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why is double declining depreciation an accelerated method | accelerated depreciation is any method of depreciation used for accounting or income tax purposes that allows greater depreciation expenses in the early years of the life of an asset accelerated depreciation methods such as double declining balance ddb means there will be higher depreciation expenses in the first few years and lower expenses as the asset ages this is unlike the straight line depreciation method which spreads the cost evenly over the life of an asset | |
how does ddb differ from declining depreciation | both ddb and ordinary declining depreciation are accelerated methods the difference is that ddb will use a depreciation rate that is twice that double the rate used in standard declining depreciation | |
what assets are ddb best used for | ddb is ideal for assets that very rapidly lose their values or quickly become obsolete this may be true with certain computer equipment mobile devices and other high tech items which are generally useful earlier on but become less so as newer models are brought to market | |
what is double entry | double entry is a bookkeeping and accounting method which states that every financial transaction has equal and opposite effects in at least two different accounts it is used to satisfy the accounting equation assets liabilities equity begin aligned text assets text liabilities text equity end aligned assets liabilities equity with a double entry system credits are offset by debits in a general ledger or t account investopedia jessica olahunderstanding double entryin accounting a credit is an entry that increases a liability account or decreases an asset account a debit is the opposite it is an entry that increases an asset account or decreases a liability account in the double entry accounting system transactions are recorded in terms of debits and credits since a debit in one account offsets a credit in another the sum of all debits must equal the sum of all credits the double entry system of bookkeeping standardizes the accounting process and improves the accuracy of prepared financial statements allowing for improved detection of errors all types of business accounts are recorded as either a debit or a credit types of business accountsbookkeeping and accounting are ways of measuring recording and communicating a firm s financial information a business transaction is an economic event that is recorded for accounting bookkeeping purposes in general terms it is a business interaction between economic entities such as customers and businesses or vendors and businesses under the systematic process of accounting these interactions are generally classified into accounts there are five different types of accounts that all business transactions can be classified bookkeeping and accounting track changes in each account as a company continues operations debits and credits are essential to the double entry system in accounting a debit refers to an entry on the left side of an account ledger and credit refers to an entry on the right side of an account ledger to be in balance the total of debits and credits for a transaction must be equal debits do not always equate to increases and credits do not always equate to decreases a debit may increase one account while decreasing another for example a debit increases asset accounts but decreases liability and equity accounts which supports the general accounting equation of assets liabilities equity on the income statement debits increase the balances in expense and loss accounts while credits decrease their balances debits decrease revenue account balances while credits increase their balances the double entry accounting systemdouble entry bookkeeping was developed in the mercantile period of europe to help rationalize commercial transactions and make trade more efficient it also helped merchants and bankers understand their costs and profits some thinkers have argued that double entry accounting was a key calculative technology responsible for the birth of capitalism 1the balance sheet is based on the double entry accounting system where the total assets of a company are equal to the total liabilities and shareholder equity essentially the representation equates all uses of capital assets to all sources of capital where debt capital leads to liabilities and equity capital leads to shareholders equity for a company to keep accurate accounts every single business transaction will be represented in at least two of the accounts for instance if a business takes a loan from a financial entity like a bank the borrowed money will raise the company s assets and the loan liability will also rise by an equivalent amount if a business buys raw materials by paying cash it will lead to an increase in the inventory asset while reducing cash capital another asset because there are two or more accounts affected by every transaction carried out by a company the accounting system is referred to as double entry accounting this practice ensures that the accounting equation always remains balanced that is the left side value of the equation will always match the right side value example of double entrya bakery purchases a fleet of refrigerated delivery trucks on credit the total credit purchase was 250 000 the new set of trucks will be used in business operations and will not be sold for at least 10 years their estimated useful life to account for the credit purchase entries must be made in their respective accounting ledgers because the business has accumulated more assets a debit to the asset account for the cost of the purchase 250 000 will be made to account for the credit purchase a credit entry of 250 000 will be made to accounts payable the debit entry increases the asset balance and the credit entry increases the notes payable liability balance by the same amount double entries can also occur within the same class if the bakery s purchase was made with cash a credit would be made to cash and a debit to asset still resulting in a balance | |
what is the difference between single entry accounting and double entry accounting | in single entry accounting when a business completes a transaction it records that transaction in only one account for example if a business sells a good the expenses of the good are recorded when it is purchased and the revenue is recorded when the good is sold with double entry accounting when the good is purchased it records an increase in inventory and a decrease in assets when the good is sold it records a decrease in inventory and an increase in cash assets double entry accounting provides a holistic view of a company s transactions and a clearer financial picture | |
what is the disadvantage of the double entry accounting system | the primary disadvantage of the double entry accounting system is that it is more complex it requires two entries to be recorded when one transaction takes place it also requires that mathematically debits and credits always equal each other this complexity can be time consuming as well as more costly however in the long run it is more beneficial to a company than single entry accounting | |
what is an example of double entry | an example of double entry accounting would be if a business took out a 10 000 loan and the loan was recorded in both the debit account and the credit account the cash asset account would be debited by 10 000 and the debt liability account is credited by 10 000 under the double entry system both the debit and credit accounts will equal each other the bottom linethe double entry accounting method has many advantages over the single entry accounting method first and foremost is that it provides an organization with a complete understanding of its financial profile by noting how a transaction affects both credit and debit accounts it also makes spotting errors easier because if debits and credits do not match then something is wrong lastly it makes preparing financial statements easier | |
what is a double exponential moving average dema | the double exponential moving average dema is a technical indicator devised to reduce the lag in the results produced by a traditional moving average technical traders use it to lessen the amount of noise that can distort the movements on a price chart like any moving average the dema is used to indicate the trend in the price of a stock or other asset by tracking its price over time the trader can spot an uptrend when the price moves above its average or a downtrend when the price moves below its average when the price crosses the average it may signal a sustained change in the trend as its name implies the dema uses two exponential moving averages emas to eliminate lag in the charts this variation on the moving average was introduced by patrick mulloy in a 1994 article smoothing data with faster moving averages in technical analysis of stocks commodities magazine 1the formula for the double exponential moving average is d e m a 2 e m a n e m a of e m a n where begin aligned dema 2 times ema n ema text of ema n textbf where n text look back period end aligned dema 2 eman ema of eman where | |
how to calculate the double exponential moving average | there are just four steps to this calculation image by sabrina jiang investopedia 2021 | |
what does the double exponential moving average tell you | although the indicator is called a double exponential moving average the equation does not rely on using a double exponential smoothing factor instead the equation doubles the ema but then cancels out the lag by subtracting a smoothed ema because of the complication of the equation dema calculations require more data than straight exponential moving average ema calculations however spreadsheets and technical charting software can easily calculate demas the dema is used most often by day traders and swing traders however long term investors may be better off using a standard moving average demas react quicker than traditional moving averages so their users are more likely to be day traders or swing traders long term investors who trade less frequently may find that a traditional moving average works better for them demas are used primarily to spot an upward or downward trend in price and analyze its strength traders watch for a price to move above or below the dema some use multiple demas with different lookback periods watching for the demas to cross each other like any moving average a dema also can be used to indicate price support or resistance that is it can help identify the price point at which a trend will pause or even reverse reading the dema is straightforward when the price of an asset is above the dema and the dema is rising it helps confirm an uptrend in price when the price is below the dema and the dema is falling that helps confirm a downtrend as noted above some traders display two or more demas with different look back periods on a single chart trade signals could be generated when these lines cross for example a trader may buy if a 20 period dema crosses above a 50 period dema or sell when the 20 period crosses back below the 50 period the dema may be less reliable when used to indicate potential support and resistance price points a trader viewing a dema or any moving average to pinpoint potential support or resistance points should make sure that it has served this function in the past if not it likely won t in the future double exponential moving average dema and the triple exponential moving average tema as the names imply the double ema includes the ema of an ema the triple ema tema has an even more complex calculation involving an ema of an ema of an ema the goal is still to reduce lag and the triple ema has even less lag than the double ema a dema or any moving average will likely be more reliable if a longer period of time is selected for tracking this is because time diminishes the effects of noise in the markets limitations of the double exponential moving averagemoving averages can provide little or no insight during times when the price of an asset is choppy or range bound no reliable trend can be identified at such times the price will frequently cross back and forth across the dema in addition the strength of the dema is its ability to reduce lag but that can be its weakness in some circumstances the reduced lag gets the trader out quicker reducing losses yet reduced lag can also encourage overtrading by providing too many signals the indicator may tell a trader to sell when the price makes a minor move thus missing out on a greater opportunity if the trend continues the dema is best used in conjunction with other forms of analysis such as price action analysis and fundamental analysis | |
what is the difference between a simple moving average and dema | the double exponential moving average may be best described as a smoothed simple moving average a standard moving average displays a lag time that increases with the amount of time being charted the double exponential moving average seeks to shorten that lag time to a consistent level overall it gives the trader an earlier warning of a change in the direction of an asset s price | |
what is the most accurate moving average | the accuracy of a moving average depends greatly on the length of the period being tracked the most commonly used moving average periods are 50 day 100 day and 200 day moving averages historically speaking the longer the term the more accurate the indicator this is because the impact of market day to day noise diminishes over time and it takes time for a trend to clarify | |
what is the double irish with a dutch sandwich | the double irish with a dutch sandwich is a tax avoidance technique employed by certain large corporations involving the use of a combination of irish and dutch subsidiary companies to shift profits to low or no tax jurisdictions the technique has made it possible for certain corporations to reduce their overall corporate tax rates dramatically understanding double irish with a dutch sandwichthe double irish with a dutch sandwich is just one of a class of similar international tax avoidance schemes each involves arranging transactions between subsidiary companies to take advantage of the idiosyncrasies of various national tax codes these techniques are most prominently used by tech companies because these firms can easily shift large portions of profits to other countries by assigning intellectual property rights to subsidiaries abroad the double irish with a dutch sandwich is generally considered to be an aggressive tax planning strategy used by some of the world s largest corporations in 2014 it came under heavy scrutiny especially from the u s and the european union when it was discovered that this technique facilitated the transfer of several billion dollars annually tax free to tax havens special considerationsdue largely to international pressure and the publicity surrounding the use of double irish with a dutch sandwich the irish finance minister passed measures to close the loopholes in the 2015 budget the legislation effectively ends the use of the tax scheme for new tax plans companies with established structures were able to benefit from the old system until 2020 requirements for double irish with a dutch sandwichthe first irish company would receive large royalties from sales sold to u s consumers the u s profits and therefore taxes are dramatically lowered and the irish taxes on the royalties are very low due to a loophole in irish laws the company can then transfer its profits tax free to the offshore company where they can remain untaxed for years the second irish company is used for sales to european customers it is also taxed at a low rate and can send its profits to the first irish company using a dutch company as an intermediary if done right there is no tax paid anywhere the first irish company now has all the money and can again send it onward to the company in the tax haven example of the double irish with a dutch sandwichin 2017 google reportedly transferred 19 9 billion euros or roughly 22 billion through a dutch company which was then forwarded to an irish company in bermuda companies pay no taxes in bermuda in short google s subsidiary in the netherlands was used to transfer revenue to the irish subsidiary in bermuda | |
what is double spending | double spending is spending the same cryptocurrency or blockchain token more than once cryptocurrency is a token that represents value on a distributed ledger so without proper mechanisms in place it would be easy to change a ledger entry and give yourself back the amount you had spent double spending is not limited only to cryptocurrency it is a problem in all blockchain designs here s more about this issue how it s done and some steps to take to keep from being a victim | |
what is double taxation | double taxation is a tax principle referring to instances where taxes are levied twice on the same source of income it can occur when income is taxed at both the corporate level and the personal level double taxation can also occur in an international trade or investment context when the same income is taxed in two different countries investopedia julie bang | |
