not limited to what is done rather it is limiting how things are done most often this strategy results in a trade between capital and time this means the owner is willing to sacrifice their time as capital may be low a company may also decide to pull in third parties or other investors to help with the financing of the operations though this is often a more permanent long term investment sometimes owners rely on short term agreements to temporarily finance the business for example a third party may buy stock or issue debt to earn a short term return though this agreement puts the third party at risk it is less of a risk than a long term investment without defined payback or liquidation terms companies often bootstrap by temporarily limiting what the business can do for instance it may only a founder must be strategic in the benchmarks it hopes to achieve before unlocking other aspects of the business operations bootstrapping is not required to start a business a founder may accumulate resources before starting their company to have its needs meet from the company s first day advantages and disadvantages of bootstrappingbootstrapping often allows an owner to retain control over the company though one of the options is to pursue short term financing from a third party most forms of bootstrapping rely on just the owner s resources this means the owner doesn t need to sacrifice long term flexibility due to short term constraints this strategy may lead to greater short term profitability as the owner is hyper conscious of costs for example the owner may intentionally avoid costs in the short term though these expenses like software and infrastructure are necessary in the long term an owner usually also has a lower barrier of entry into an industry when they bootstrap as an owner may not have all of the capital needed upfront instead the owner can slowly build resources through resourcefulness and deliberate actions relating to the business not all aspects of bootstrapping are great especially in the long term because the financing of the company may not be 100 secured there is an increased risk that the business may fail especially if a large unforeseen expense arises as there are many areas a company may fall short such as a supplier not following through or equipment breaking a company may find it needs capital sooner than it may originally expect by definition bootstrapping means that a company operates with limited resources this may prohibit how much a company can reinvest into the company as opposed to paying back the owner the owner simultaneously tries to raise business for the company and return its capital both of which compete for the same capital another pitfall is that a company may face short term branding and image issues consider a company that self delivers its products by driving around town since this is untraditional some prospective buyers may feel it demonstrates the small scope of the operations investors and suppliers may resist interacting with the company due to the heightened risk of interacting with an immature company may give an owner greater control of the companycost avoidance measures help reduce business expenseslower barrier of entryplaces a heightened emphasis on business operationsincreases financial risk as a company may not be able to cover emergency or unexpected costsrequires a company to operate with limited resourcesmay diminish how customers suppliers or investors view the companyexamples of bootstrappingmany companies start with humble beginnings and limited resources one example is jeff bezos personal software development for amazon amzn which operated out of his garage with just a handful of employees when it sold its first book in 1995 2other founders take even more nontraditional routes to finance their companies gopro founder nick woodman reportedly borrowed 35 000 from his mother and went as far as to use her sewing machine to craft early designs of gopro devices 3a more popular and sensationalized means of bootstrapping was meta s meta humble beginnings mark zuckerberg launched the social media site in 2004 from his college dorm room 4 | |
why is it called bootstrapping | bootstrapping earned its term in the 1800s based on the phrase pull oneself up by one s bootstraps or other slight variations the saying was a reference to doing difficult things by tugging on the ankle straps of high top boots the phrase has continued to be used to reference any undertaking that may require extra effort because it is difficult | |
is bootstrapping bad | bootstrapping is not necessarily bad if a business owner doesn t have all the resources it needs on the first day of operations they may need to take special considerations to make sure the business needs are met many successful businesses have bootstrapped during its infancy and though some may negatively view the process others may find charm in bootstrapping and have greater respect for these types of companies | |
is bootstrapping sustainable | the idea behind bootstrapping is to temporarily find solutions to meet business needs until more permanent solutions are possible it is usually not in the best interest of the company to permanently bootstrap as this exposes a company to higher financial risk than necessary bootstrapping may also be taxing to the owner who often prefers to have a more stable scalable strategy to develop their company the bottom linethe best case scenario for many new companies is to have all of the resources it needs on their first unfortunately that s usually not how things go businesses must often bootstrap or temporarily come up with creative resourceful solutions to make sure their business needs are being met whether relying on personal capital cutting costs or limiting business operations owners have an array of strategies to bootstrap but also face a number of potential downsides | |
what is a borrowing base | a borrowing base is the amount of money that a lender is willing to loan a company based on the value of the collateral the company pledges the borrowing base is typically determined by a method known as margining in which the lender determines a discount factor which is then multiplied by the value of the collateral in question the resulting numerical figure represents the amount of money a lender will loan out to the company understanding borrowing basesvarious assets may be used as collateral including accounts receivable inventory and equipment if a company approaches a lender to borrow money the lender will assess the borrowing company s strengths and weaknesses based on the perceived risk the lending company associates with loaning money to this company a discount factor is then determined say 85 under this scenario if the borrower offers 100 000 worth of collateral the maximum amount of cash the lender will give the company is 85 of 100 000 which equals 85 000 oil and gas companies might borrow against the production of a field or proven order quantity with the lender receiving a monthly quota in return a borrowing base is the amount of money a lender is willing to loan a company based on the value of the collateral the company presents | |
why lenders use a borrowing base | lenders feel more comfortable making loans rooted in borrowing bases since those loans are made against specific sets of assets furthermore the borrowing base can be adjusted downward to protect the lender for example if the value of the collateral drops the credit limit declines along with it on the other hand should the value of the collateral increase the borrowing base will likewise escalate up to a predetermined limit the mechanicsthe borrower must also provide the lender with certain information used to determine the borrowing base including data on sales collections and inventory with middle market and large asset based loans borrowers are often required to periodically furnish lenders with certificates that disclose various details of the companies business dealings for example the certificate might itemize a company s eligible receivables if the borrowing base is determined by that consideration lenders may conduct regular investigations of a company to check up on the borrower s business operations as part of this initiative lenders may dispatch appraisers to value the collateral used in calculating the borrowing base to determine if there are any significant changes to the underlying worth of the items in question example of a borrowing basecabot oil gas corporation did not have any borrowings outstanding under its revolving credit facility as of march 31 2016 since then on the first day of every april its borrowing base is annually redetermined although the lender is at liberty to request a redetermination whenever cabot acquires or sells oil and gas properties on april 19 2016 the borrowing base was lowered from 3 4 billion to 3 2 billion 1 | |
what is a both to blame collision clause | a both to blame collision clause is part of the ocean marine insurance policy that states that if a ship vessel collides with another ship due to the negligence of both owners and shippers of both vessels must share in the losses in proportion with the monetary values of their cargo and interests before the collision the owners of the cargo and company responsible for shipment are both required to pay for losses | |
how a both to blame collision clause works | as globalization grows the shipping industry also grows in the event of a collision the company s liabilities and thus risk will be limited to ocean marine insurance an ocean marine insurance provides coverage against losses for ships it protects in the event of damage or destruction of a ship s hull and or the ship s freight some protections also provided under this insurance include damage due to wear and tear dampness decay mold and war are not included in the coverage special considerationsthe hague visby rules provide that if the carrier has exercised due diligence to provide a seaworthy ship they are not liable for claims resulting from a collision partly or wholly caused by negligent navigation article iv rule 2 a 1 commonly both vessels are partly to blame for a collision and cargo interests may then present their claims in tort against the non carrying vessel under u s law claimants could recover their claims in full from the owners of the other vessel who could then recover one half from the carriers this rule circumvents the navigational error defense it also creates a situation in which cargo interests could not recover restitution if the carrying vessel was wholly to blame the both to blame collision clause is designed to preserve the protection a carrier has under the hague visby rules by giving a contractual indemnity against the cargo interests example of both to blame collision clauseif ship a collides with ship b due to the fault of ship b the owner of any goods in ship a which are damaged or lost by the fault of ship b can claim 100 of the damage from the owners of ship b however due to the both to blame collision clause and in circumstances where apportionment of blame is deemed to be 50 50 the owner of ship b has the right to claim 50 of their liability from the owners of ship a this leaves ship a with a bill for half the cost of the damage so ship a passes that cost back to the owner of the goods by way of the both to blame collision clause in the bill of lading | |
what is a bottleneck | a bottleneck is a point of congestion in a production system such as an assembly line or a computer network that stops or severely slows the system the inefficiencies brought about by the bottleneck often create delays and higher production costs the term bottleneck refers to the typical shape of a bottle and the fact that the bottle s neck is the narrowest point which is the most likely place for congestion to occur slowing down the flow of liquid from the bottle there are two main types of bottlenecks short term and long term a short term bottleneck is temporary and typically caused by temporary conditions such as employees on vacation or on sick leave long term bottlenecks are baked into the production process and include such things as inefficient machinery 1bottlenecking the process that creates bottlenecks can have a significant impact on the flow of manufacturing and can sharply increase the time and expense of production companies are more at risk for bottlenecks when they start the production process for a new product this is because there may be flaws in the process that the company must identify and correct this situation requires more scrutiny and fine tuning operations management is concerned with controlling the production process identifying potential bottlenecks before they occur and finding efficient solutions investopedia candra huffunderstanding a bottleneckas an example assume that a furniture manufacturer moves wood metal and other raw materials into production then incurs labor and machine costs to produce and assemble furniture when production is complete the finished goods are stored in inventory the inventory cost is often transferred to the cost of goods sold cogs when the furniture is sold to a customer if there is a bottleneck at the beginning of production the furniture maker cannot move enough raw materials into the process which means that machines sit idle and paid workers don t work productively creating a situation of underutilization of resources this increases the cost of production presents a potentially large opportunity cost and may mean that completed goods do not ship to customers on time traffic congestion on roads and highways is often caused by bottlenecks that restrict vehicle flow this can be due to poor planning roadwork or an accident that closes one or more lanes bottlenecks and production capacitya bottleneck affects the level of production capacity that a firm can achieve each month theoretical capacity assumes that a company can produce at maximum capacity at all times this concept assumes no machine breakdowns bathroom breaks or employee vacations because theoretical capacity is not realistic most businesses use practical capacity to manage production this level of capacity assumes downtime for machine repairs and employee time off practical capacity provides a range for which different processes can operate efficiently without breaking down go above the optimum range and the risk increases for a bottleneck due to a breakdown of one or more processes if a company finds that its production capacity is inadequate to meet its production goals it has several options company management could decide to lower their production goals to bring them in line with their production capacity or they could work to find solutions that simultaneously prevent bottlenecks and increase production companies often use capacity requirements planning crp tools and methods to determine and meet production goals bottlenecks and production variancesa variance in the production process is the difference between budgeted and actual results managers analyze variances to make changes including changes to remove bottlenecks if actual labor costs are much higher than budgeted amounts the manager may determine that a bottleneck is delaying production and wasting labor hours if management can remove the bottleneck labor costs can be reduced 2a bottleneck can also cause a material variance if materials are exposed to spoilage or possible damage as they sit on the factory floor waiting to be used in production bottlenecks may be resolved by increasing capacity utilization finding new suppliers automating labor processes and creating better forecasts for consumer demand real world example of a bottleneckbottlenecks may also arise when demand spikes unexpectedly and exceeds the production capacity of a firm s factories or suppliers for instance when tesla inc tsla first began production of its all electric vehicles demand was high for the vehicles and some analysts were concerned that production would be slowed due to problems in the production line in fact tesla has experienced ongoing production bottlenecks due to the need to manufacture the custom battery packs that supply their vehicles with power tesla founder elon musk has said the company s ability to expand its product lineup depends squarely on its ability to produce a large number of batteries 3 to make that happen in a joint venture with panasonic tesla opened a massive gigafactory near reno nev in 2016 which makes the company s lithium ion batteries and electric vehicle subassemblies by mid 2018 the company claimed that its factory was already the highest volume battery plant in the world in terms of gigawatt hours gwh 3 to make a dent in the waiting list for back ordered vehicles tesla says it will need to continue to invest in and build more gigafactories worldwide | |
why is it called a bottleneck | a bottleneck occurs when there is not enough capacity to meet the demand or throughput for a product or service it is called a bottleneck since the neck of a bottle narrows and tapers restricting the amount of liquid that can flow out of a bottle at once | |
what is a bottleneck in manufacturing | a bottleneck occurs in manufacturing when there is a stage or stages in the process that slows down the overall production of a good for instance initial steps may rapidly assemble key parts but a crucial next step that welds the parts together may not be able to keep pace with the earlier stages as a result a backlog occurs and efficiency is reduced the bottleneck should be solved by expanding that process investing in better technology to speed up that process or hiring more workers to help with that process | |
what is a bottleneck in the services industry | many services are carried out by human beings who have a natural limit on how fast or efficiently they can work for instance a barber may only be able to cut the hair of three individuals per hour if more people want a haircut they will have to wait and this can cause a backlog ways to reduce a bottleneck are to hire additional barbers or to increase the efficiency of the barber using technology or skills training so that they can accommodate four customers per hour the bottom linea bottleneck is a point of congestion in a production system that slows or stops progress short term bottlenecks are temporary and often caused by a labor shortage long term bottlenecks are more incorporated into the system itself and characterized by inefficient machinery or processes since bottlenecking is counterproductive and leads to a reduction in production efficiency eliminating bottlenecks is key to increasing profitability the best way to eliminate bottlenecks is to increase system capacity by restructuring the process or investing in people and machinery | |
what is the bottom line | the bottom line refers to a company s earnings profit net income or earnings per share eps the reference to the bottom line describes the relative location of the net income figure on a company s income statement the term bottom line is commonly used in reference to any actions that may increase or decrease net earnings or a company s overall profit a company that is growing its earnings or reducing its costs is said to be improving its bottom line most companies aim to improve their bottom lines through two simultaneous methods increasing revenues i e generate top line growth and improving efficiency or cutting costs investopedia eliana rodgersunderstanding the bottom linethe bottom line refers to the net income reported at the bottom of the income statement the income statement has a general format and although there are multiple variations of layouts all of them result in net income at the end of this financial statement the income statement begins with a company s main business activity s sale or service revenues at the top of the report other sources of revenue such as interest or investment income are listed next the following section reports expenses which may be grouped and reported differently depending on the industry and company preferences at the bottom of the income statement the total revenue minus total expenses leaves the net income for the accounting period that is available for company retention or dividend distribution management can enact strategies to increase the bottom line increases to top line revenues can increase the bottom line this may be done by increasing production lowering sales returns through product improvement expanding product lines or increasing product prices other income such as investment income interest income rental or co location fees collected and the sale of property or equipment also increase the bottom line the net income of the most profitable company in the world saudi aramco 1 a company can also increase its bottom line through the reduction of expenses in relation to goods and products items can be produced using cheaper raw materials or by using more efficient methods decreasing wages and benefits operating out of less expensive facilities and limiting the cost of capital are ways to decrease expenses to increase the bottom line | |
how the bottom line is used | the bottom line or net income of a company does not carry over from one accounting period to the next on the income statement accounting entries are performed to close all temporary accounts including all revenue and expense accounts at the end of the period upon the closing of these accounts the net income is transferred into retained earnings which appear on the balance sheet from here a company may elect to use net income in several different ways the bottom line can be used to issue payments to stockholders as an incentive to maintain ownership this payment is called a dividend alternatively the bottom line can be used to repurchase stock and retire equity a company may simply keep all earnings reported on the bottom line to utilize in product development location expansion or other means of improving the business bottom line vs top linebottom line refers to a company s net income found at the bottom of its income statement net income is derived from deducting expenses and cogs if applicable from revenues the bottom line shows how profitable a business is and how well it controls expenses the top line also found on the income statement is a component of net income it refers to the gross revenues generated by a business within a certain period as the name suggests the top line refers to the top line item of an income statement bottom line results can give insight on whether there are issues with the top line or revenues increases in the top line indicate an increase in sales or revenues whereas increases in the bottom line could indicate an increase in sales a decrease in expenses or both an increased top line indicates that more products and services were sold in the reported period however it does not necessarily correspond to a higher net profit or income if the top line increases yet the bottom line decreases attention should be given to expenses and other deductions from revenues example of bottom linecigna a publicly traded health insurance company reported its bottom line for the year ending december 31 2020 as 8 49 million a 65 8 increase from the previous year 2it recorded total revenues as 160 40 million and total benefits and expenses as 152 25 million resulting in an income from operations of 8 15 million from the income from operations gains and other income totaling 4 35 million were added and costs and losses of 1 64 million were deducted resulting in an income before taxes of 10 87 million taxes of 2 38 were deducted leaving a bottom line of 8 49 million special considerationsin addition to analyzing a company s bottom line for profitability there is a push to view the company holistically by measuring its impact on society and the environment hence was born the concept of the triple bottom line tpl which focuses on profit people and the planet the triple bottom line theory suggests that qualitative factors should be incorporated in measuring the success of an organization in accordance with this theory a company s commitment to being socially and environmentally responsible is used along with profitability to evaluate performance there are no defined measurements prescribed and there is no consensus among companies on how to measure success in these areas so it remains largely subjective some suggest converting social capital and environmental protections to monetary figures whereas some suggest that tbl be measured according to an index despite how it s measured it warrants attention as more focus is given to how we protect and sustain the environment and contribute to society bottom line faqsthe bottom line in business refers to a business s net income net earnings or net profit it is referred to as the bottom line as it is found at the bottom of the net income financial statement the bottom line is calculated by deducting expenses from revenues another word for bottom line is net income which is found on the bottom line of a company s net income statement other words used to describe the bottom line are net earnings and net profit the bottom line is calculated by deducting expenses from gross revenues or sales gross sales or revenues generally include the total sales and other income for a certain period examples of commonly used expenses include depreciation expenses operating expenses and interest expenses from the same accounting period the bottom line tells a company how profitable it was during a period and how much it has available for dividends and retained earnings what s retained can be used to pay off debts fund projects or reinvest in the company the bottom linethe bottom line refers to the net income of a company for a certain period it is recorded on the bottom line of the net income financial statement the bottom line is calculated by subtracting expenses from gross sales or revenues and it shows how profitable the business was during a specific accounting period business management can employ different tactics such as reducing expenses or focusing on marketing efforts to generate more sales to increase the bottom line in contrast the top line refers to the gross sales or revenues of a company during an accounting period the top line or gross revenues is used to calculate the bottom line alternatively the concept of triple bottom line suggests that companies should focus on the profitability of their company as well as their commitment to being socially and environmentally responsible | |