how double taxation works | double taxation often occurs because corporations are considered separate legal entities from their shareholders as such corporations pay taxes on their annual earnings just like individuals when corporations pay out dividends to shareholders those dividend payments incur income tax liabilities for the shareholders who receive them even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level double taxation is often an unintended consequence of tax legislation it is generally seen as a negative element of a tax system and tax authorities attempt to avoid it whenever possible most tax systems attempt through the use of varying tax rates and tax credits to have an integrated system where income earned by a corporation and paid out as dividends and income earned directly by an individual is in the end taxed at the same rate for example in the u s dividends meeting certain criteria can be classified as qualified and as such subject to advantaged tax treatment a tax rate of 0 15 or 20 depending on the individual s tax bracket the corporate tax rate is 21 as of 2022 debate over double taxationthe concept of double taxation on dividends has prompted significant debate while some argue that taxing shareholders on their dividends is unfair because these funds were already taxed at the corporate level others contend this tax structure is just proponents of double taxation point out that without taxes on dividends wealthy individuals could enjoy a good living off the dividends they receive from owning large amounts of common stock yet pay essentially zero taxes on their personal income stock ownership could become a tax shelter in other words supporters of dividend taxation also point out that dividend payments are voluntary actions by companies and as such companies are not required to have their income double taxed unless they choose to pay dividends to shareholders certain investments with a flow through or pass through structure such as master limited partnerships are popular because they avoid the double taxation syndrome international double taxationinternational businesses are often faced with issues of double taxation income may be taxed in the country where it is earned and then taxed again when it is repatriated in the business home country in some cases the total tax rate is so high it makes international business too expensive to pursue to avoid these issues countries around the world have signed hundreds of treaties for the avoidance of double taxation often based on models provided by the organization for economic cooperation and development iecd in these treaties signatory nations agree to limit their taxation of international business in an effort to augment trade between the two countries and avoid double taxation | |
how can i avoid double taxation in two states | in some cases individuals may need to file tax returns in multiple states this can occur if they work or perform services in a different state from where they reside luckily most states have provisions in their tax codes that can help individuals avoid double taxation for example some states have forged reciprocity agreements with others which streamlines tax withholding rules for employers others may provide taxpayers with credits for taxes paid out of state reducing their total obligations and avoiding double taxation how exactly one can avoid double taxation depends on a wide range of factors including how income is earned and which states are in question | |
what is the 183 day rule | in the context of state taxes the 183 day rule refers to a threshold some states use to determine whether or not an individual is a resident for tax purposes in such cases a state will consider an individual a full year resident so long as they spent 183 days or more there | |
what states have no income tax | there are a handful of states that don t levy state income taxes this includes alaska florida nevada south dakota tennessee texas washington and wyoming however if residents of these states work or perform services in other states it s possible that income may still be taxed by those other states the bottom linedouble taxation occurs when taxes are levied twice on a single source of income often this occurs when dividends are taxed like individuals corporations pay taxes on annual earnings if these corporations later pay out dividends to shareholders those shareholders may have to pay income tax on them double taxation can also occur when income is taxed by two separate countries in response to increased globalization giving rise to potential double taxation many countries have forged tax treaties to avoid taxation and augment trade | |
what is a double top | a double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs it is confirmed once the asset s price falls below a support level equal to the low between the two prior highs | |
what does a double top tell you | a double top signals a medium or long term trend change in an asset class let s take a look at several historical examples of double tops the chart above is of amazon com inc amzn and shows a double top pattern that formed in the stock between september and october 2018 around a price of 2 050 the important support level in this case formed around 1 880 despite the stock falling nearly 8 from its october peak to support at 1 880 one could not confirm the double top until after the stock fell below 1 880 from that point forward the shares went on to plunge almost 31 further 1in the next example using netflix inc nflx we can see what appears to be the formation of a double top however in this case we see that support is never broken or even tested as the stock continues to rise along an uptrend however later in the chart one can see that the stock again forms what appears to be a double top in june and july but this time it does prove to be a reversal pattern with the price falling below support at 380 resulting in a decline of 39 to 231 in december also notice how the support level at 380 acted as resistance on two occasions in november when the stock was rising 2double top vs double bottomfollowing an uptrend a double top is a bearish reversal pattern that develops it is comprised of two almost equal sized peaks that are close to one another in height separated by a trough a potential trend reversal is indicated by the pattern which shows that the price has reached a resistance level twice but has been unable to break past it this pattern is frequently seen by traders as a signal to sell or enter short positions in anticipation of additional market declines nearly the opposite situation is a double bottom following a downtrend a double bottom is a bullish reversal pattern it consists of a peak in the middle of two almost equal depth troughs that follow one another the pattern indicates that the price found resistance at a particular level and was unable to break below it in many ways a double top looks very similar to a double bottom with the exception of the peaks a double top results in consecutive highs while a double bottom results in consecutive bottoms be mindful that double tops may send false signals even the strongest pattern may break in the opposite direction of its normal path | |
how to identify a double top | there are several key steps in identifying a double top be mindful that every instance of a double top may be slightly different and false signals may lead investors to believe a double top is forming when it isn t generally speaking here are the steps to identify a double top key elements of a double topas you identify double top formations consider the following key elements the time period between peaks may vary one double top may have a week between peaks while another double top may play out over months | |
how to trade a double top | there are three primary ways to trade a double top first you can wait for the price to cross below the neckline which would confirm the double top pattern and perhaps signal a trend reversal you can start a short trade or sell position after the break happens to reduce risk think about placing a stop loss order above the most recent swing high you can also project the vertical distance between the neckline and the highest peak downward from the neckline to determine your profit target second after the neckline is broken the price may occasionally retest it from below before continuing its downward movement as part of this technique you watch for a price break below the neckline wait for a retreat to the neckline and then search for a bearish confirmation signal such as a bearish candlestick pattern a trendline break or a lower high to place a short trade a profit target can be established using a variety of techniques including projecting the pattern s height downward or locating probable support levels the stop loss can be set above the most recent swing high third you can use extra technical indicators or oscillators to make the double top pattern more reliable for instance you can check for bearish divergence on the moving average convergence divergence macd histogram or the relative strength index rsi when the indicators display lower highs as the price develops the two peaks following the stop loss and profit target criteria described above you can place a short trade once the neckline is broken when the indicators confirm the bearish signal advantages and disadvantages of a double topa double top pattern is a visual cue of a possible change in trend from an uptrend to a downtrend for traders hoping to profit from a shift in the market s trajectory and seize fresh profit possibilities this can be favorable plus there s often a definite resistance level that is formed when two peaks at roughly the same price level appear consecutively this level can be used by traders as a benchmark for establishing stop loss orders and profit objectives improving risk management and trade planning a good entry point for traders to start short positions is the break of the neckline in a double top formation if the price does not break below the neckline this provides a fixed level at which to enter the market and aids in determining the pattern s invalidation the height of the pattern can also be used to predict profit targets giving traders a distinct moment at which to exit volume analysis can offer more assurance of the correctness of the pattern volume frequently rises when the price breaks below the neckline and decreases throughout the creation of the two peaks the signaling potency of the pattern may be further enhanced by this volume increase therefore in some ways a double top can be a more predictable reliable pattern compared to other strategies last by spotting a double top pattern traders can determine their profit goals and determine the probable downside target depending on the pattern s height due to the fact that the potential profit goal is often higher than the original risk stop loss this usually provides a good risk reward ratio the double top pattern is not infallible like any other chart pattern it occasionally generates false signals a failed double top pattern could develop if the price briefly forms two peaks before continuing its upward trajectory the breach of the neckline and other supportive signs should serve as confirmation therefore traders should proceed with caution there may be some subjectivity involved in recognizing a double top pattern the positions of the peaks and troughs as well as how symmetrical the pattern ought to be may be interpreted differently by traders this subjectivity may cause discrepancies and a range of outcomes among traders it s possible that not all double top patterns have exact symmetry or the same peaks and troughs the pricing ranges length of time and shape of the design are all flexible it can be difficult to precisely specify the entry and departure locations or establish the pattern s target levels because of this variability a double top pattern s downside goal is normally calculated by extrapolating the pattern s height from the neckline however relative to the starting risk or stop loss level the possible profit target can be constrained depending on the state of the market the price can not always reach the predicted target producing lower earnings than expected allows traders to use visual patterns to trademay indicate clear resistance levelsmay communicate clear entry and exit pointsmay be confirmed by the volume of shares tradedlike any chart pattern it may indicate a false signalmay rely on subjectivity in identifying patternsmay result in slightly different variations across investmentsmay result in limited profit potential | |
is a double top pattern bullish | no the double top pattern is not regarded as bullish the pattern on the chart is bearish and points to a possible trend change from an uptrend to a downtrend | |
what does a double top pattern mean | technical chart patterns called double tops often point to the possibility of a reversal to a downtrend from an uptrend it develops when the price of an asset twice reaches a resistance level fails to break through it and then starts to fall | |
is trading a double top pattern profitable | trading a double top pattern has the potential to be profitable if done so with the right evaluation handling of risks and market circumstances profitability is not assured and there are a number of variables that may affect the result | |
what is the success rate of a double top pattern | any chart pattern s success rate depends on a number of variables market conditions timescale the degree of pattern formation and the presence of confirming signs or signals all affect the success rate it s crucial to remember that chart patterns like the double top pattern don t always accurately forecast future price alterations they can produce false signals or unsuccessful patterns but they are useful for spotting possible trends and reversals the bottom linethe double top pattern is interpreted by traders and analysts as a bearish indicator it implies that the upward trend has slowed down and that a price decrease is more likely the break of the neckline a horizontal line formed between the lows of the troughs is frequently used by traders to confirm the pattern it is considered a signal to start short positions or sell when the price crosses below the neckline with the expectation that the price will continue to decrease | |
what is a dove | a dove is an economic policy advisor who promotes monetary policies that usually involve low interest rates doves tend to support low interest rates and an expansionary monetary policy because they value indicators like low unemployment over keeping inflation low if an economist suggests that inflation has few negative effects or calls for quantitative easing then they are called a dove or labeled as dovish understanding dovedoves prefer low interest rates as a means of encouraging economic growth because they tend to increase demand for consumer borrowing and spur consumer spending as a result doves believe the negative effects of low interest rates are relatively negligible however if interest rates are kept low for an indefinite period of time inflation rises derived from the placid nature of the bird of the same name the term is the opposite of hawk a hawk is conversely someone who believes that higher interest rates will curb inflation this isn t the only instance in economics where animals are used as descriptors bull and bear are also used where the former refers to a market affected by rising prices while the latter is typically one when prices are falling examples of dovesin the united states doves tend to be the members of the federal reserve who are responsible for setting interest rates but the term also applies to journalists or politicians who lobby for low rates as well previous fed chairs ben bernanke and janet yellen were both considered doves for their commitment to low interest rates 12but people don t necessarily have to be one or the other in fact alan greenspan who served as chair of the federal reserve between 1987 and 2006 was said to be fairly hawkish but that stance changed over time and he eventually became more dovish as he navigated the bursting of the internet bubble of the 1990s as well as the impact of the attack of sept 11 2001 and other major world changing events 34realistically the people of the united states investors and non investors alike want a fed chair who can switch between hawk and dove depending on what the situation calls for doves consumer spending and inflation | |
when consumers are in a low interest rate environment created through a dovish monetary policy they become more likely to take out mortgages car loans and credit cards this spurs spending by encouraging people and companies to purchase in the present while rates are low rather than deferring the purchase for the future when rates might be higher | this flurry of spending affects the entire economy increased consumption can help create or support jobs which is often one of the main concerns of the political system from both a taxation and a happy voter perspective eventually however the aggregate demand leads to increases in price levels some of this increase is because employment levels will rise when this happens workers tend to earn relatively higher wages as the supply of available workers goes down in a hot economy so the higher wages get baked into product pricing adding to this are macroeconomic factors created by an expanding money and credit supply where the value of the dollar is going down because they are plentiful this makes the input costs for products dependent on supply chains in another currency more expensive in dollars add this all up and you end up with inflation left unchecked inflation can be as destructive as high unemployment in a stagnant economy | |
what is the hawk and dove theory in economics | the hawk and dove theory in economics seeks to place economic policymakers into one of two buckets doves and hawks doves seek an expansionary monetary policy keeping interest rates low and pursuing a policy of quantitative easing hawks on the other hand seek a contractionary monetary policy keeping interest rates high and avoiding quantitative easing | |
what do hawks and doves mean in politics | hawks and doves is a way to categorize how government officials view foreign policy those who seek an aggressive policy based on strong military power and other means are known as hawks whereas doves seek a less aggressive foreign policy with reduced military power | |