what is bottom up investing | bottom up investing is an investment approach that focuses on analyzing individual stocks and de emphasizes the significance of macroeconomic and market cycles in other words bottom up investing typically involves focusing on a specific company s fundamentals such as revenue or earnings versus the industry or the overall economy the bottom up investing approach assumes individual companies can perform well even in an industry that is underperforming at least on a relative basis bottom up investing forces investors to consider microeconomic factors including a company s overall financial health financial statements the products and services offered supply and demand for example a company s unique marketing strategy or organizational structure may be a leading indicator that causes a bottom up investor to invest alternatively accounting irregularities on a particular company s financial statements may indicate problems for a firm in an otherwise booming industry sector | |
how bottom up investing works | the bottom up approach is the opposite of top down investing which is a strategy that first considers macroeconomic factors when making an investment decision top down investors instead look at the broad performance of the economy and then seek industries that are performing well investing in the best opportunities within that industry conversely making sound decisions based on a bottom up investing strategy entails picking a company and giving it a thorough review before investing this strategy includes becoming familiar with the company s public research reports most of the time bottom up investing does not stop at the individual firm level although that is where analysis begins and the most weight is given the industry group economic sector market and macroeconomic factors are eventually brought into the overall analysis however the investment research process begins at the bottom and works its way up in scale bottom up investors usually employ long term buy and hold strategies that rely strongly on fundamental analysis this is because a bottom up approach to investing gives an investor a deep understanding of a single company and its stock providing insight into an investment s long term growth potential on the other hand top down investors can be more opportunistic in their investment strategy and may seek to enter and exit positions quickly to make profits off short term market movements bottom up investors can be most successful when they invest in a company they actively use and know about from the ground level companies such as meta formerly facebook google and tesla are all excellent examples of this strategy since each has a well known consumer product that can be used every day the bottom up perspective involves understanding a company s value from the perspective of relevance to consumers in the real world example of a bottom up approachmeta meta is a good potential candidate for a bottom up approach because investors intuitively understand its products and services well once a candidate such as meta is identified as a good company an investor conducts a deep dive into its management and organizational structure financial statements marketing efforts and price per share this would include calculating financial ratios for the company analyzing how those figures have changed over time and projecting future growth next the analyst takes a step up from the individual firm and compares meta s financials with that of its competitors and industry peers in the social media and internet industry doing so can show if meta stands apart from its peers or if it shows anomalies that others do not have the next step up is to compare meta with the larger scope of technology companies on a relative basis after that general market conditions are taken into consideration such as whether meta s p e ratio is in line with the s p 500 or whether the stock market is in a general bull market finally macroeconomic data is included in the decision making looking at trends in unemployment inflation interest rates gross domestic product gdp growth and so on once all these factors are built into an investor s decision starting from the bottom up then a decision can be made to make a trade bottom up vs top down investingas we ve seen bottom up investing starts with an individual company s financials and then adds increasingly more macro layers of analysis by contrast a top down investor will first examine various macro economic factors to see how these factors may affect the overall market and therefore the stock they are interested in investing in they will analyze gross domestic product gdp the lowering or raising of interest rates inflation and the price of commodities to see where the stock market may be headed they will also look at the performance of the overall sector or industry these investors believe that if the sector is doing well the stocks they are examining should also do well and bring in returns these investors may look at how outside factors such as rising oil or commodity prices or changes in interest rates will affect certain sectors over others and therefore the companies in these sectors for example suppose the price of a commodity such as oil goes up and the company they are considering investing in uses large quantities of oil to make their product in that case the investor will consider how strong an effect the rise in oil prices will have on the company s profits so their approach starts very broad looking at the macroeconomy then at the sector and then at the stocks themselves top down investors might also choose to invest in one country or region if its economy is doing well for instance if european stocks are faltering the investor will stay out of europe and may instead pour money into asian stocks if that region is showing fast growth bottom up investors will research a company s fundamentals to decide whether or not to invest in it on the other hand top down investors consider the broader market and economic conditions when choosing stocks for their portfolio | |
what is a bounced check | a bounced check is slang for a check that cannot be processed because the account holder has non sufficient funds nsf available for use banks return or bounce these checks also known as rubber checks rather than honor them and banks charge the check writers nsf fees passing bad checks can be illegal and the crime can range from a misdemeanor to a felony depending on the amount of the check and whether the activity involved crossing state lines 1understanding a bounced checkmany times bad checks are written inadvertently by people who simply are unaware that their bank balances are too low to avoid bouncing checks some consumers use overdraft protection or attach a line of credit to their checking accounts a bounced check may result in overdraft fees restrictions on writing additional checks and negative impacts to your credit score writing too many bounced checks may also prevent you from paying merchants by check in the future many merchants use a verification system called telecheck to help them determine if a customer s check is good if this system connects the check you ve just presented for payment to a history of unpaid checks the merchant will decline your check and ask you for a different form of payment 2 | |
when there are insufficient funds in an account and a bank decides to bounce a check it charges the account holder an nsf fee if the bank accepts the check but it makes the account negative the bank charges an overdraft fee if the account stays negative the bank may charge an extended overdraft fee | different banks charge different fees for bounced checks and overdrafts but as of 2022 the average overdraft fee was 29 80 3 banks usually assess this fee on drafts worth 24 and these drafts include checks as well as electronic payments and some debit card transactions | |
what happens when a check bounces | bank fees are just one part of bouncing a check in many cases the payee also assesses a charge for example if someone writes a check to the grocery store and the check bounces the grocery store may reserve the right to redeposit the check along with requiring the writer to pay them a bounced check fee in other cases if a check bounces the payee reports the issue to debit bureaus such as chexsystems which collects financial data on savings and checking accounts negative reports with organizations like chexsystems can make it hard for consumers to open checking and savings accounts in the future 4 in some cases businesses collect a list of customers who have bounced checks and ban them from writing checks at that facility again | |
how to avoid bounced checks | consumers can reduce the number of bounced checks they write by tracking their bank balances more carefully by using an ironclad system of recording every single debit and deposit on a check register as soon as it occurs or by keeping close tabs on their checking account by using online banking consumers can also fund a savings account and link it to their checking account to cover overdrafts alternatively consumers may opt to write fewer checks or use cash debit cards and immediate online payments such as mobile wallets paypal or the like for discretionary spending | |
how serious is a bounced check | if you write a check for an amount that you had insufficient funds to cover your bank will most likely charge you a non sufficient funds nsf fee as well as potentially an overdraft fee the business to which you wrote the bounced check may also levy a charge against you for the lack of payment other consequences of a bounced check include businesses refusing to accept your checks a reduction of your credit score and possibly even legal trouble 5 | |
how long does it take for a check to bounce | generally speaking a check for an amount greater than 225 won t clear until two or more business days after it s deposited at a bank 6 in the same vein it typically takes at least two business days for a bad check to bounce will my bank notify me if a check bounces banks aren t required to notify an account holder when a check they signed bounces due to non sufficient funds however some banks may offer options for customers to enroll in sign up for in order to be notified of overdrafts 7the bottom linefrom costly fees to hampering your ability to open new checking and savings accounts bounced checks can have serious consequences fortunately through preparation and diligence they can be avoided if you re concerned about accidentally writing a bad check consider signing up for overdraft protection through your bank and or linking a savings account to your checking account | |
what are boundary conditions | boundary conditions are the maximum and minimum values used to indicate where the price of an option must lie boundary conditions are used to estimate what an option may be priced at but the actual price of the option may be higher or lower than what is set as the boundary condition for all options contracts the minimum boundary value is always zero since options cannot be priced at negative money meanwhile maximum boundary values will differ depending on the whether the option is a call or put and if it is an american option or european option understanding boundary conditionsbefore the introduction of binomial tree pricing models and the black scholes model investors and traders relied heavily on boundary conditions to set the minimum and maximum possible values for the call and put options that they were pricing these boundary conditions change according to whether the option is american or european since american options can be exercised early this ability to exercise at any point prior to the expiration date affects the way the price is calculated and american options will trade at a premium relative to equivalent european options by virtue of this feature minimum and maximum boundary conditionsthe absolute minimum value for an option is zero since an option cannot be sold for a negative amount of money the maximum value in a boundary condition is set to the current value of the underlying asset if the price of the underlying asset is greater than the price indicated in the call option then the investor would not exercise the option since exercising the option would result in the investor paying more than the market price this is the case for both a european call and an american call the maximum value of a put option is reached when the underlying asset has no worth such as in the case of a company s bankruptcy when the underlying security is a stock for a european put option the maximum value computed as is the present value of the exercise price this is because european options cannot be exercised at any point and instead can only be exercised at expiration at a specified price the value of an american option must be at least as great as a european option while technically the maximum value of an asset could be set at infinity an asset could increase in value with no ceiling this is considered impractical the value of the underlying asset is likely to fall within a reasonable boundary that can be modeled with standard deviations or other stochastic methods | |
what is a box spread | a box spread or long box is an options arbitrage strategy that combines buying a bull call spread with a matching bear put spread a box spread can be thought of as two vertical spreads that each has the same strike prices and expiration dates box spreads are used for borrowing or lending at implied rates that are more favorable than a trader going to their prime broker clearing firm or bank because the price of a box at its expiration will always be the distance between the strikes involved e g a 100 pt box might utilize the 25 and 125 strikes and would be worth 100 at expiration the price paid for today can be thought of as that of a zero coupon bond the lower the initial cost of the box the higher its implied interest rate this concept is known as a synthetic loan understanding a box spreada box spread is optimally used when the spreads themselves are underpriced with respect to their expiration values when the trader believes the spreads are overpriced they may employ a short box which uses the opposite options pairs instead the concept of a box comes to light when one considers the purpose of the two vertical bull call and bear put spreads involved a bullish vertical spread maximizes its profit when the underlying asset closes at the higher strike price at expiration the bearish vertical spread maximizes its profit when the underlying asset closes at the lower strike price at expiration by combining both a bull call spread and a bear put spread the trader eliminates the unknown namely where the underlying asset closes at expiration this is so because the payoff is always going to be the difference between the two strike prices at expiration if the cost of the spread after commissions is less than the difference between the two strike prices then the trader locks in a riskless profit making it a delta neutral strategy otherwise the trader has realized a loss comprised solely of the cost to execute this strategy box spreads effectively establish synthetic loans like a zero coupon bond they are initially bought at a discount and the price steadily rises over time until expiration where it equals the distance between strikes box spread constructionbve hsp lsp mp bve npp commissions ml npp commissions where bve box value at expiration hsp higher strike price lsp lower strike price mp max profit npp net premium paid ml max loss begin aligned text bve text hsp text lsp text mp text bve text npp text commissions text ml text npp text commissions textbf where text bve text box value at expiration text hsp text higher strike price text lsp text lower strike price text mp text max profit text npp text net premium paid text ml text max loss end aligned bve hsp lspmp bve npp commissions ml npp commissionswhere bve box value at expirationhsp higher strike pricelsp lower strike pricemp max profitnpp net premium paidml max loss to construct a box spread a trader buys an in the money itm call sells an out of the money otm call buys an itm put and sells an otm put in other words buy an itm call and put and then sell an otm call and put given that there are four options in this combination the cost to implement this strategy specifically the commissions charged can be a significant factor in its potential profitability complex option strategies such as these are sometimes referred to as alligator spreads there will be times when the box costs more than the spread between the strikes should this be the case the long box would not work but a short box might this strategy reverses the plan selling the itm options and buying the otm options box spread examplecompany a stock trades for 51 00 each options contract in the four legs of the box controls 100 shares of stock the plan is to the total cost of the trade before commissions would be 329 123 269 97 378 the spread between the strike prices is 53 49 4 multiply by 100 shares per contract 400 for the box spread in this case the trade can lock in a profit of 22 before commissions the commission cost for all four legs of the deal must be less than 22 to make this profitable that is a razor thin margin and this is only when the net cost of the box is less than the expiration value of the spreads or the difference between the strikes hidden risks in box spreadswhile box spreads are commonly used for cash management and are seen as a way to arbitrage interest rates with low risk there are some hidden risks the first is that interest rates may move strongly against you causing losses like they would on any other fixed income investments that are sensitive to rates a second potential danger which is perhaps less obvious is the risk of early exercise american style options such as those options listed on most u s stocks may be exercised early i e before expiration and so it is possible that a short option that becomes deep in the money can be assigned in the normal construction of a box this is unlikely since you would own the deep call and put but the stock price can move significantly and then find yourself in a situation where you might be assigned this risk increases for short boxes written on single stock options as was the infamous case of a robinhood trader who lost more than 2 000 on a short box when the deep puts that were sold were subsequently assigned causing robinhood to exercise the long calls in an effort to come up with the shares needed to satisfy the assignment this debacle was posted online including on various subreddits where it has become a cautionary tale especially after said trader boasted that it was a virtually riskless strategy the lesson here is to avoid short boxes or to only write short boxes on indexes or similar that instead use european options which do not allow for early exercise frequently asked questionsa box strategy is best suited for taking advantage of more favorable implied interest rates than can be obtained through usual credit channels e g a bank it is therefore most often used for purposes of cash management a long box is in theory a low risk strategy that is sensitive primarily to interest rates a long box will always expire at a value worth the distance between the two strike prices utilized a short box however may be subject to early assignment risk when using american options a short box in contrast to a standard long box involves selling deep itm calls and puts and buying otm ones this would be done if the price of the box is trading at higher than the distance between strikes which can be caused for several reasons including a low interest rate environment or pending dividend payments for single stock options | |
what is brain drain | brain drain is a slang term that refers to a substantial emigration or migration of individuals out of a country it can result from turmoil the existence of favorable professional opportunities in other countries or a desire to seek a higher standard of living brain drain can also occur at the organizational or industrial levels when workers perceive better pay benefits or upward mobility in another company or industry understanding brain drainbrain drain is the movement of people from one area to another it often occurs between countries and cities where there s a sharp discrepancy in available opportunities individuals might move to look for work or a better standard of living brain drain can also refer to the movement of professionals between corporations or industries for better pay or opportunities brain drain causes countries industries and organizations to lose a core portion of valuable individuals the term is often used to describe the departure of certain professionals including doctors healthcare workers scientists engineers or financial professionals the places they leave are harmed in two ways when these people leave professionals often earn large salaries so their departure reduces consumer spending in that region or possibly in the country overall geographic organizational and industrial brain drainbrain drain can occur on several levels and in several forms geographic brain drain occurs when talented professionals flee one country or region and move to a country that they feel gives them better and more opportunities several common causes can precipitate brain drain on the geographic level they include political instability poor quality of life limited access to health care and a shortage of economic opportunity these factors prompt skilled and talented workers to leave source countries for places that offer better opportunities organizational brain drain involves the mass exodus of talented workers from a company often because they sense instability or a lack of opportunity within the company they may feel that they can realize their career goals more easily at another firm industrial brain drain happens when skilled workers exit not only a company but an entire industry these two forms of brain drain are usually a byproduct of a rapidly evolving economic landscape in which companies and industries that are unable to keep up with technological and societal changes lose their best workers to companies and industries that can causes of brain drainseveral underlying factors can lead to this phenomenon they can vary based on the type of brain drain that occurs some of the main reasons why people choose to leave their home countries regions include most brain drain is geographic but it can also occur as a result of situational factors skilled workers may leave companies and industries when machines and technology replace human labor brain drain is also known as a human capital flight effects of brain drainthe effects of brain drain are felt not only in the area where the brain drain occurs but also where brain gain occurs the place to which individuals move it can often have a chain reaction areas affected by brain drain end up with a dearth of human capital professionals who go elsewhere end up leaving a large gap behind one that isn t always easy to fill consider medical professionals in developing nations who move to parts of the developed world for better opportunities there may not be enough qualified people to replace them when they leave this affects the overall quality of health care another effect on areas that experience brain drain is the loss of revenue governments rely on income taxes to fund their social programs and infrastructure projects a mass exodus leads to a drop in tax receipts that can stunt economic growth and development areas that see brain gain are also impacted they can experience overcrowding especially in major metropolitan areas where more opportunities are available a lot of people in one area puts a strain on resources and this can lead to higher prices and taxes measures to reduce brain drainthere isn t an easy fix for brain drain but business and government leaders can do some things to reduce