what are the 2 types of monetary policy | monetary policy includes the policies set by a nation s central bank the policies are generally categorized as expansionary monetary policy or contractionary monetary policy the former is needed to spur and grow the economy when it is slow or in a recession this involves low interest rates a contractionary monetary policy is one where the economy needs to slow down or curb high inflation this involves high interest rates the bottom linethe term dove when applied to monetary economic policy refers to an individual that pursues an expansionary monetary policy which includes low interest rates in order to make the cost of borrowing money cheaper thereby spurring consumer demand a hawk on the other hand pursues a policy of contraction keeping interest rates high though categorizing policymakers as doves and hawks is easy for comparisons in reality economic situations require a fluid movement of interest rates to help the economy when there is high inflation or when the economy is overheated interest rates need to be high when the economy is sluggish or in a recession interest rates need to be kept low | |
what is the dow 30 or us 30 | the us 30 or dow 30 is a widely watched stock market index comprised of 30 large u s publicly traded companies also known as the dow jones industrial average or the dow the us 30 tracks the combined share price performance of what its committee considers to be the most important names on the new york stock exchange nyse and nasdaq excluding transportation and utility companies in many people s eyes the us 30 is a barometer of the u s stock market and economy 1the us 30 is managed by s p dow jones indices its constituents are chosen by a committee and it is price weighted meaning each company s stock is weighted by its price per share the value of the index is computed by adding up all the stock prices of its 30 components and dividing the sum by the dow divisor 1understanding the us 30 | |
when the media reports that the stock market is up or down for the day they mean the us 30 its movements are used as a proxy for the overall performance of the stock market | the us 30 is also used as an indicator of the general health of the u s economy the companies in the dow provide many jobs and its goods and services are used by many if not most americans their success relies on the population s spending habits in other words when us 30 companies do well it generally means the economy is in good shape when they start to stutter it suggests that bad times could be coming investors can put money into the us 30 via exchange traded funds etfs such as the spdr dow jones industrial average etf and the ishares dow jones u s etf 23these etfs give investors the chance to buy a stake in 30 of america s largest most significant publicly owned companies these are blue chip stocks with big customer bases steady revenues and profits and excess cash that makes them highly sought after history of the us 30the us 30 was created by journalist charles dow and his business partner edward jones in 1896 it is the second oldest stock market index in the u s they also founded the wall street journal 4the dow 30 was developed as a means of tracking the overall performance of the u s stock market in an age when information flow was relatively limited the idea was to let ordinary investors know which direction the market was heading the original index consisted of 12 companies then considered important to america s economy they were as this list illustrates the economy of 19th century america was much more focused on the production of commodities 4the dow expanded to 20 stocks in 1916 and then 30 stocks in 1928 5to get into the dow 30 and stay there companies must be a backbone of the u s economy companies of the us 30the full name of the us 30 is the dow jones industrial average which today is a bit misleading in its early years the titans of american business were the heavy industries that helped transform america during the industrial revolution the name has stuck even though the u s economy and the index s constituents have changed significantly there are no firm guidelines for including a company in the us 30 or for dropping it a committee made up of executives from s p dow jones indices and the wall street journal decides which companies make the cut the only criteria are that those included must have an excellent reputation demonstrate sustained growth and be of interest to a large number of investors 6below is a list of the companies included in the dow 30 as of april 2023 7as you can see the companies currently in the index are household names spanning a range of different business sectors and many of them have been in the index for many years in theory the makeup of the index can change at any time however in reality tweaks are rare the most recent changes made in february 2024 added amazon com inc to the list and removed walgreens boots alliance inc | |
how is the us 30 calculated | the dow 30 isn t calculated like other leading indexes tasked with tracking the performance of the stock market its value is computed by adding up all the stock prices of its 30 components and dividing the sum by what is known as the dow divisor a number used to account for corporate actions such as stock splits mergers and dividend payments originally charles dow simply added up the closing prices of what he considered to be the 12 most important stocks on wall street and divided the result by 12 to arrive at an average the dow 30 is also price weighted meaning it places great emphasis on share prices rather than market capitalization essentially the higher or more expensive the share price the larger a company s weighting in the index is 1the us 30 and the s p 500comparisons are often made between the dow jones industrial average djia and the s p 500 while both use the same strategy of measuring stock market performance through representative companies there are significant differences in their methodology for example the djia is price weighted while the s p 500 is market capitalization weighted they also use significantly different criteria to include companies in their listings 5moreover the s p 500 is preferred by some simply because it reflects the performance of 500 major companies rather than just 30 disadvantages of the us 30many critics of the dow argue that it does not significantly represent the state of the u s economy as it consists of only 30 large cap u s companies they believe the number is too small and neglects companies of different sizes many critics believe the s p 500 is a better representation of the economy as it includes significantly more companies 500 versus 30 which by nature is more diversified furthermore critics believe that factoring only the price of a stock in the calculation and not its market cap does not accurately reflect a company s performance it gives a company with a higher stock price but a smaller market cap more weight than a company with a smaller stock price but a larger market cap | |
why is the us 30 important | the us 30 has long been viewed as a barometer of the u s stock market and economy when the index is moving up the economy is said to be in good shape and investors are generally making money the opposite applies when the index loses value | |
what is the difference between the s p 500 and the us 30 | both the us 30 and the s p 500 are indexes tasked with tracking the performance of u s companies they are among the two most watched indexes in the world they differ considerably in nature key differences include size and methodology | |
why is it called us 30 or dow 30 | it is called the dow 30 because it was created by charles dow with edward jones and consists of 30 companies its full formal name is the dow jones industrial average the bottom linethe us 30 is arguably the most talked about stock index on the planet it s been around since 1896 and is comprised of america s finest largest and most invested in blue chip companies that makes it a hot topic of debate and according to many pundits a key barometer of the state of the overall stock market and economy the index which is also called the dow 30 or just the dow is different from many other leading indexes it is handpicked by a committee price weighted and calculated by adding up all the stock prices of its 30 components and dividing the sum by the dow divisor not everyone loves the dow jones industrial index but few can deny how influential it is | |
what is the credit default swap index cdx | the credit default swap index cdx formerly the dow jones cdx is a benchmark financial instrument made up of credit default swaps cds that have been issued by north american or emerging market companies the cdx was the first cds index which was created in the early 2000s and was based on a basket of single issuer cdss understanding the credit default swap index cdx a credit default swap cds is an over the counter derivative contract that offers one counterparty protection against a credit event such as the default or bankruptcy of an issuer it can be thought of as insurance in the financial world the credit default swap index cdx tracks and measures total returns for the various segments of the bond issuer market so that the overall return of the index can be benchmarked against funds that invest in similar products investors can use the cdx s tracking to monitor their own portfolios against this benchmark and adjust their holdings accordingly the cdx helps to hedge risk by protecting bond investors against default and traders use cdx indexes to speculate about potential changes in issuers credit quality the credit default swap index cdx is itself a tradable security a credit market derivative but the cdx index also functions as a shell or container as it is made up of a collection of other credit derivatives credit default swaps cds currently the cdx contains 125 issuers and is broken down by two different types of credits investment grade ig and high yield hy every six months the underlying securities of the cdx are examined and if appropriate replaced with new securities this helps to ensure that the index remains current and is not cluttered with investments that no longer exist or which are very illiquid the cdx index rolls over every six months and its 125 names enter and leave the index as appropriate for example if one of the names is upgraded from below investment grade to investment grade it will move from the high yield index to the investment grade index when the rebalance occurs | |
why invest in the credit default swap index cdx | the cdx is completely standardized and exchange traded unlike single cdss which trade over the counter otc as such the cdx index has a high level of liquidity and transparency cdx indexes also may trade at smaller spreads than cdss thus investors may hedge a portfolio of default swaps or bonds with a cdx more cheaply than if they were to buy many single cdss to achieve a similar effect finally the cdx is a well managed tool that is subjected to intense industry scrutiny twice a year the existence of tools such as cdx indexes makes it easier for both institutional and individual investors to trade in complicated investment products that they otherwise might not want to own separately the cdx index came into being in the early 2000s a complicated time in financial markets perhaps to help make investing in complex high risk potentially high yielding financial products a little less complicated and a little bit safer later the lcdx was created which is also a credit derivative index with a basket made up of 100 single name loan only cdss the difference is that all of the cdss in the lcdx are leveraged loans although a bank loan is considered secured debt the names that usually trade in the leveraged loan market are lower quality credits therefore the lcdx index is used mostly by those looking for exposure to high yield debt but with greater risk | |
what is the dow jones industrial average djia | the dow jones industrial average djia is a stock market index that tracks 30 large publicly owned blue chip companies trading on the new york stock exchange nyse and nasdaq the dow jones is named after charles dow who created the index in 1896 along with his business partner edward jones also referred to as the dow 30 the index is considered to be a gauge of the broader u s economy investopedia nono floresunderstanding the dow jones industrial average djia the djia is the second oldest u s market index after the dow jones transportation average the djia was designed to serve as a proxy for the health of the broader u s economy often referred to simply as the dow it is one of the most watched stock market indexes in the world while the dow includes a range of companies all of them can be described as blue chip companies with consistently stable earnings in the early 20th century the performance of industrial companies was typically tied to the overall growth rate in the economy that cemented the relationship between the dow s performance and the overall economy even today for many investors a strong performing dow equals a strong economy while a weak performing dow indicates a slowing economy as the economy changes over time so does the composition of the index a component of the dow may be dropped when a company becomes less relevant to current trends of the economy to be replaced by a new name that better reflects the shift for instance a company may be removed from the index when its market capitalization drops because of financial distress stocks with higher share prices are given greater weight in the index so a higher percentage move in a higher priced component will have a greater impact on the final calculated value at the dow s inception charles dow calculated the average by adding the prices of the 12 dow component stocks and dividing by 12 the result was a simple average over time there were additions and subtractions to the index that had to be accounted for such as mergers and stock splits at that point a simple mean calculation no longer made sense the dow divisor and index calculationthe dow divisor was created to address the simple average issue the divisor is a predetermined constant that is used to determine the effect of a one point move in any of the approximately 30 stocks that comprise the dow there have been instances when the divisor needed to be changed so that the value of the dow stayed consistent as of february 2024 the dow divisor was 0 15265312230608 the dow is not calculated using a weighted arithmetic average and does not represent its component companies market cap unlike the s p 500 rather it reflects the sum of the price of one share of stock for all the components divided by the divisor thus a one point move in any of the component stocks will move the index by an identical number of points the s p 500 has outperformed the djia on an annualized basis over the last three five and 10 year periods dow jones industrial average djia index componentsthe djia launched in 1896 with just 12 companies primarily in the industrial sector they included railroads cotton gas sugar tobacco and oil the index grew to 30 components by 1928 since then it s changed many times the very first came three months after the 30 component index launched the first large scale change was in 1932 when eight stocks in the dow were replaced the dow is reevaluated regularly companies are replaced when they no longer meet the index s listing criteria with those that do over time the index became a bellwether of the u s economy reflecting economic changes for example u s steel was removed from the index in 1991 and replaced by building material company martin marietta other major changes to the djia came walgreens boots alliance replaced general electric in june 2018 in august 2020 salesforce amgen and honeywell were added to the dow replacing exxonmobil pfizer and raytheon technologies raytheon joined the djia earlier that year after united technologies merged with raytheon company amazon replaced walgreens in february 2024 after walmart s stock split which reduced its weight on the index dowdupont spun off dupont and was replaced by dow chemical company in 2019 the table below lists the companies included in the djia alphabetically as of september 2023 historical milestonesthe following are some important historical milestones achieved by the dow individuals can invest in the dow which would mean gaining exposure to all of the companies listed in it through exchange traded funds etfs such as the spdr dow jones industrial average etf dia limitations of the djiamany critics argue that the dow does not significantly represent the state of the u s economy as it consists of only 30 large cap u s companies they believe the number of companies is too small and it neglects companies of different sizes many critics believe the s p 500 is a better representation of the economy as it includes significantly more companies 500 versus 30 critics also believe that factoring only the price of a stock in the calculation does not accurately reflect a company as much as considering a company s market cap would in this manner a company with a higher stock price but a smaller market cap would have more weight than a company with a smaller stock price but a larger market cap which would poorly reflect the true size of a company the dow is also a price weighted index as opposed to being weighted by market capitalization this means that stocks in the index with higher share prices have greater influence regardless if they are smaller companies overall in terms of market value in a price weighted index a stock that increases from 110 to 120 will have the same net effect on the index as a stock that increases from 10 to 20 even though the percentage move for the latter is far greater than that of the higher priced stock this also means that stock splits can have an impact on the index whereas they would not for a market cap weighted index | |