or minimize it examples of brain drainbrain drain has notably occurred in puerto rico and ukraine war and conflict are big catalysts for brain drain this was evident following russia s invasion of ukraine in 2022 studies conducted by the european parliament indicated a massive displacement of the country s population across the european union eu even before russia s invasion one of the main areas examined was the movement of students the number of students who left ukraine doubled from 25 000 to 50 000 between 2007 and 2014 that number jumped to about 78 000 by 2019 the majority of these students were enrolled in post secondary institutions in poland 1some professionals leaving ukraine have had a tough time finding work in their fields in other countries because of a lack of available work or transferrable skills some are choosing to take on lower paying jobs to find a sense of security and safety 2russia has experienced a flight of human capital too economic sanctions placed on the country by the u s the united kingdom and canada have had a profound impact on russian citizens the federal government implemented laws to punish citizens who supported ukraine it s been estimated that as many as 200 000 russians had left the country by 2022 3brain drain was a significant consequence of the puerto rican debt crisis in 2019 it was particularly evident in the exodus of skilled medical professionals this hit the island hard almost half of puerto rico s residents receive medicare or medicaid but the island receives significantly fewer federal funds to pay for these programs than similarly sized states on the mainland such as mississippi 45this lack of funding combined with the island s dire financial situation has precluded its ability to offer competitive compensation to doctors nurses and other medical staff these professionals were reported to have left the island en masse for more lucrative opportunities on the mainland as a result this form of brain drain was prompted by hurricane maria which hit the island in september 2017 creating incentives for emigration 6 | |
what does brain drain mean | brain drain is a slang term that refers to the loss of human capital from one area to another or from one industry to another it usually happens when skilled individuals and professionals leave their home countries often developing nations and go elsewhere to take advantage of better opportunities it also occurs when individuals leave one area of the workforce and go to another | |
how does economic growth help fight brain drain | brain drain occurs when there s a lack of opportunity in a certain area professionals living in a developing nation might leave in search of better opportunities in parts of the developed world making economic investments to boost growth often provides incentives for people to stay because it means access to better and more resources personal economic prosperity and the potential for a higher standard of living | |
what impact does brain drain have on developing nations | brain drain and the exodus of human capital often have a big impact on developing nations it leaves a hole that s hard to fill because there may not be as many people with similar skills to fill the void it also leads to a loss in tax revenue and this can result in higher taxation to make up for the shortfall citizens may not be able to access quality resources such as education and health care and this also affects their quality of life the bottom linehuman capital is a vital part of the economy but these individuals may look elsewhere for better jobs higher pay and an improved standard of living when conditions get tough a mass exodus of people can lead to brain drain it can have lasting effects on the local economy when human capital is depleted from an area | |
what is branch accounting | branch accounting is a bookkeeping system in which separate accounts are maintained for each branch or operating location of an organization typically found in geographically dispersed corporations multinationals and chain operators it allows for greater transparency in the transactions cash flows and overall financial position and performance of each branch branch accounts can also refer to records individually produced to show the performance of different locations with the accounting records actually maintained at the corporate headquarters however branch accounting usually refers to branches keeping their own books and later sending them into the head office to be combined with those of other units | |
how branch accounting works | in branch accounting each branch defined as a geographically separate operating unit is treated as an individual profit or cost center its branch has its own account in that account it records such items as inventory accounts receivable wages equipment expenses such as rent and insurance and petty cash like any double entry bookkeeping system the ledger keeps a tally of assets and liabilities debits and credits and ultimately profits and losses for a set period technically speaking in bookkeeping terms the branch account is a temporary or nominal ledger account it lasts for a designated accounting period at the period s end the branch tallies up its figures and arrives at ending balances which are then transferred to the appropriate head office or head department accounts the branch account is left with a zero balance until the accounting process begins all over again with the next accounting period or cycle 1branch accounting methodsthere are several different methods for keeping branch accounts depending on the nature and complexity of the business and the operational autonomy of the branch the most common include 2 | |
where branch accounting applies | branch accounting can also be used for a company s operating divisions which usually have more autonomy than branches as long as the division is not set up legally as a subsidiary company a branch is not a separate legal entity although it can somewhat confusingly be referred to as an independent branch because it keeps its own accounting books however branch accounting is not the same as departmental accounting departments may have their own accounts but they usually operate from the same physical location a branch by its nature is a geographically separate entity 3branch accounting is a common practice for businesses that operate in different geographic locations history of branch accountingthough it seems synonymous with contemporary chain stores and franchise operations branch accounting actually goes back a long way venetian banks maintained a form of it as early as the 14th century the ledgers of a firm of venetian merchants dating from around 1410 also show a form of it to try to account for overseas and home accounts luca pacioli s summa de arithmetica 1494 the first accounting textbook devotes a chapter to it by the 17th century branch accounting was being widely used by german counting houses and other businesses moravian settlements throughout the thirteen original colonies used it for their books in the mid 1700s 45advantages and disadvantages of branch accountingthe primary advantages and often the objectives of branch accounting are better accountability and control since the profitability and efficiency of different locations can be closely tracked on the downside branch accounting may involve added expenses for an organization in terms of manpower working hours and infrastructure a separate account coding structure must be maintained for each operating unit it may be necessary to appoint branch accountants to ensure accurate financial reporting and compliance with head office procedures and processes 6 | |
what is branch banking | branch banking is the operation of storefront locations away from the institution s home office for the convenience of customers since the 1980s branch banking in the u s has gone through significant changes in response to a more competitive and consolidated financial services market one of the most significant changes is that since 1999 banks have been permitted to sell investments and insurance products as well as banking services under the same roof history and current landscape of branch bankingthe riegle neal interstate banking and branching efficiency act of 1994 authorized well capitalized banks to acquire branch offices or open new ones anywhere in the united states including outside their home states 1 at that time most states had already passed laws enabling interstate branching then in 1999 congress repealed laws that forced banks to keep their investment services separate from their banking services 2 those two actions combined led to the current proliferation of branch offices that are dotted around the u s after the financial crisis of 2008 2009 the banking industry went through a consolidation phase the branch bank for most americans now means one of the big four banks jpmorgan chase co bank of america wells fargo or citibank more recent innovations such as internet banking services and mobile banking apps have dramatically changed the banking landscape according to a survey conducted by morning consult on behalf of the american bankers association mobile and online banking increased considerably after the covid 19 pandemic as of 2021 44 of bank consumers turn to mobile apps compared to 33 before the pandemic and 26 use a computer or laptop to manage their accounts compared to 24 before the pandemic 3in addition the covid 19 crisis increased the rate of bank branch closures in 2020 just under 3 700 bank branches shut their doors 4 however banks are constrained from closing some branches by the terms of the community reinvestment act of 1977 which requires banks to make an effort to provide services to low and moderate income neighborhoods advantages of branch bankingbranch banking allows a financial institution to expand its services outside of its home location and into smaller storefronts that function as extensions of its greater operations for some institutions this can be a cost saving method it allows smaller offices to provide key services while larger locations may have additional offerings for customers branch banking offers the added value of interacting with someone in person a richer experience and connection that can t be replicated by digital channels although many customers turn to digital channels for simple banking tasks like checking an account s balance or making a transfer they are visiting branches for those services that can t be provided online like withdrawing cash or using a safety deposit box other advantages of branch banking include the ability to complete complex transactions get information on specialized financial products or receive financial advice branch banking networks have evolved into multi state financial service networks that allow depositors to access their accounts from any banking office unit banking vs branch bankingunit banking refers to a single usually very small bank that provides financial services to its local community typically a unit bank is independent and operates without any connecting banks or branches in the area however not all unit banks are independent even if they do not share a name with a larger banking entity there are some banks that retain a familiar name even though they are owned by a larger holding company | |
what is the difference between branch banking and chain banking | chain banking is a form of bank governance in which individuals or an entity takes control of at least three banks that are independently chartered it differs from branch banking because chain banks are separately owned and not part of the same entity | |
what is a banking desert | a banking desert is a census tract or neighborhood with no bank branches in it or within 10 miles of its center | |
what is retail banking | retail banking provides financial services to individual consumers rather than large institutions it s also known as consumer banking or personal banking the services provided by retail banking include savings and checking accounts debit or credit cards personal loans mortgages and certificates of deposit among others the bottom linebranch banking makes banking more convenient and accessible to customers each branch provides the same services as the main office although online banking is growing in popularity and is more convenient for most people branch banking offers a human connection that can t be replicated online as well as the ability to withdraw cash access to financial advice and a wider variety of products and services | |