what does the dow jones industrial average measure | the djia tracks the price movements of 30 large companies in the united states such companies include microsoft and home depot the selected companies are from all major u s sectors except utilities and transportation | |
when did the djia top 10 000 for the first time | the dow jones industrial average hit 10 000 for the first time in march 1999 the djia then hit 11 750 in january 2000 before falling to below 7 200 in october 2002 after the dot com crash the djia is based on the prices of how many stocks the dow jones industrial average is made up of 30 large stocks all the stocks are based in the united states the djia is also known as the dow 30 | |
how does the dow differ from the s p 500 | the s p 500 and djia are the two most watched stock indexes in the u s however these two benchmarks are very different the bottom linethe dow jones industrial average is a stock index of 30 u s blue chip large cap companies which has become synonymous with the american stock market as a whole the index however only has 30 companies and the index itself is price weighted meaning that it does not always present an accurate reflection of the broader stock market companies in the djia are also chosen by a committee and are balanced to try to represent the state of the overall economy this means that certain companies may be added to or deleted from the index periodically without much in the way of being able to predict when or which stock will be changed despite its limitations however the dow still holds a special place in american finance | |
what is the dow theory | the dow theory is a financial theory that says the market is in an upward trend if one of its averages e g industrials or transportation advances above a previous important high and is accompanied or followed by a similar advance in another average for example if the dow jones industrial average djia climbs to an intermediate high an investor might watch the dow jones transportation average djta climb to confirm an upward trend investopedia zoe hansenunderstanding the dow theorythe dow theory is an approach to trading developed by charles h dow who with edward jones and charles bergstresser founded dow jones company inc and developed the dow jones industrial average in 1896 dow fleshed out the theory in a series of editorials in the wall street journal which he co founded charles dow died in 1902 and due to his death never published his complete theory on the markets but several followers and associates have published works that have expanded on the editorials some of the most important contributions to dow theory include the following dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market one could accurately gauge those conditions and identify the direction of significant market trends and the likely direction individual stocks would take aspects of the theory have lost ground for example its emphasis on the transportation sector and railroads but dow s approach forms the core of modern technical analysis | |
how the dow theory works | there are six main components to the dow theory the dow theory operates on the efficient market hypothesis emh which states that asset prices incorporate all available information earnings potential competitive advantage management competence all these factors and more are priced into the market even if not everyone knows all or any of these details in more strict readings of this theory even future events are discounted in the form of risk markets experience primary trends which can last a year or more such as a bull or bear market within the broader trends secondary trends make smaller movements such as a pullback within a bull market or a rally within a bear market these secondary trends can last a few weeks to a few months finally minor trends can last a few days to a few weeks these small fluctuations are considered market noise according to the dow theory the primary bull and bear trends pass through three phases a bull market s phases are the a bear market s phases are the for a trend to be established dow postulated indices or market averages must confirm each other this means that the signals that occur on one index must match or correspond with the signals on the other if one index such as the dow jones industrial average shows a new primary uptrend but another remains in a primary downward trend traders should not assume that a new trend has begun dow used the two indices that he and his partners invented the dow jones industrial average djia and the dow jones transportation average djta on the assumption that if business conditions were healthy as a rise in the djia might suggest the railroads would be profiting from moving the freight this business activity required thus the djta would also be rising trading volume generally increases if the price moves in the direction of the primary trend and decreases if it moves against it low volume signals a weakness in the trend for example in a bull market buying volume should increase as the price rises and falls during secondary pullbacks because traders still believe in the primary bullish trend if selling volume picks up during a pullback it could be a sign that more market participants are turning bearish reversals in primary trends can be confused with secondary trends it is difficult to determine whether an upswing in a bear market is a reversal or a short lived rally followed by still lower lows the dow theory advocates caution insisting that a possible reversal be confirmed by comparing indexes special considerationshere are some additional points to consider about the dow theory charles dow relied solely on closing prices and was not concerned about the intraday movements of the index another feature in dow theory is the idea of line ranges also referred to as trading ranges in other areas of technical analysis these periods of sideways or horizontal price movements are seen as a period of consolidation therefore traders should wait for the price movement to break the trend line before coming to a conclusion on which way the market is headed for example if the price were to move above the line it s likely that the market would trend up one challenging aspect of implementing dow theory is accurately identifying trend reversals remember a follower of dow theory trades with the overall direction of the market so it is vital that they recognize the points at which this direction shifts one of the main techniques used to identify trend reversals in dow theory is peak and trough analysis a peak is defined as the highest price of a market movement in a period while a trough is seen as the lowest price of a market movement in a period note that dow theory assumes that the market doesn t move in a straight line but from highs peaks to lows troughs with the overall moves of the market trending in a direction an upward trend in dow theory is a series of successively higher peaks and troughs a downward trend is a series of successively lower peaks and troughs the sixth tenet of dow theory contends that a trend remains in effect until there is a clear sign that the trend has reversed similarly the market will continue to move in a primary direction until a force such as a change in business conditions is strong enough to change the direction of this primary move a reversal in the primary trend is signaled when the market cannot create successive peaks and troughs in the direction of the primary trend during an uptrend a reversal occurs when the index consecutively fails to reach higher highs and higher lows over a long period instead the index moves in a series of lower highs followed by lower lows the reversal of a downward primary trend occurs when the market no longer falls to lower lows and highs consecutively higher highs and higher lows in a downward trending market demonstrate a possible reversal to an upward trend it s vital to remember that primary trend reversals can take months to present themselves a change in price direction over a one month two month or even three month period might only be a market correction | |
what are the 3 trends of the dow theory | the three trends are primary secondary and minor the primary trend is the long term trend called a bull or bear secondary trends are smaller trends such as a market correction finally minor trends are day to day price fluctuations in the market | |
what is the goal of dow theory | the overall goal of the dow theory is to identify the market s primary trend through proof and confirmation | |
what factors affect dow | the dow jones industrial average known as the dow is affected by the prices of the stocks that make up the index stock prices are affected by many factors the bottom linethe dow theory attempts to identify the primary trend a market is in it is comprised of three primary trends each made up of secondary and minor trends the theory assumes that the market already has knowledge of every possible factor and that prices reflect current information this implies that there is no need to investigate further why assets are priced the way they are but to act on price movements and volume and depend on signals and confirmation for trend reversals | |
what is a down payment | a down payment is a sum a buyer pays upfront when purchasing an expensive good such as a home or car it represents a percentage of the total purchase price and the balance is usually financed a down payment can significantly reduce the amount the borrower owes to the lender the amount of interest they will pay over the life of the loan and monthly payment amounts investopedia nono flores | |
how down payments work | buyers commonly pay a down payment when purchasing a home or car the average first time home buyer pays 6 of the home price as their down payment and takes out a mortgage from a bank or other financial institution for the remainder 1for car purchases it is common to pay a down payment of at least 20 of a new car s price because the value of a car depreciates quickly a high down payment ensures buyers do not owe more than the car is worth after a year or two like mortgages car loans often carry interest and a down payment reduces the interest paid over the life of the loan 2types of down paymentsin the united states a 20 down payment on a home has been the standard because a buyer s credit score income level and debt to income ratio help determine a loan s interest rate borrowed amount and terms of the mortgage a larger down payment can be beneficial for 2023 the minimum down payment is 3 for conventional home loans per rules set by government sponsored entities fannie mae and freddie mac for fha loans that help low to moderate income families attain homeownership the minimum down payment is 3 5 the lowest down payment requirements commonly carry income limits 3upfront fees on fannie mae and freddie mac home loans changed in may 2023 fees were increased for homebuyers with higher credit scores such as 740 or higher while they were decreased for homebuyers with lower credit scores such as those below 640 another change your down payment will influence what your fee is the higher your down payment the lower your fees though it will still depend on your credit score fannie mae provides the loan level price adjustments on its website 4find loan options from the best mortgage lenders for car purchases a down payment of 20 or more can make it easier for a buyer to be approved for a loan and get a better interest rate and other terms car dealers may also offer promotional terms of 0 down for buyers who qualify while that means no down payment is necessary the lender may charge a higher interest rate 2a down payment of 20 or more may get you a lower interest rate on an auto loan benefits of a large down paymenta significant down payment decreases the amount of interest paid over the life of the loan and lowers monthly payments paying off a loanhomeowners unable to put down a large down payment can plan to make additional payments toward their mortgage principal each month reducing the loan amount and interest over time this is often referred to as making accelerated payments or accelerated amortization buyers may choose to refinance their mortgage if their finances improve and make a larger down payment on the new loan | |
is a down payment the same as a deposit | in most cases yes down payment and deposit are often used interchangeably both terms refer to the same process of providing an upfront payment as a percentage of a total sale | |
why is it important to have a down payment | a down payment will reduce the loan amount interest cost and monthly payments the amount of the down payment may also reduce the interest rate provided by the lender | |
why do lenders require down payments | downpayments reduce the risk for lenders not only do they reduce the amount of money that needs to be lent out by acting as the cost of entry for a loan but a downpayment can also be used to prove that the borrower is serious about a loan the bottom linea down payment is a sum a buyer pays upfront when purchasing a home or car and is a percentage of the total purchase price the higher the down payment the less the buyer will need to borrow to complete the transaction the lower their monthly payments and the less they ll pay in interest over the long term | |
what is a down round | a down round refers to a private company offering additional shares for sale at a lower price than had been sold for in the previous financing round simply put more capital is needed and the company discovers that its valuation is lower than it was prior to the previous round of financing this discovery forces them to sell their capital stock at a lower price per share investopedia madelyn goodnightunderstanding down roundprivate companies raise capital through a series of funding phases referred to as rounds ideally the initial round should raise the capital needed where subsequent rounds are not required at times the burn rate for startups is much higher than anticipated leaving the company no other option than to go through another round of financing as a business develops the expectation is that sequential funding rounds are executed at progressively higher prices to reflect the increasing valuation of the company the reality is that the actual valuation of a company is subject to variables failure to meet benchmarks the emergence of competition venture capital funding which could cause it to be lower than it was in the past in these situations an investor would only consider participating if the shares or convertible bonds were being offered at a lower price than they were in the preceding funding phase this is referred to as a down round while the earliest investors in startup companies tend to buy at the lowest prices investors in subsequent rounds have the advantage of seeing whether companies have been able to meet stated benchmarks including product development key hires and revenues when benchmarks are missed subsequent investors may insist on lower company valuations for a variety of reasons including concerns over inexperienced management early hype versus reality and questions about a company s ability to execute its business plan businesses that have a clear advantage over their competition especially if they are in a lucrative field are often in a great position for raising capital from investors however if that edge disappears due to the emergence of competition investors may seek to hedge their bets by demanding lower valuations on subsequent funding rounds generally speaking investors compare the product development stage management capabilities and a variety of other metrics of competing companies to determine a fair valuation for the next funding round down rounds can occur even when a company has done everything right to manage risk venture capital firms often demand lower valuations along with measures such as seats on the board of directors and participation in decision making processes while these situations can result in significant dilution and loss of control by the founders of a company the involvement of a venture capital firm may provide what the company requires to reach its primary objectives implications and alternativeswhile each funding round typically results in the dilution of ownership percentages for existing investors the need to sell a higher number of shares to meet financing requirements in a down round increases the dilutive effect a down round highlights the possibility that the company might have been over hyped from a valuation standpoint initially and are now reduced to selling their stock at what amounts to a discount this perception could negatively affect the market s confidence in the company s ability to be profitable and also deal a significant blow to employee morale the alternatives to a down round are due to the potential for drastically lower ownership percentages loss of market confidence negative impact on company morale and the less than appealing alternatives raising capital via a down round is often viewed as a company s last resort but it may represent its only chance of staying in business | |