what is a branch manager | the term branch manager refers to an executive who is in charge of a particular location or branch office of a bank or other financial services company branch managers are typically responsible for all of the functions of that branch office including hiring employees overseeing the approval of loans and lines of credit locs marketing building a rapport with the community to attract business assisting with customer relations and ensuring that the branch meets its goals and objectives in a timely manner understanding branch managersa financial institution s executives place great confidence in the company s branch managers expecting them to run their locations as their own businesses a branch manager s job description includes assuming responsibility for virtually all functions of their branch including growing that location s customer base and elevating the community s perception of the company s brand branch managers are also responsible for delegating tasks to skilled workers and for their successes and failures in fact the branch manager is responsible for the success or failure of the branch they manage excellent multitasking and organization skills are necessary to accomplish tasks in a timely and efficient manner not only for the branch manager but also for the people they manage the branch manager also oversees the performance of other employees such as bank tellers back office workers and loan officers although the term branch manager commonly refers to the leader of a bank location it can also refer to an individual responsible for the office of any type of corporation special considerationsthe bureau of labor statistics bls is the go to source for information about the labor market and the u s economy as a whole its occupational outlook handbook provides details about various careers including job descriptions outlook and pay scales although it doesn t have a distinct category for bank branch managers it does provide information for financial managers a category that includes these professionals according to the bls handbook financial managers earned an average annual salary of 134 180 or 64 51 per hour in 2020 1the job outlook for financial managers is faster than average growth when compared to other industries the bls predicts this field will grow by 15 between 2019 and 2029 the agency expects that the number of jobs will increase to 108 100 between this 10 year period 1requirements for branch managersbecause their responsibilities include developing and maintaining good relationships with customers and employees branch managers should possess strong sales people management and customer service skills other attributes required of a branch manager are diligence strong analytical skills and the ability to prioritize multitask and focus on detail branch managers are expected to be proactive about networking to bring in new business and increase revenue a new branch manager might join the local chamber of commerce and attend business and networking events where one often can meet influential community members for example a branch manager might meet a local hospital administrator and work out a deal to provide the branch s services to the hospital s employees branch manager qualificationsbranch managers usually have undergraduate degrees in finance accounting or related fields some financial institutions may look at a candidate with a bachelor s degree in another discipline as long as they have a master s degree in a finance related field in fact graduate degrees are preferred in many competitive areas where branch managers are in high demand financial institutions hiring for branch manager positions look for candidates with prior financial experience proven leadership experience and a track record of increasing the number of a bank s accounts banks expect branch managers to be deeply knowledgeable about banking regulations once hired branch managers have the freedom to choose their teams but they also must be able to ensure their teams success | |
what does a branch manager do | most financial institutions such as banks have operations in more than one location known as branches a branch manager is any individual that oversees the operations of one specific branch areas that a branch manager oversees include managing employees ensuring sales targets are met staff training marketing and administration | |
what are the qualifications needed to be a branch manager | branch managers will typically need a bachelor s degree management degrees are often helpful in becoming a branch manager having an understanding of financial terms and experience in operational management will also help a potential bank manager candidate will need at least five to seven years of work experience to be considered for such a role and to have developed the appropriate skills for the role an individual will need good organizational financial problem solving and team management skills to be a good branch manager | |
how much does a branch manager make | the average annual salary for a branch manager as of 2021 is 62 884 this ranges from 42 000 on the low end to 95 000 on the high end salaries will depend on the institution the location and the experience of the individual among other variables 2 | |
what is a brand | to marketing professionals a brand is a product or a business that has a distinct identity in the perception of consumers the brand is created through elements of design packaging and advertising that as a whole distinguish the product from its competitors the product contributes to the brand equity of the company that produces it a successfully executed brand provides enormous value to a company giving it a competitive edge over others in the same industry as such many companies seek legal protection for their brands by obtaining trademarks candra huff investopediaunderstanding brandsa brand is an intangible asset made up of many elements together these elements help consumers identify a product and give them reasons to buy it rather than its competitors the brand may convey a message that the product is more effective easier to use better tasting cheaper classier hipper or more environmentally sound than its competitors this is most challenging of course when the product is essentially identical to cheaper competitors advil for example is a brand name for ibuprofen through effective advertising and packaging its parent company attempts to convince consumers that advil s ibuprofen is a better choice than the cheaper generic versions of ibuprofen that sit next to it on pharmacy shelves a product s logos and slogans are elements of its brand and are designed to support a product s brand identity allstate s slogan you re in good hands with allstate was introduced in the 1950s it suggests that its insurance customers can count on it being reliable and competent when they need its help its commercials reinforce the message other slogans are harder to translate but nevertheless become an intrinsic part of a brand s identity since the 1930s the slogan for kellogg s rice krispies has been snap crackle pop it says that the product adds a pleasing noise to your breakfast but also evokes images of the cheery elves that serve as the cereal s commercial spokesmen successful marketing keeps a company s brand front and center in people s minds at least at the moment of decision making that s why the brand is considered to be one of a company s most valuable and important assets it carries tremendous monetary value affecting both the bottom line and for public companies shareholder value a company can become inseparable from its brand coca cola the soft drink is synonymous with coca cola itself even though the company now owns schweppes dr pepper and hi c among hundreds of other brands newer brands face a great deal more urgency in establishing themselves with consumers findstack estimates that a product s website has precisely 0 5 of a millisecond to convince a consumer to stay or go trademarks identify exclusive ownership of a brand and its associated marketing tools registering trademarks prevents others from using substantially identical products or services without permission special considerationsin the age of reality television and social media a person can be a brand the kardashian family members developed brand value after gaining popularity from their long running reality show collectively and as individuals they have used their name to successfully launch media and modeling careers spinoff shows cosmetics perfumes and clothing lines history of brandsthe concept of branding may go as far back as 2000 b c when merchants began considering how they could sell their wares more effectively merchants in ancient babylon developed sales pitches to lure in customers craftsmen branded or carved symbols on their merchandise to indicate their origin tavern owners hung attractive signs outside 1the word branding for product marketing might have come into use in the 19th century when western cattle ranchers started using hot irons to mark their livestock with the ranch s initials or a symbol their initial purpose was less marketing than protection from cattle rustlers but the association stuck branding as mass marketing took off in the 19th century as sellers of products like flour began thinking about ways to distinguish themselves from their competitors 2today s consumers buy brands that reflect their values a total of 53 in one survey said that they prefer brands that get involved in at least one social issue that isn t related to the business 3types of brandsthe type of brand used depends on the entity using it the following are some of the most common forms of brands companies might choose to create a master brand identity the virgin group founded by richard branson includes hotels telecommunications and airlines but all sub brands carry the master brand identity creating a brand | |
when a company seeks to define its public image it first must determine its brand identity or how it wants to be viewed by the public a company logo reflects its message slogan and product | the goal is to make the brand memorable and appealing to the consumer or rather to the consumer that the company is targeting whether that is hip single people couples with small children or affluent retirees the company may use a design firm or logo design software to come up with ideas for the visual aspects of a brand such as its logo a successful brand accurately portrays the message or feeling that the company wants to get across this results in brand awareness or recognition of the brand s existence and what it offers once a brand has created positive sentiment among its target audience the firm is said to have built brand equity some firms with brand equity and very recognizable product brands include disney coca cola ferrari apple and nike if done right a brand results in an increase in sales not only for the specific product being sold but also for other products sold by the same company a good brand engenders trust and after having a good experience with one product the consumer is more likely to try another product related to the same brand the phenomenon is known as brand loyalty the top five global brands in 2023 were apple microsoft amazon google and samsung according to a ranking by interbrand microsoft s score was up a big 14 year over year 5benefits of brandscreating a brand provides numerous benefits to a corporation or an individual a company that gets its message across is able to induce and evoke emotion within its customer base consumers develop unique relationships with these companies the companies rely on these customers to help draw in others this helps companies build trust and credibility that give them a competitive edge against the competition it also helps companies introduce new products and services consumers stay loyal to brands they know and trust and with which they already have a relationship that makes them more likely to spend when new products are released even if they re more expensive apple is a classic example the company built a hugely loyal customer base that is willing to overlook the higher price tag associated with an imac macbook ipad or iphone because of their loyalty to the brand its customers don t hesitate to replace their existing apple gadgets with new apple gadgets as the company releases them | |
what does brand mean in marketing | a brand is a product or service that has a unique and immediately recognizable identity that distinguishes itself from others in its industry the consumer associates the product name label and packaging with particular attributes such as value quality or tastefulness a cough drop is just a cough drop but when you go to buy a bag of them you might choose ricola luden s or beekeeper s naturals at least in part based on the brand message that you have received | |