what is downside risk | downside risk is an estimation of a security s potential loss in value if market conditions precipitate a decline in that security s price depending on the measure used downside risk explains a worst case scenario for an investment and indicates how much the investor stands to lose downside risk measures are considered one sided tests since the profit potential is not considered assessing riskinvestments can have a finite or infinite amount of downside risk the purchase of a stock for example has a finite amount of downside risk bounded by zero the investor can lose their entire investment but not more unlimited downside risk can exist with a short position in stock through a short sale since the price of the security could continue rising indefinitely similarly being long an option either a call or a put has a downside risk limited to the price of the option s premium while a naked short call option position has an unlimited potential downside risk because there is no limit to how far a stock can climb a naked call option is considered the riskiest option strategy since the seller of the option doesn t own the security and would have to purchase it in the open market to fulfill the contract investors traders and analysts use a variety of technical and fundamental metrics to estimate the likelihood that an investment s value will decline including historical performance and standard deviation calculations investors often compare the potential risks associated with a particular investment to possible rewards downside risk is in contrast to upside potential which is the likelihood that a security s value will increase measuring downside riskwith investments and portfolios a common downside risk measure is downside deviation or semi deviation it is a variation of standard deviation that measures the deviation of only bad volatility and how large the deviation in losses is since upside deviation is also used in the calculation of standard deviation investment managers may be penalized for having large swings in profits downside deviation addresses this problem by only focusing on negative returns standard deviation which measures the dispersion of data from its average is calculated as follows i 1 n x i 2 n where x data point or observation data set s average n number of data points begin aligned sigma sqrt frac sum i 1 n x i mu 2 n textbf where x text data point or observation mu text data set s average n text number of data points end aligned n i 1n xi 2 where x data point or observation data set s averagen number of data points the formula for downside deviation uses this same formula but instead of using the average it uses some return threshold the risk free rate is often used assume the following 10 annual returns for an investment 10 6 12 1 8 3 8 7 9 7 in the above example any returns that were less than 0 were used in the downside deviation calculation the standard deviation for this data set is 7 69 and the downside deviation of this data set is 3 27 this shows that about 40 of the total volatility is coming from negative returns and implies that 60 of the volatility is coming from positive returns broken out this way it is clear that most of the volatility of this investment is good volatility the sfr ratio or roy s safety first criterion evaluates portfolios based on the probability that their returns will fall below a minimum desired threshold here the optimal portfolio will be the one that minimizes the probability that the portfolio s return will fall below a threshold level investors can use the sfratio to choose the investment that is most likely to achieve the required minimum return at an enterprise level the most common downside risk measure is value at risk var var estimates how much a company and its portfolio of investments might lose with a given probability given typical market conditions during a set period such as a day week or year var is regularly employed by analysts and firms as well as regulators in the financial industry to estimate the total amount of assets needed to cover potential losses predicted at a certain probability such as something likely to occur 5 of the time for a given portfolio time horizon and established probability p the p var can be described as the maximum estimated loss during the period if we exclude worse outcomes whose probability is less than p | |
how does risk differ from downside risk | risk is the chance investors take that a security increases or decreases in value a decline that is unexpected or triggered by a market occurrence is downside risk downside risk represents the worst case scenario | |
how does risk affect the return of an investment | the level of risk associated with an investment correlates with the level of return the investment may earn investors will usually assume more risk if they are rewarded for their risk | |
does downside risk have long term or short term effects | downside risk usually causes investments to lose value in the short term stock and bond markets may generate positive results over the long term but market events can cause specific investments or sectors to decline in value in the short term 1the bottom lineinvestors assume a level of risk that a security increases or decreases in value downside risk represents the worst case scenario and may be precipitated by a market or economic event that causes a decline in the security s price in the short term | |
what are downstream operations | downstream operations are the processes involved in converting oil and gas into the finished product these include refining crude oil into gasoline natural gas liquids diesel and a variety of other energy sources the closer an oil and gas company is to the process of providing consumers with petroleum products the further downstream the company is said to be understanding downstream operationsmost large oil companies like exxonmobil are described as integrated because they combine upstream activities which include exploration and production with downstream operations oil and gas operations can be divided into upstream midstream and downstream operations the refining process as well as distribution are considered downstream operations the transportation and storage of oil and gas are considered midstream operations companies in the downstream sector are those that provide the closest link to everyday users after crude oil is discovered and extracted the upstream process it s shipped and transported the midstream process thereafter the oil is refined marketed distributed and sold which is the downstream process downstream business categories mainly include oil refining supply and trading and product marketing and retail types of downstream operationsthe downstream process is the one that provides the most products that are closely linked to consumers and it is the sector of the oil and gas industry that people can relate to the most some of these products include liquefied natural gas gasoline heating oil synthetic rubber plastics lubricants antifreeze fertilizers and pesticides the downstream industry also plays a key role in other sectors and industries of the economy that may not necessarily be obvious to some including the medical field the downstream process has a big influence on some of the products and equipment needed and used by medical professionals similarly the downstream process plays a key role in the agricultural sector because of its relationship to pesticides and fertilizers as well as the fuel needed for farming equipment downstream vs upstreamthe difference between downstream and upstream operations lies largely in the stage of the process of getting crude oil to the hands of the consumer upstream operations include exploring new landscapes for oil potential discovering the crude oil drilling and extracting it and the initial discovery part another name for the upstream oil sector is the exploration and production e p sector meanwhile downstream operations as explored in this article include processes that occur after the production phase all the way up to the point of sale the closer an oil and gas company is to the process of providing consumers with petroleum products the further downstream the company is said to be example of downstream operationsalthough an oversupply of crude oil and lower oil prices may hurt integrated and upstream oil companies downstream companies benefit substantially when crude oil prices fall sharply in a short period petroleum products typically lag crude oil prices since there is a strong demand for refined petroleum products as crude oil prices fall refining margins typically grow however as oil prices increase refining margins may experience declines for example assuming an oil refining company abc inc primarily processes west texas intermediate wti crude oil to gasoline since gasoline experiences seasonality there are periods when downstream companies may only generate low profit margins or operate at a loss if it s during the winter when demand for gasoline is slow but the organization of petroleum exporting countries opec has announced that it would cut production in this example gasoline prices are 2 50 per gallon or 105 per barrel while wti crude prices are 95 per barrel therefore abc inc only has a margin of 10 per barrel 105 95 assume the following year that gasoline prices remain at 2 50 per gallon but wti crude oil prices fall substantially due to a global supply glut the oversupply causes wti crude oil prices to fall to 50 per barrel therefore abc inc has a refining margin of 55 per barrel 105 50 however this margin does not take into account other costs the company may incur as the crack spread just takes into account the costs associated with crude oil downstream faqsin software downstream development refers to designing tools for applications that already exist or are deployed meanwhile upstream refers to source code that is further up into development such as bug fixes and patches in a telecommunications network downstream data is anything that is sent from the network cloud or service provider down to the user for example downloading a video is considered downstream since it s been funneled down from the host downstream marketing focuses on short term sales and increasing revenue through investing with ad dollars social media and direct sales tactics in the meantime upstream marketing is more long term and strategic focused on new product releases in biotechnology downstream processing is the process of taking biological materials from natural sources like animal or plant tissue and purifying the biosynthetic products made from them the bottom linein terms of the oil and gas industry the downstream process can be thought of as the steps closest to the consumer who is ultimately using the oil to fill up their cars power their engines and using it in their daily life though most oil and gas companies are integrated it s important to note that downstream processes indicate when the oil is refined marketed distributed and sold | |
what is a downtrend | a downtrend is a gradual reduction in the price or value of a stock or commodity or the activity of a financial market a downtrend can be contrasted with an uptrend understanding downtrendswhile the price may move intermittently higher or lower downtrends are characterized by lower peaks and lower troughs over time technical analysts pay attention to downtrends because they represent something more than a random losing streak securities in a downtrend seem to be more likely to continue trending lower until some market condition changes implying that a downtrend marks a fundamentally deteriorating condition a security that changes from an uptrend to a downtrend rarely makes an instantaneous change from one to the other instead the price action in an uptrend shows signs of strain and then the downtrend incrementally begins both upward and downward trends are marked by their peaks and troughs also referred to as swing highs and swing lows and the general direction they appear to be proceeding the following illustration shows a series of peaks and troughs peaks are even numbered troughs are odd the dynamic shown in this illustration reflects all trend changes from upward to downward though specifics vary in each instance three characteristics of this change are common the first sign of a downtrend marks a point in the price action where supply exceeds demand the number of available sellers and the quantity of the security they want to sell is more than the number of ready buyers and the quantity they want to buy market participants are dictating that the security should not be priced as high as it is the second indication is the increasing number of market participants convinced that they must no longer own or own as much of the security the number of sellers increases simultaneously with the number of buyers decreasing the third sign is usually accompanied by news or new information that confirms the suspicions of those who are determined to exit the market or who are no longer considering buying the security more buyers back away and additional sellers become eager to take profits or limit losses trading downtrendthe majority of equity traders seek to avoid downtrends because they are inherently focused on upward trends and trade long only downtrends can be found in every trading time frame whether minutes days weeks months or years traders look for ways to identify a downtrend as early as possible some traders prefer to trade both long and short so they identify downtrends for new trading opportunities traders recognize that once a downtrend has been established it is best to proceed with caution while entering into any new long positions this hesitancy exacerbates the downtrend by contributing to reduced demand traders who trade both long and short recognize the opposite a new opportunity to profit from the downtrend short sellers profit from downtrends by borrowing and then immediately selling shares with the agreement to repurchase them in the future these are known as short positions or short selling if the asset s price continues to decline the trader profits from the difference between the immediate sale price and the lower future repurchase price short sellers add to the price action by entering with sell orders accelerating the downward trend such traders look to profit from the next low swing patiently awaiting the trend to continue lower traders often use technical indicators and chart patterns to identify and confirm downtrends moving averages can be used to identify the overall trend if the price is lower than a moving average the stock is likely to be in a downtrend and vice versa for an uptrend technical indicators such as the relative strength index rsi or average directional index adx can also show the magnitude or strength of the downtrend at a given point which helps a trader decide whether or not to enter a short position example of a prolonged downtrendthe lengthy downtrend in the general electric co ge stock price reveals that the company s troubles were deeper than originally anticipated and that layoffs spinoffs plant closings and product cancellations were signaling a major change in the economic environment and one for which that ge was not prepared in this chart the stock makes its final peak followed by the next trough moving lower than the previous trough as shown in the inset this lower trough coincides with the moment that the supply of stock that investors want to sell has outnumbered the demand that investors have to buy the stock at the price this initial sign of weakness an example of the first sign mentioned previously was not accompanied by news of the company s troubles investors were able to determine that the company s prospects were on the decline the lower peaks and troughs that follow show an extended downtrend lasting more than two years a time when the rest of the market was generally moving higher traders that had taken a bearish stance on the stock following the breakdown from the first trough would have found many opportunities for profitable trades alternatively long traders may have locked in their profits at the beginning of the downtrend and re entered their long position after the stock showed signs of a rebound investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what are drag along rights | a drag along right is a provision or clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company the majority owner doing the dragging must give the minority shareholder the same price terms and conditions as any other seller understanding drag along rightsshare offerings mergers acquisitions and takeovers can be complicated transactions certain rights may be included and instituted with the terms of a share class offering or in a merger or acquisition agreement the drag along provision itself is important to the sale of many companies because buyers are often looking for complete control of a company drag along rights help to eliminate the current minority owners and sell 100 of a company s securities to a potential buyer while drag along rights themselves may be clearly detailed in an agreement differentiation between majority and minority may be something to watch out for companies can have different types of share classes a company s bylaws will denote the ownership and voting rights that shareholders have which may have implications on majority vs minority considerations for drag along right provisionsdrag along rights can be instituted through capital fundraising or during merger and acquisition negotiations if for example a technology startup opens a series a investment round it does so to sell ownership of the company to a venture capital firm in return for capital infusion in this specific example majority ownership resides with the chief executive officer ceo of the company who owns 51 of the firm s shares the ceo wants to maintain majority control and also wants to protect himself in the case of an eventual sale to do so he negotiates a drag along right with the share offering to a venture capital firm giving him the right to force the venture capital firm to sell its interest in the company if a buyer ever presents itself this provision prevents any future situation in which a minority shareholder may in any way be able to undermine the sale of a company that was already approved by the majority shareholder or a collective majority of existing shareholders it also leaves no shares of the acquired company behind in the hands of previous shareholders in some cases