what is brand equity | brand equity is the commercial value of a product s reputation to the company that owns it a company s price may be determined by adding up the value of its buildings inventory and equipment but its value increases if the company owns one or more brands that have attained a solid reputation with consumers can great brands last forever some of america s greatest brands have died they may have failed to keep up with the times or the businesses that owned them may have mismanaged them bobvila com lists these brands all of them once household names that have vanished borders pan american f w woolworth toys r us blockbuster tower records compaq oldsmobile and howard johnson s 6to be fair toys r us made a comeback in 2022 as a store within a store at some macy s locations the bottom line | |
when we hear the word brand most of us think of a logo slogan or other identifiable mark but that s just one part of the definition the term brand is actually an intangible marketing concept that helps people recognize and identify a product and at best reach for it instead of one of its competitors | a company s brands are among the most important and valuable assets that it owns they can make or break a company that s why companies do extensive research before launching a new product they work to identify the target market for their product from there every aspect of its content design and marketing is tailored to the brand identity that they want to create for that market | |
what is brand awareness | brand awareness is a marketing term for the degree to which consumers recognize a product by its name ideally consumers awareness of the brand may include positive perceptions of the qualities that distinguish the product from its competition creating brand awareness is a key step in promoting a new product or reviving an older brand | |
how brand awareness works | products and services that maintain a high level of brand awareness are likely to generate more sales consumers confronted with choices are simply more likely to buy a name brand product than an unfamiliar one consider the soft drink industry removed from their packaging many soft drinks are indistinguishable the giants in the industry coca cola and pepsi rely on brand awareness to make their brands the ones consumers reach for over the years these companies have employed advertising and marketing strategies that have increased brand awareness among consumers and that has directly translated into higher sales this higher rate of brand awareness for dominant brands in a category can serve as an economic moat that prevents competitors from gaining additional market share special considerations regarding brand awarenessas of 2019 internet users spent approximately 38 minutes per day on facebook 26 minutes on snapchat and 27 minutes on instagram 1not surprisingly companies are now spending a great deal of energy promoting brand awareness on these platforms this has led to new forms of promotion in which consumers themselves generate discussions about products and services that they like and use targeted ads on facebook and instagram account for a large majority of brand awareness tactics used especially among millennial and gen z audiences 2inevitably consumers also share unfavorable experiences and marketers are adapting to that reality it has become crucial for a company to respond to negative reviews and offer a solution to the customer s problem in real time but as consumers view and interact with social media posts and updates brand awareness will increase for brand awareness to be most productive consumers should be able to connect to the company s website seamlessly from the social media platform other ways to create brand awarenessprint media is not the force it once was but there are still consumers who read newspapers and magazines advertisements placed strategically such as in targeted locations in the appropriate section of a newspaper or in specialized publications can attract the viewer s attention and create brand awareness for example a new company that will be trading on the forex fx may advertise in a magazine that focuses on global trade and currencies in order to create brand awareness among investors advertising in physical locations such as inside stores is also used to create brand awareness impulse purchase products are well suited for in store distribution and advertising a company marketing a new candy bar may distribute the product at a point of sale pos location to create brand awareness event sponsorship is another effective way to create brand awareness charitable events sporting events and fundraisers allow for prominent visibility of a company s name and logo for example a health insurance company may distribute complimentary company branded health packs at a charity marathon this associates the brand with an act of goodwill and community feeling awareness of the brand has increased and its image has been burnished | |
what is brand equity | brand equity is the value premium that a company generates from a product with a recognizable name when compared to a generic equivalent companies can build their brand equity with their products by making those products memorable easily recognizable and superior in quality and reliability mass marketing campaigns also help to create and strengthen brand equity | |
when a company has positive brand equity customers willingly pay a high price for its products even though they could get the same thing from a competitor for less customers in effect pay a price premium to do business with a firm they know and admire | because the company with brand equity does not incur a higher expense than its competitors to produce the product and bring it to market the difference in price goes to their margin the firm s brand equity enables it to make a bigger profit on each sale investopedia yurle villegasunderstanding brand equitybrand equity has a few basic components foremost is consumer perception which includes both knowledge of and experience with a brand and its products consumer perception relates directly to brand equity the perception that a consumer segment has of a brand results in either positive or negative effects for the company if the perception is positive the organization its products and its financials can benefit brand equity builds if the perception is negative the opposite is true these effects can turn into either tangible or intangible value if the effect is positive tangible value is realized as increases in revenue or profits intangible value is realized in marketing as awareness or goodwill if the effects are negative the tangible or intangible value is also negative for example if consumers prefer a generic product over a branded one the brand is said to have negative brand equity such willingness to ignore the branded product might exist if a company has a major product recall or causes a widely publicized environmental disaster brand equity is an extension of brand recognition but more so than recognition brand equity is the added value associated with a particular company brand equity s effect on profit marginsthe importance of brand equity s potential to boost profits and increase profit margins is demonstrated by the effort that certain companies make to support the high quality of their products | |
when customers attach a level of quality or prestige to a brand they perceive that brand s products as being worth more than products made by competitors thus they are willing to pay more for them in effect the market bears higher prices for brands that have high levels of brand equity | yet the cost of manufacturing a polo shirt and bringing it to market is not higher at least to a significant degree for an established company such as lacoste than it is for a less reputable brand however because its customers are willing to pay more it can charge a higher price for that shirt with the difference going to profit therefore positive brand equity can increase profit margin per customer brand equity has a direct effect on sales volume because consumers gravitate toward products that either have great reputations themselves or come from companies with great reputations or both for example when apple releases a new product customers line up around the block to buy it even though it is usually priced higher than similar products from competitors one of the primary reasons why apple s products sell in such large numbers is that the company has amassed a staggering amount of positive brand equity because a certain percentage of a company s costs to sell products is fixed higher sales volumes translate to greater profit margins customer retention is the third area in which brand equity affects profit margins returning to the apple example most of the company s customers own not just one apple product but several plus they eagerly anticipate new releases apple s customer base is fiercely loyal sometimes bordering on evangelical the company enjoys high customer retention another result of its brand equity by retaining existing customers apple increases profit margins by lowering the amount it has to spend on marketing to achieve the same sales volume it costs less to retain an existing customer than to acquire a new one the concept of brand equity was first introduced in the 1980s by david aaker a marketing professor at the university of california berkeley examples of brand equitya general example of the importance of brand equity is when a company wants to expand its product line if the brand s equity is positive the likelihood that customers might buy its new product increases customers associate the new product with an existing successful brand for example if campbell s releases a new soup the company is likely to keep it under the same brand name rather than inventing a new one the positive feelings and trust that generations of customers already have for the campbell soup company established in 1869 and its products make a new product more enticing compared to a soup associated with an unfamiliar brand name 1here are some other examples of companies with significant brand equity manufactured since 1955 first by mcneil and then by subsidiaries of johnson johnson tylenol is a first line treatment for mild to moderate pain 2 tylenol has been able to grow its market with the creation of additional products that emphasize the brand tylenol extra strength tylenol cold flu children s tylenol and tylenol sinus congestion pain started in 1995 costco s kirkland signature brand has maintained positive growth and represents solid profit margins as well as a growing portion of the company s overall sales this is an example of consumers forsaking more expensive products from well known companies and flocking to costco s typically lower priced products because of their high quality and value 3kirkland signature encompasses hundreds of items including clothing coffee laundry detergent food and beverages costco also provides members with exclusive access to cheaper gasoline at its private gas stations recognized as one of the most admired companies in the world by fortune magazine in 2023 starbucks is held in high regard for its pledge to social responsibility 4 with 38 038 stores operating around the globe starbucks remains the premier roaster and retailer of arabica coffee beans and specialty coffees 5with profit margins from 23 32 coca cola is often rated the most valuable soda brand in the world 6 however the company brand itself represents more than just products it s symbolic of positive experiences and relationships a proud history involving consumers and even of the united states itself also recognized for its unique marketing campaigns the coca cola corporation has had a global impact on consumer engagement porsche a brand in the automobile sector with strong equity retains its image and reliability through the use of high quality unique product materials viewed as a luxury brand porsche provides owners of its vehicles not only with a high quality car but a memorable experience compared to other vehicle brands in its class porsche was the top luxury car brand in 2023 according to u s news world report 7tracking a company s brand equitybrand equity is a major indicator of company strength and performance specifically in the public markets investors and analysts can look to brand equity as a gauge for potential stock performance they may make solid and growing brand equity part of the criteria for investment selection often companies in the same industry or sector compete on brand equity for example two top companies home depot and lowe s home improvement consistently rank as the top two home improvement store brands as they did in 2024 8a large component of brand equity in the hardware environment is consumer perception of the strength of a company s e commerce business both lowe s and home depot are industry leaders in this category besides e commerce notability both companies have high overall recognition among consumers allowing them to further penetrate the industry and increase their brand equity | |