drag along rights may be more popular in agreements involving private companies drag along rights from privately held shares may also end when a company goes public with a new share offering agreement an initial public offering of share classes will usually nullify previous ownership agreements and institute new drag along rights if applicable for future shareholders benefits of drag along rights for minority shareholderswhile drag along rights are meant to mitigate minority shareholder effects they can be beneficial for minority shareholders this type of provision requires that the price terms and conditions of a share sale be homogeneous across the board meaning small equity holders can realize favorable sales terms that may be otherwise unattainable typically drag along right provisions mandate an orderly chain of communication to the minority shareholders this provides advance notice of the corporate action mandated for the minority shareholder it also provides communication on the price terms and conditions that will apply to the shares held by the minority shareholders drag along rights can be nullified if the proper procedures surrounding their enaction are not followed drag along rights vs tag along rightstag along rights differ from drag along rights though they have the same underlying focus tag along rights similarly may be found in share offerings as well as merger and acquisition agreements tag along rights offer minority shareholders the option to sell but do not mandate an obligation if tag along rights exist it can have different implications for the terms of a merger or acquisition than would be discussed with drag along rights real world examplein 2019 bristol myers squibb company and celgene corporation entered into a merger agreement under which bristol myers squibb acquired celgene in a cash and stock transaction valued at approximately 74 billion post acquisition bristol myers squibb accounted for 69 of shares for the combined entity and converted celgene shareholders accounted for the remaining 31 celgene s minority shareholders were not allowed any special options and were required to comply with the receipt of one bristol myers share and 50 for each celgene share owned in this deal the celgene shares were delisted the minority shareholders were required to comply with the terms of the deal and were not eligible for special considerations had celgene s shares not been delisted drag along and tag along rights could have become more of a factor in some situations such as this majority shareholders may negotiate special share rights under an alternative class structure that may not be available to minority shareholders due to the implications of drag along rights | |
what is a dragonfly doji candlestick | a dragonfly doji is a type of candlestick pattern that can signal a potential reversal in price to the downside or upside depending on past price action it s formed when the asset s high open and close prices are the same the long lower shadow suggests that there was aggressive selling during the period of the candle but since the price closed near the open it shows that buyers were able to absorb the selling and push the price back up understanding the dragonfly doji candlestickfollowing a downtrend the dragonfly candlestick may signal a price rise is forthcoming following an uptrend it shows more selling is entering the market and a price decline could follow in both cases the candle following the dragonfly doji needs to confirm the direction the dragonfly doji pattern doesn t occur frequently but when it does it is a warning sign that the trend may change direction following a price advance the dragonfly s long lower shadow shows that sellers were able to take control for at least part of the period while the price ended up closing unchanged the increase in selling pressure during the period is a warning sign the candle following a potentially bearish dragonfly needs to confirm the reversal which means the candle following must drop and close below the close of the dragonfly candle if the price rises on the confirmation candle the reversal signal is invalidated as the price could continue rising following a price decline the dragonfly doji shows that the sellers were present early in the period but by the end of the session the buyers had pushed the price back to the open this indicates increased buying pressure during a downtrend and could signal a price move higher the signal is confirmed if the candle following the dragonfly rises closing above the close of the dragonfly the stronger the rally on the day following the bullish dragonfly the more reliable the reversal is traders typically enter trades during or shortly after the confirmation candle completes if entering long on a bullish reversal a stop loss can be placed below the low of the dragonfly if entering short after a bearish reversal a stop loss can be placed above the high of the dragonfly the dragonfly doji works best when used in conjunction with other technical indicators especially since the candlestick pattern can be a sign of indecision as well as an outright reversal pattern a dragonfly doji with high volume is generally more reliable than one which forms on relatively low volume ideally the confirmation candle also has a strong price move and strong volume in addition the dragonfly doji might appear in the context of a larger chart pattern such as the end of a head and shoulders pattern it s important to look at the whole picture rather than relying on any single candlestick example of how to use the dragonfly dojidragonfly dojis are very rare because it is uncommon for the open high and close all to be exactly the same there are usually slight discrepancies between these three prices the example below shows a dragonfly doji that occurred during a sideways correction within a longer term uptrend the dragonfly doji moves below the recent lows but then is quickly swept higher by the buyers following the dragonfly the price proceeds higher on the following candle confirming the price is moving back to the upside traders would buy during or shortly after the confirmation candle a stop loss can be placed below the low of the dragonfly the example shows the flexibility that candlesticks provide the price wasn t dropping aggressively coming into the dragonfly but the price still dropped and then was pushed back higher confirming the price was likely to continue higher looking at the overall context the dragonfly pattern and the confirmation candle signaled that the short term correction was over and the uptrend was resuming a gravestone doji occurs when the low open and close prices are the same and the candle has a long upper shadow the gravestone looks like an upside down t the implications for the gravestone are the same as the dragonfly both indicate possible trend reversals but must be confirmed by the candle that follows image by julie bang investopedia 2019limitations of using the dragonfly dojithe dragonfly doji is not a common occurrence and it is not a reliable tool for spotting most price reversals when it does occur it isn t always reliable either there is no assurance the price will continue in the expected direction following the confirmation candle the size of the dragonfly coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location this means traders will need to find another location for the stop loss or they may need to forgo the trade since too large of a stop loss may not justify the potential reward of the trade estimating the potential reward of a dragonfly trade can also be difficult since candlestick patterns don t typically provide price targets other techniques such as other candlestick patterns indicators or strategies are required in order to exit the trade when and if profitable | |
what is the dragonfly doji used for | the dragonfly doji is used to identify possible reversals and occurs when the open and closing print of a stock s day range is nearly identical | |
what is the difference between a doji and a spinning top | spinning tops appear similarly to doji where the open and close are relatively close to one another but with larger bodies in a doji a candle s real body will make up to 5 of the size of the entire candle s range any more than that it becomes a spinning top | |
what is the difference between a dragonfly doji and a hammer | while both the dragonfly doji and the hammer are known for their bullish reversal patterns that appear at the bottom of downtrends their structure is different the dragonfly doji has its open and close prices at the same level while the hammer has a small body at the top of the trading range and its open and close prices can be slightly different these patterns should be used in conjunction with other indicators for better results | |
are there any other candlestick patterns that signal trend reversals | several other candlestick patterns that traders use to signal potential trend reversals include the engulfing pattern the morning evening star the harami as well as the shooting star inverted hammer the bottom linea dragonfly doji is a type of candlestick pattern that can signal a potential price reversal either to the downside or upside depending on past price action it forms when the asset s high open and close prices are the same the long lower shadow suggests that there was aggressive selling during the period of the candle but since the price closed near the open it shows that buyers were able to absorb the selling and push the price back up the pattern is more significant if it occurs after a price decline signaling a potential price rise if it appears after a price advance it indicates more selling is entering the market and a price decline could follow the pattern needs to be confirmed by the candle following the dragonfly doji | |
what is a drawdown | a drawdown is a peak to trough decline during a specific period for an investment trading account or fund a drawdown measures the historical risk of different investments compares fund performance or monitors personal trading performance it is usually quoted as the percentage between the peak and the subsequent trough if a trading account has 10 000 in it and the funds drop to 9 000 before moving back above 10 000 then the trading account witnessed a 10 drawdown investopedia michela buttignolunderstanding drawdownsas noted above a drawdown measures an investment or trading account s decline from the peak before it recovers back to that peak the ulcer index ui helps to track these movements it remains in effect as long as the price remains below the peak in the example above the drawdown is only 10 until the account moves back above 10 000 once the account moves back above 10 000 then the drawdown is recorded this method of recording drawdowns is useful because a trough can t be measured until a new peak occurs as long as the price or value remains below the old peak a lower trough could occur which would increase the drawdown amount drawdowns help determine an investment s financial risk the sterling ratios use drawdowns to compare a security s possible reward to its risk a drawdown can refer to the negative half of the distribution of returns of a stock s price i e the change from a share price s peak to its trough is often considered its drawdown amount for example if a stock drops from 100 to 50 and then rallies back to 100 01 or above then the drawdown was 50 or 50 from the peak drawdowns are of particular concern to those in retirement in many cases a drastic drawdown coupled with continued withdrawals in retirement can deplete retirement funds considerably stock drawdownsa stock s total volatility is typically measured by its standard deviation yet many investors are mostly concerned about drawdowns instead this is especially true for retirees who withdraw funds from pensions and retirement accountsvolatile markets and large drawdowns can be problematic for retirees many look at the drawdown of their investments from stocks to mutual funds and consider their maximum drawdown mdd so they can potentially avoid those investments with the biggest historical drawdowns risk of drawdownsdrawdowns present a significant risk to investors when considering the uptick in share price needed to overcome a drawdown for example it may not seem like much if a stock loses 1 as it only needs an increase of 1 01 to recover to its previous peak but a drawdown of 20 requires a 25 return to reach the old peak a 50 drawdown seen during the 2008 to 2009 great recession requires a whopping 100 increase to recover the former peak 1some investors choose to avoid drawdowns of greater than 20 before cutting their losses and turning the position into cash instead the uptick in share price needed to overcome a particularly large drawdown can become significant enough that some investors end up just getting out of the position altogether and putting the money into cash holdings instead assessment of drawdownsdrawdown risk is typically mitigated by having a well diversified portfolio and knowing the length of the recovery window if a person is early in their career or has more than 10 years until retirement the drawdown limit of 20 that most financial advisors advocate should be sufficient to shelter the portfolio for a recovery but retirees need to be especially careful about drawdown risks in their portfolios since they may not have a lot of years for the portfolio to recover before they start withdrawing funds diversifying a portfolio across stocks bonds precious metals commodities and cash instruments can offer some protection against a drawdown as market conditions affect different asset classes in different ways | |
don t confuse stock price or market drawdowns with retirement drawdowns a retirement drawdown refers to how retirees withdraw funds from their pension or retirement accounts | time to recover a drawdownwhile the extent of drawdowns is a factor in determining risk so is the time it takes to recover a drawdown not all investments act alike some recover quicker than others a 10 drawdown in one hedge fund or trader s account may take years to recover that loss on the other hand another hedge fund or trader may recover losses very quickly pushing the account to its peak value in a short period of time therefore drawdowns should also be considered in the context of how long it has typically taken the investment or fund to recover the loss example of a drawdownassume a trader decides to buy apple aapl stock at 100 the price rises to 110 peak but then swiftly falls to 80 trough and then climbs back above 110 the peak price for the stock was 110 and the trough was 80 keeping in mind that drawdowns measure peak to trough we can determine that the drawdown is 27 3 or 30 110 x 100 this shows that a drawdown isn t necessarily the same as a loss the stock s drawdown was 27 3 yet the trader would show an unrealized loss of 20 when the stock was at 80 this is because most traders view losses in terms of their purchase price 100 in this case and not the peak price the investment reached after entry now let s suppose the price then rallies to 120 peak and then falls back to 105 before rallying to 125 the new peak is now 120 and the newest trough is 105 this is a drawdown of either 12 5 or of 15 this is calculated as 15 120 | |
what is a drawdown | a drawdown is the decline of an asset between the peak and the trough that follows keep in mind that a trough can t be measured until there is a new peak that forms drawdowns are normally expressed as a percentage | |
is a retirement drawdown the same as a stock drawdown | no while a stock drawdown refers to the decline of a stock from its peak before it hits that peak again a retirement drawdown is different a drawdown in retirement is the receipt of income during retirement retirees take out a certain portion of their retirement savings to maintain a certain standard of living this is commonly known as a drawdown percentage drawing down too much means a retiree may struggle financially while drawing down too little means they may leave money behind after they die | |
what is a loan drawdown | the term loan drawdown refers to the disbursement of funds from a lender to a borrower put simply it s the act of borrowing money from a lender the date when the money is disbursed by the lender is referred to as the drawdown date for instance a home loan or mortgage is a drawdown loan used to purchase property the bottom linethere s a fine line between turning a profit and losing your money when you invest your money but understanding some of the intricacies of the investment world may help you keep your head in the game knowing what drawdowns mean and how they can help assess risk and compare investments may help you become a better trader as you mitigate your losses | |
what is a drawee | drawee is a legal and banking term used to describe the party that has been directed by a depositor to pay a certain sum of money to the person presenting a check or draft written by the depositor a typical example of a drawee involves cashing a paycheck the bank that cashes your check is the drawee the employer who wrote the check is the drawer and you are the payee | |
how a drawee works | the drawee performs the function of an intermediary for a financial transaction its purpose is to redirect funds from the payer or drawer account to to the payee often the drawee is a financial institution that holds the payer funds within a deposit account under its management consumer banks regularly perform this function removing funds from a depositor s account to pay the obligation represented by a check check cashing services also perform the duties of a drawee but normally require a small fee to complete the transaction additionally money order and wire transfer companies that exist outside of the traditional banking format also qualify the money order functions as the bill of exchange that when presented by the payee is honored by the company that received the funds from the payer the drawer is the individual or organization that writes a check or creates a bill of exchange that instructs the drawee to distribute funds to the payee drawees in other industriesthere are instances outside of financial institutions where a party may be considered a drawee if only in an informal sense for example when a customer uses a manufacturer s coupon as part of a sales transaction the store accepting the coupon can be seen as the drawee in relation to the customer it is the entity facilitating the transaction the customer presents a document created by a company that is the drawer or payer behind the coupon the store honoring the coupon is the drawee the customer is the payee or person who receives the coupon s benefit most of these types of transactions do not require that actual money be handed to the customer however because money is funded as a discount on the total cost a transaction may result in an actual payment depending on various regulations governing such activity once the coupon is turned in to the retailer the retailer can then claim the funds supported by the company issuing the coupon again the drawer this leads to no actual out of pocket loss on the part of the drawee just as for financial institutions cashing a check because the funds are ultimately removed from the drawer s account | |
what are the 3 parties in a drawee transaction | the three parties to a transaction involving a drawee are the drawer the drawee and the payee | |
how does a payor relate to a drawee | a payor or drawer is the person with the money who issues a check the drawee is the entity that honors the check and distributes funds to the person who presents and is identified by the check | |
what happens when a drawee receives a bill of exchange | a bill of exchange represents instructions to the drawee to pay the person presenting it with a certain amount of money this type of transaction occurs every day in the normal course of business that s why you can walk into your bank with a check written to you and can rest assured that you or your account at that bank will receive those funds the bottom linea drawee is the entity that facilitates the transfer of funds between a party who has those funds the drawer and the party who is intended to receive them the payee a well known example of a drawee is a bank or other financial institution | |
what is a drawing account | a drawing account is an accounting record maintained to track money and other assets withdrawn from a business by its owners a drawing account is used primarily for businesses that are taxed as sole proprietorships or partnerships owner withdrawals from businesses that are taxed as separate entities must be accounted for generally as either compensation or dividends | |
how a drawing account works | an owner s draw occurs when the owner of an unincorporated business such as a sole proprietorship partnership or limited liability company llc takes an asset such as money from their business for their own personal use owners of such businesses are free to take money from their business bank accounts and deposit it in their personal accounts to pay personal expenses as and when they choose provided of course that they play by the rules a drawing account covers all assets not just cash for example this means that equipment withdrawn from the business for the owner s personal use would also count as a drawing 1a drawing account is a contra account to the owner s equity the drawing account s debit balance is contrary to the expected credit balance of an owner s equity account because owner withdrawals represent a reduction of the owner s equity in a business 1in keeping with double entry bookkeeping every journal entry requires both a debit and a credit because a cash withdrawal requires a credit to the cash account an entry that debits the drawing account will have an offsetting credit to the cash account for the same amount since the drawing account tracks distributions to owners in a given year it must be closed out at the end of the year with a credit representing the total withdrawn and the balance is transferred to the main owner s equity account with a debit the drawing account is then reopened and used again the following year for tracking distributions creating a schedule from the drawing account shows the details for and summary of distributions made to each business partner the appropriate final distributions may be made at year end ensuring that each partner receives the correct share of the company s earnings according to the partnership agreement because taxes on withdrawals are paid by the individual partners there is no tax impact on the business associated with the withdrawn funds 2recording transactions in the drawing accounta journal entry to the drawing account consists of a debit to the drawing account and a credit to the cash account a journal entry closing the drawing account of a sole proprietorship includes a debit to the owner s capital account and a credit to the drawing account for example at the end of an accounting year eve smith s drawing account has accumulated a debit balance of 24 000 eve withdrew 2 000 per month for personal use recording each transaction as a debit to her drawing account and a credit to her cash account the journal entry closing the drawing account requires a credit to eve s drawing account for 24 000 and a debit of 24 000 to her capital account | |
what is the entry of a drawing account | the accounting entry typically would be a debit to the drawing account and a credit to the cash account or whatever asset is withdrawn | |
is a drawing account an asset | the drawing account represents a reduction of the business s assets as the assets in question are withdrawn and transferred to the owner for personal use | |
are owner draws an expense | no owner draws are for personal use and do not constitute a business expense this means among other things that they are not tax deductible the bottom linesmall business owners should be aware of the rules before withdrawing cash or other assets from their business owner draws can be helpful and function as a method for a business owner to pay themselves however it s important to remember that they are not considered business expenses must be recorded in the correct way and can weaken the company financially if made excessively | |
what is dry powder | dry powder is a slang term referring to marketable securities that are highly liquid and considered cash like dry powder can also refer to cash reserves kept on hand by a company venture capital firm or individual to cover future obligations purchase assets or make acquisitions securities considered to be dry powder could be treasuries or other short term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets understanding dry powderin its most basic form dry powder is a term that refers to the amount of cash reserves or liquid assets available for use these cash reserves or short term marketable securities are usually kept on hand to cover future obligations that may or may not be foreseen therefore the term dry powder can be used in situations of personal finance in the corporate environment and in venture capital or private equity investing having dry powder on hand can provide investors with an advantage over others who may be holding less liquid assets for example a venture capitalist might decide to hold a substantial strategic amount of cash on hand in order to take advantage of private equity investments that may present themselves for immediate funding this cash would colloquially be referred to as the venture capitalist s dry powder dry powder in the corporate environment | |
when a company refers to its dry powder it is speaking about the amount of its cash and current assets that can be used to fund working capital needs if for example a company decides to invest almost all of its cash in long term inventory that cannot be easily sold it is reducing the amount of dry powder it has on hand if the economy subsequently takes a downturn and customers reduce the amount of purchases they make the company would be stuck with illiquid inventory but still have monthly operating costs that it needs to pay in this case the reduction in dry powder was ill informed companies generally maintain a sufficient amount of dry powder on hand to maintain daily operations | dry powder for venture capitalistsdry powder is a commonly used term in the venture capital and startup world this is because all venture capitalists want adequate cash on hand to either invest in a new opportunity or provide additional funding to portfolio companies to fuel growth therefore many venture capitalists keep dry powder on hand choosing to abstain from most investments rather than depleting their capital too quickly dry powder for personal financesimilarly to corporations and venture capital funds individuals should keep dry powder in case of future obligations opportunities or emergencies when an individual keeps their powder dry it means they are holding at least some of their personal net worth in cash or marketable securities that can be drawn on quickly if needed | |
what is a dual class stock | a dual class stock is when a company issues two share classes a dual class stock structure can consist of class a and class b shares for example these shares can differ in terms of voting rights and dividend payments | |
when multiple share classes of stock are issued typically one class is offered to the general public while the other is offered to company founders executives and family the class offered to the general public often has limited or no voting rights while the class available to founders and executives has more voting power and often provides for majority control of the company | understanding a dual class stockdual class stock is designed to give specific shareholders voting control classes of stock with unequal voting shares may be created to satisfy owners who don t want to give up control but do want the public equity market to provide financing in most cases these so called super voting shares are not publicly traded and company founders and their families are most commonly the controlling groups in dual class companies although there is no standard nomenclature for multiple share classes class a shares are normally superior to class b shares in other cases though the reverse is true that s why investors should research the details of a company s share classes if they are considering investing in a firm with more than one class of shares well known companies such as ford and warren buffett s berkshire hathaway have dual class stock structures which provide founders executives and families the ability to control majority voting power with a relatively small percentage of total equity the dual class structure at ford for instance gives the ford family control of 40 of the voting power while owning a small percentage of the company s total equity 1 an extreme example is echostar communications ceo charlie ergen who controls around 91 8 of the vote with his powerful class a shares 2dual class structures allow companies to access public capital without sacrificing control special considerationswhile they ve recently become popular dual class structures have been around for some time in various forms the new york stock exchange nyse banned dual class structures in 1940 after an outcry in 1926 over automotive company dodge brothers public offering which consisted of non voting shares for the public however the exchange reinstated the practice during the 1980s in the wake of competition from other exchanges 3 once shares are listed companies cannot reverse any voting rights attributed to the new class or issue any classes of shares with superior voting rights the approximate percentage of u s companies in the russell 3000 index with a dual or multiple class structure according to a harvard law school study 4in recent times the number of companies opting for a dual class structure during listing has multiplied this is particularly the case among technology startups many of which use this strategy to retain control over their outfits alphabet inc s google is the most famous example of this trend see below alphabet inc s google is the most famous example of this trend many investors were frustrated at google s initial public offering ipo when the internet giant boasting a market capitalization among the top 30 firms worldwide issued second class b shares to founders with 10 times the amount of votes as the ordinary class a shares sold to the public 5several stock indexes have stopped including companies with dual class structures the s p 500 and ftse russell are two such indexes 67dual class stock controversydual class stock structures are controversial their supporters argue that the structure enables founders to demonstrate strong leadership and the placing of long term interests over near term financial results it also helps founders retain control over the company as potential takeovers can be avoided through their supermajority voting shares on the other hand opponents argue that the structure allows a small group of privileged shareholders to maintain control while other shareholders with less voting power provide the majority of the capital in effect there is an unequal distribution of risk the founder is able to access capital from public markets at minimal economic risk shareholders carry a major part of the risk related to strategy academic research has proved that powerful classes of shares for insiders can actually hinder long term outperformance a middle path has been suggested by another group of shareholders according to them the effects of a dual class structure can be limited by placing a time bound restriction on such structures and allowing shareholders to accumulate voting interest over time examples of dual class structuresalphabet subsidiary google is the most famous example of a company with a dual class structure when it was listed in 2004 the search giant unveiled two classes of shares in its offering class a shares were reserved for regular investors and had one vote per share class b shares were reserved for founders and executives and had 10 times as many votes as those for the ordinary a shares 5many investors were frustrated at this initial public offering ipo given that the internet giant boasted a market capitalization among the top 30 firms worldwide 5 later the company added a third class of shares these class c shares came with zero voting rights other examples of companies with dual class structures are meta formerly facebook zynga groupon and alibaba | |
dual income no kids dink is a slang phrase for a household in which there are two people earning incomes and no children couples living in a dink household frequently have more disposable income because they do not have the added expenses that come with children they also often spend less per person on housing than singles because of their ability to share kitchens bathrooms and living rooms | for related insight contrast dinks with dewks a living arrangement in which both partners work and are raising children | |
when two people in a household are earning income and they have no children who depend on them to support them they can put more money toward financial goals like savings they will also have more disposable income that will give them the ability to spend more on non necessary expenses 1 | costs associated with raising one or more children include food clothing and long term education and more the average middle income family will pay 310 605 to raise a child born in 2015 to age 17 according to a brookings institution study according to the u s department of agriculture estimates that will be 233 610 however this estimate does not account for inflation of course the exact cost to raise a child will vary significantly from family to family 23 dual income no kids households aren t necessarily rich or even upper middle class as the salaries can still limit how much they can spend and how often they can spend it however without children the partners can save or spend money that their counterparts are spending on raising children as a result dinks are often targets of marketing efforts for investment products and luxury items such as expensive cars and vacations a household without children would require less living space which can also cut costs in other words they would not need to look for housing that includes bedrooms or playrooms for children that could allow them to rent or purchase less expensive dwellings with smaller spaces furthermore they save money compared to singles by sharing goods and services for example dinks usually only need one kitchen and typically share hotel rooms during their vacations sharing financial resources gives dinks more disposable income than singles as well as couples that are married with children with extra money dinks can often invest more than their counterparts with children or who are single the money that might have been spent on children could be put into stocks bonds or other investment vehicles investing even a few thousand dollars per year can potentially increase earnings even more types of dinksthere are several situations that can be considered dual income no kids they include couples who choose not to have kids those who cannot have kids new couples empty nesters roommates and adult child and parent living arrangements people may choose not to have children for a variety of reasons many simply don t want a lifestyle with children while others have medical reasons or financial reasons according to a study by the pew research center 4 when both partners have incomes but choose not to have children they are in a dual income no kids situation in which they have the financial benefits of two incomes without the cost of raising children couples who want children but cannot have children including gay couples face difficult choices they may not be able to afford or want to pursue alternatives such as adoption or in vitro fertilization ivf afterall the cost of adoption can run up to 50 000 or more 5 and the average cost of in vitro fertilization is about 12 400 according to the american society for reproductive medicine 6whenever you combine incomes in a households it frees up funds for other purchases new couples living together may have children one day but until then they can enjoy a dual income no kids situation at this stage in their lives they may be saving for major purchase milestones like buying a home or buying a car they may be saving for a wedding or carrying debt from paying for one they also may be saving money to prepare for the cost of raising children after the children have grown up and moved out couples may become part of the dual income no kids demographic again they may find they have extra money in their budget that they once spent on kids they might also gain funds by selling their house and downsizing empty nesters often change their financial focus from supporting their children to saving more for retirement if they already have substantial savings it could be time to start taking more vacations before the couple gets too old to enjoy them unlike new couples empty nesters are likely not concerned with saving to buy their first house or car if two adult household members are earning income and they have no children they would be considered a dual income no kids situation a household is generally considered a situation in which members share living quarters whether they are related or not according to the u s census bureau definition 7so roommates living together or an adult child living with a parent would likely be considered a household however residents living together in an apartment building would not be considered a household because they are living in separate quarters | |