why is brand equity important | brand equity is important for increased customer loyalty which can translate to repeated and increasing sales despite higher priced products or services brand equity is also important because it supports higher perceived value greater customer satisfaction and a more stable customer base simply put consumers are more likely to choose a brand that they know and trust | |
what are the elements of brand equity | the elements of brand equity include | |
what factors affect brand equity | several factors can affect brand equity one is the quality of products or services consumers are more likely to have a positive perception of a brand if it consistently provides high quality products or services consistent marketing and branding efforts are also important these can help build and maintain a positive brand image customer experiences also matter positive experiences can lead to increased loyalty and positive brand associations brand reputation is also important as consumers are more likely to choose a brand they perceive as trustworthy and reliable competition can also impact a brand s equity as consumers may have multiple options to choose from finally changes in consumer preferences or trends can affect a brand s equity as consumers may shift towards different brands or products the bottom linebrand equity refers to the added value that a company earns from a product or service it is the positive perception or emotional attachment that consumers have towards a brand which can influence their purchasing decisions and overall loyalty brand equity is created and built through consistent marketing efforts positive customer experiences and the overall reputation of the brand companies with strong brand equity often have a competitive advantage in the market and can command higher prices for their products or services | |
what is brand extension | a brand extension is when a company uses one of its established brand names on a new product or new product category it s sometimes known as brand stretching the strategy behind a brand extension is to use the company s already established brand equity to help it launch its newest product the company relies on the brand loyalty of its current customers which it hopes will make them more receptive to new offerings from the same brand if successful a brand extension can help a company reach new demographics expand its customer base increase sales and boost overall profit margins | |
how brand extension works | a brand extension leverages the reputation popularity and brand loyalty associated with a well known product to launch a new product to be successful there must be a logical association between the original product and the new item a weak or nonexistent association can result in the opposite effect brand dilution this can even harm the parent brand successful brand extensions allow companies to diversify their offerings and increase market share they can give the company a competitive advantage over its rivals that don t offer similar products the existing brand serves as an effective and inexpensive marketing tool for the new product apple aapl is an example of a company that has a history of effectively using a brand extension strategy to propel growth starting with its popular mac computers the company has leveraged its brand to sell products in new categories as can be seen with the ipod the ipad and the iphone companies that are able to successfully extend their brand are often said to benefit from the halo effect which allows them to capitalize on the positive perception consumers have of their products to launch new products real world examples of brand extensionbrand extension can be as obvious as offering the original product in a new form for example the boston market restaurant chain launched a line of frozen dinners under its own name offering similar fare another form of brand extension combines two well known products breyers ice cream with oreo cookie chunks is a matchup that relies on consumers loyalty to either or both original brands brand extension also may be applied to a different product category google s core business is a search engine but it has an assortment of other non advertising related products and services including the play store chromebooks google apps and the google cloud platform in the best examples the brand extension is natural and arises from a recognized positive quality of the original product arm hammer produces a deodorizing cat litter under its brand name black decker makes a line of toy tools for children ghirardelli chocolate company sells a brownie mix the creation of complementary products is a form of brand extension the many varieties and flavors of coca cola are an example criticism of brand extensionthe cost of introducing a product through brand extension is lower than the cost of introducing a new product that has no brand identity the original brand communicates the message however brand extensions fail when the product lines are a distinct mismatch the brand name may even cast a disagreeable light on the new product before launching a new product brand managers need to keep their target audience in mind and consider which products fit well under their company s brand an example of an unsuccessful brand extension occurred in the early 1980s when popular jeans manufacturer levi strauss co decided to launch a line of men s three piece suits under the sub brand levi s tailored classics after years of poor sales the company discontinued the line the company couldn t overcome consumers perception of the brand as one associated with rugged casual wear and not business attire however levi s learned from its mistake and in 1986 introduced levi s dockers a line of casual khaki pants and other men s apparel that has since been a consistent top seller for the company 1 | |
what is brand identity | brand identity is the visible elements of a brand such as color design and logo that identify and distinguish the brand in consumers minds brand identity is distinct from brand image the former corresponds to the intent behind the branding and the way a company does the following all to cultivate a certain image in consumers minds brand image is the actual result of these efforts successful or unsuccessful investopedia zoe hansenunderstanding brand identitybrand identity in many ways is the visual symbol or illustration aspect of a brand think of the nike swoosh or apple s apple those are two instances where the identity of a brand is connected with a symbol or visual aspect building brand identity must have a strong visual image to link the brand a brand identity is compiled of various branding elements when you put them together the identity in many ways is the mascot of your brand it is how a company expresses and describes itself from the images on its marketing materials the colors that represent the brand and how a company markets itself on social media a strong brand identity strengthens a company s popularity and presence in a competitive market beyond saving the company money on promotion a successful brand can be one of the company s most valuable assets brand value is intangible making it difficult to quantify still common approaches take into account the cost it would take to build a similar brand the cost of royalties to use the brand name and the cash flow of comparative unbranded businesses nike inc for example owns one of the world s most instantly recognizable logos the swoosh according to forbes the 2020 world s most powerful brands report the nike brand ranked 13 with an estimated brand value of 39 1 billion even though in a world devoid of brand perception taking the swoosh off of nike s shoes and apparel would change nothing about their comfort or performance the top brand on the 2020 list was apple with an estimated brand value of 241 2 billion 1building brand identitythe steps a company should take to build a strong cohesive and consistent brand identity will vary but a few points apply broadly to most building a brand identity is a multi disciplinary strategic effort and every element needs to support the overall message and business goals history of brand identitynational religious guild and heraldic symbols which we might see as analogous to modern branding go back millennia the modern practice dates to the industrial revolution however when household goods began to be produced in factories manufacturers needed a way to differentiate themselves from competitors thus these efforts evolved from simple visual branding to advertisements that included mascots jingles and other sales and marketing techniques many companies claim to have the oldest trademarked brands twinings tea stella artois and levi strauss 2special considerationsbuilding a brand identity is a multi disciplinary strategic effort and every element needs to support the overall message and business goals it can include a company s name logo and design its style and the tone of its copy the look and composition of its products and of course its social media presence apple founder steve jobs famously obsessed over details as small as the shade of gray on bathroom signs in apple stores while that level of focus may not be necessary the anecdote shows that apple s successful branding results from the intense effort not just luck but building brand identity isn t just for the big leagues all companies both small and mid sized businesses should build a strong brand identity | |
why does brand identity matter | brand identity matters because without it customers are not able to recognize a brand easily a strong master brand may help sell a company to consumers and impart strength to all sub brands | |
what makes a good brand | a good brand has a clear focus strong visuals is familiar with its target audience family versus mature audience for example and is easily recognizable in a sea of similar brands | |
what are famous brands | nike mcdonald s apple google disney and amazon have some of the most recognizable and valuable brands 3 | |
as harvard business review hbr has reported companies with high scores on two often overlooked and closely related market research metrics brand loyalty and customer loyalty not only grow revenues 2 5 times faster than industry peers but also deliver two to five times the returns to shareholders over 10 year time frames 1 the fact that brand loyalty a long term commitment to make repeat purchases of a particular brand is not dependent on price makes this metric a particularly powerful driver of both profit and profitability i e profit relative to expenses | the primary reason that brand loyalty is so important to profitability is straightforward 65 of revenue in most companies comes from repeat business with existing clients 2 not only do existing customers loyal to brands purchase 90 more frequently than new customers but maintaining the brand loyal segment is also far less expensive than marketing to attract new customers 3in the wake of plummeting sales during the 2020 pandemic it is more important than ever for businesses in every industry to ramp up investment in marketing programs designed to retain every company s most valuable asset their existing brand loyal customer base | |
what is brand loyalty | unlike customer loyalty which is money based prices and discounts brand loyalty is perception based image and experience brand loyal customers believe that a certain brand represents both higher quality and better service than any competitor and the price does not matter brand loyal customers might make fewer total purchases but the profit margins on their purchases are larger once established brand loyalty is fairly easy to retain assuming of course that product quality and service level remain high brand loyalty is also less expensive to retain than customer loyalty which requires constantly offering low prices and regular discounts to maintain best deal on the market status |
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