what is a dink lifestyle | a dink dual income no kids lifestyle is generally perceived as having more time and financial means to fund non necessary expenses such as on eating out at restaurants or entertainment households with more income and without the expenses associated with having children tend to have more disposable income dual income no kids households can often save more for retirement than their counterparts who have children 8 | |
how much does it cost to raise a child to 18 in america | the cost to raise a child is increasing along with inflation estimates vary on the exact cost but it will likely cost roughly between 200 000 and 300 000 according to a brookings institution study the average middle income family will pay 310 605 to raise a child born in 2015 to age 17 the u s department of agriculture estimates that cost to be 233 610 23 | |
what is a dual income household | a dual income household is one in which two adults are earning money and sharing their financial resources they also share responsibilities for expenses this financial situation often results in more disposable income they can use for spending or saving more the bottom linemembers of a household may have dual incomes and no children for a variety of reasons whether they choose not to have children cannot afford to have them or for other reasons in general households that have two incomes and no children have more money to use for spending saving or investing than their counterparts with children | |
what is a dual listing | a dual listing refers to a listing of any security on two or more different exchanges companies use dual listings because of their benefits which include additional liquidity increased access to capital and the ability for their shares to trade for longer periods if the exchanges on which their shares are listed are in different time zones some exchanges have a number of listing categories for companies that seek a dual listing each with different requirements and benefits | |
how a dual listing works | a dual listing also known as interlisting or cross listing is attractive to many non u s companies because of the depth of the capital markets in the u s the world s biggest economy companies tend to list in countries that have a similar culture or share a common language with their native jurisdiction for example most of the biggest canadian companies are also listed on u s exchanges a foreign company may seek an ordinary listing the most prestigious type of listing on an exchange such as the nyse or nasdaq but the requirements to do so are stringent in addition to meeting the exchange s listing criteria the foreign company also has to satisfy u s regulatory requirements restate its financials and arrange for clearing and settlement of its trades 12a popular form of dual listing for many leading non u s companies is through american depositary receipts adrs an adr represents the foreign shares of the company held in trust by a custodian bank in the company s home country and carries the same rights of the shares 3note that the stock price of a dual listed company should be approximately the same in both jurisdictions after taking currency differences and transaction costs into account otherwise arbitrageurs would step in and exploit the price differences that said price divergences do occur from time to time especially when trading hours do not overlap and there has been a significant price move in one market advantages and disadvantages of a dual listingthere are numerous advantages of a dual listing companies get access to a larger pool of potential investors which can be beneficial for investors as well for example many australian and canadian resource companies list their shares on european exchanges because of substantial investor interest partly due to the relative paucity of local resource companies a dual listing improves a company s share liquidity and its public profile because the shares trade on more than one market a dual listing also enables a company to diversify its capital raising activities rather than being reliant only on its domestic market among the drawbacks is that dual listing is expensive due to the costs involved in the initial listing and ongoing listing expenses differing regulatory and accounting standards may also necessitate the need for additional legal and finance staff a dual listing could place more demands on management as well given the additional time required to communicate with investors in the second jurisdiction through roadshows for example | |
how does a dual listing affect a company s share price | a dual listing does not affect a company s share price after taking into consideration transaction costs and exchange rates a company s share price should be the same on both exchanges and not impacted in any way over the long term however it is possible that a company with strong financials and business outlook can benefit from a dual listing by having more liquidity and greater access to capital which could improve the share price | |
what is the difference between a dual listing and a secondary listing | a dual listing primarily relates to listings on two or more exchanges when the exchanges differ greatly particularly in regards to geography and requirements a secondary listing is when the requirements and geography of the different exchanges hone more closely to one another | |
what are some companies with dual listings | companies with dual listings include investec unilever carnival and rio tinto | |
what is a due from account | a due from account is an asset account in the general ledger used to track money owed to a company that is currently being held at another firm it is typically used in conjunction with a due to account and is sometimes referred to as intercompany receivables understanding a due from accounta general ledger stores and organizes data providing a record of every financial transaction that takes place during the life of an operating company in it investors will find credit and debit accounts the due from account falls into the latter category a due from account holds assets in another firm s account that can be considered as a receivable by the company that owns the due from account due from accounts track assets owed to a company and are not used for the tracking of any liabilities or obligations in the case of many businesses due from accounts hold deposits made by customers a due from account can have various names depending on the type of transaction for example it can be called intercompany receivables when money for goods or services is received by a subsidiary and is on its way to being forwarded to the parent company in international business a due from account can be referred to as a nostro account nostro a term derived from the latin word for ours holds deposits made by customers in one country before being transferred to the primary due from account held by the business in their home nation in their home currency nostro accounts generally hold funds in the currency native to the account s location and not the currency of the business home nation or bank they are frequently used to facilitate foreign exchange and trade transactions due from account vs due to accountwhile the due from account tracks money owed to the company the due to account is used to track obligations such as funds that are owed to another entity the due from accounts focus on incoming assets also known as receivables while the due to accounts focus on outgoing assets also called payables the funds in a due to account are often designated for a particular purpose such as to fulfill a debt obligation prior to being transferred into the account at no time should either account ever reflect a negative balance as these accounts track known obligations if a negative balance occurs the most likely culprit is incorrectly entered data meanwhile if the account ever reflects a zero balance this means there are no receivables or payables expected at that time advantages of a due from accountthe primary reason for separating the incoming and outgoing funds is for ease of accounting this keeps all incoming payments focused in one account and outgoing in another each transfer can be marked with its source or destination and helps maintain a simplified paper trail if research is required say in the event of an audit the separation of funds is particularly useful when disbursements are scheduled for payments transfers to other bank locations or to a company s subsidiaries the process of separating receivables and payables also helps in tax charges as movement in and out of due from accounts or due to accounts marks when funds were distributed and therefore the appropriate tax charge required on the funds | |
what is due to account | a due to account is a liability account typically found inside the general ledger that indicates the amount of funds payable to another party the funds can be currently due or due at a point in the future this due to account is usually generated and put on the books as the result of a transaction after a business receives goods or services from an outside party if the party providing the services is not paid right away the due to account is created and funds are appropriately allocated to it in order to provide the future payment the due to account is used in conjunction with a due from account to reconcile from which account the money will be coming and to which it will be going the due to account is also called accounts payable understanding due to accountsthe general ledger is the centralized source that contains all of the financial accounts for a company it contains debit and credit accounts including the due to account and the due from account the due to account is also sometimes referred to as an intercompany payables account when a business receives goods or services from an outside party if those items aren t paid for immediately the business will create a due to account entry on its books to set aside funds to pay the vendor if the due to account increases over a prior period that means the company is buying more goods or services on credit rather than paying cash if a company s due to account decreases it means the company is paying on its prior period debts at a faster rate than it is purchasing new items on credit it is essential that a company keep proper track of their due to accounts so as to avoid becoming overleveraged due to account vs due from accountthe due to account and due from account are essentially opposites whereas the due to account tracks the amount of money a business owes to various entities the due from account is an asset account in the general ledger used to track money owed to a company that is currently being held at another firm neither the due from or due to account should ever have a negative balance if this occurs it reveals there was an error was made in the accounting process example of a due to accountsay for example that xyz company produces widget presses one day their widget press breaks it turns out there was a defective tuner in one of the crankshafts of the machine xyz company needs to hire a widget press mechanic and also needs to purchase a new tuner for the crankshaft the tuner arrives with an invoice the mechanic comes and fixes the machine and says he will send xyz company an invoice for his services xyz company would create two due to accounts in its general ledger upon receiving these invoices once these invoices were paid the due to accounts would be canceled | |
what is due diligence | due diligence is an investigation audit or review performed to confirm facts or details of a matter under consideration in the financial world due diligence requires an examination of financial records before entering into a proposed transaction with another party investopedia ellen lindnerunderstanding due diligencedue diligence became common practice and a common term in the united states with the passage of the securities act of 1933 with that law securities dealers and brokers became responsible for fully disclosing material information about the instruments they were selling failing to disclose this information to potential investors made dealers and brokers liable for criminal prosecution 1the writers of the act recognized that requiring full disclosure left dealers and brokers vulnerable to unfair prosecution for failing to disclose a material fact they did not possess or could not have known at the time of sale thus the act included a legal defense as long as the dealers and brokers exercised due diligence when investigating the companies whose equities they were selling and fully disclosed the results they could not be held liable for information that was not discovered during the investigation due diligence is performed by equity research analysts fund managers broker dealers individual investors and companies that are considering acquiring other companies due diligence by individual investors is voluntary however broker dealers are legally obligated to conduct due diligence on a security before selling it types of due diligencedepending on its purpose due diligence takes different forms due diligence can be categorized as hard or soft based on the approach used we discuss more on how these two types of due diligence are put into practice in the context of m a deals below | |
how to perform due diligence for stocks | below are 10 steps for individual investors undertaking due diligence most are related to stocks but in many cases they can be applied to bonds real estate and many other investments after those 10 steps we offer some tips when considering an investment in a startup company all of the information you need is readily available in the company s quarterly and annual reports and in the company profiles on financial news and discount brokerage sites a company s market capitalization or total value indicates how volatile the stock price is how broad its ownership is and the potential size of the company s target markets large cap and mega cap companies tend to have stable revenue streams and a large diverse investor base which tends to lead to less volatility mid cap and small cap companies typically have greater fluctuations in their stock prices and earnings than large corporations the company s income statement will list its revenue or its net income or profit that s the bottom line it s important to monitor trends over time in a company s revenue operating expenses profit margins and return on equity the company s profit margin is calculated by dividing its net income by its revenue it s best to analyze profit margin over several quarters or years and compare those results to companies within the same industry to gain some perspective now that you have a feel for how big the company is and how much it earns it s time to size up the industry in which it operates and its competition every company is defined in part by its competition due diligence involves comparing the profit margins of a company with two or three of its competitors for example questions to ask are is the company a leader in its industry or its specific target markets is the company s industry growing performing due diligence on several companies in the same industry can give an investor significant insight into how the industry is performing and which companies have the leading edge in that industry many ratios and financial metrics are used to evaluate companies but three of the most useful are the price to earnings p e ratio the price earnings to growth pegs ratio and price to sales p s ratio these ratios are already calculated for you on websites such as yahoo finance as you research ratios for a company compare several of its competitors you might find yourself becoming more interested in a competitor |
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