instruction
stringlengths 5
1.05k
| output
stringlengths 6
22.3k
| input
stringclasses 1
value |
|---|---|---|
what is form 6252 installment sale income | form 6252 installment sale income is an internal revenue service irs form used to report income from the sale of real or personal property coming from an installment sale with the installment method an installment sale occurs when at least one payment from the disposition of property is received after the end of the tax year an installment sale in general does not include disposition of personal property from a person who regularly sells that same type of property like a real estate agent or broker or property that is sold to customers in the ordinary course of the taxpayer s occupation such as with farmland in some situations when there are gains on the dispositions of the property the installment method may be used proceeds from an installment sale can come in later tax years which are reported unless the taxpayer is not using the installment method who can file form 6252 installment sale income filers may need to use this form any time they realize a gain on property in the installment method taxpayers do not have to file form 6252 if the sale of the property does not result in a gain for them even if their payments are received in a subsequent tax year if this is the case a business should report the sale using form 4797 additionally form 6252 is not needed to report sales of stock or securities traded on an established securities market those sales should be treated as if they were received in the same year the sale was made taxpayers should not file form 6252 for sales that do not result in a gain even if a payment is received in the tax year | |
how to file form 6252 installment sale income | the taxpayer must input their name and identification number an employer identification number for a corporation or a social security number for an individual the next section deals with information about the property including description and date of acquisition and sale part i deals with gross profits and the contract price this part is completed for all years of the installment agreement the next section part ii outlines information about the installment sale income part iii which is not filled out if the taxpayer received the final payment in the tax year deals with information about related party sale income form 6252 is available on the irs website 1 special considerations when filing form 6252 installment sale incomenew rules in 2018 allow taxpayers to defer part or all of their capital gains into a qualified opportunity fund in order to qualify for the deferral taxpayers must consider the following other relevant formsas mentioned above if the taxpayer is opting to defer any or all of their capital gains into a qualified opportunity fund they must also file form 8949 sales and other dispositions of capital assets these funds were designed by the 2017 tax cuts and jobs act tcja to help create economic development and jobs they also need to file form 8997 every year in which they hold an investment in a qof | |
what is form 6781 gains and losses from section 1256 contracts and straddles | form 6781 gains and losses from section 1256 contracts and straddles is used to report gains and losses from straddles or financial contracts that are labeled as section 1256 contracts a straddle is a strategy that involves holding contracts that offset the risk of loss from each other for example if a trader buys both a call option and a put option for the same investment security at the same time they have formed a straddle 12most options and futures traders will need to use this form when they complete their taxes each year for reported investments 40 of the gain or loss is reported as short term and the remaining 60 is reported as long term 1who can file form 6781 gains and losses from section 1256 contracts and straddles individual tax filers must report gains and losses for contracts according to mark to market rules form 6781 has separate sections for straddles and section 1256 contracts so investors have to identify the specific type of investment used 1section 1256 contracts include regulated futures contracts foreign currency contracts options dealer equity options or dealer securities futures contracts these investments are considered to be sold at year end even if the positions are not actually closed for tax purposes they are assigned their fair market value in order to determine gains and losses 3for example assume a trader bought a regulated futures contract on may 5 2019 for 25 000 at the end of the tax year they still have the contract in their portfolio valued at 29 000 this trader s mark to market profit is 4 000 the trader reports this on form 6781 treated as 60 long term and 40 short term capital gain on jan 30 2020 the trader sells their long position for 28 000 since they ve already recognized a 4 000 gain on their 2019 tax return the trader will record a 1 000 loss calculated as 28 000 minus 29 000 on their 2020 tax return treated as 60 long term and 40 short term capital loss investors report gains and losses for straddles and section 1256 contract investments by using form 6781 but hedging transactions are treated differently since section 1256 contracts are considered to be sold every year the holding period of the underlying asset does not determine whether or not the gain or loss is short term or long term all gains and losses on these contracts are considered to be 60 long term and 40 short term in other words section 1256 contracts allow an investor or trader to take 60 of the profit at the more favorable long term tax rate even if the contract was only held for a year or less 1form 6781 gains and losses from section 1256 contracts and straddles require that investors trading foreign securities contracts in foreign exchanges report gains or losses from that contract on form 6781 even if those contracts would generally not be treated as a section 1256 contract 1 | |
how to file gains and losses from section 1256 contracts and straddles | part i of form 6781 requires section 1256 investment gains and losses be reported at either the actual price the investments were sold for or the mark to market price established on december 31 part ii of the form requires the losses on the trader s straddles be reported in section a and gains reported in section b part iii is provided for any unrecognized gains on positions held at the end of the tax year but only has to be completed if a loss is recognized on a position | |
what is form 706 united states estate and generation skipping transfer tax return | form 706 united states estate and generation skipping transfer tax return is an internal revenue service irs form used by an executor of a decedent s estate to calculate the estate tax owed according to chapter 11 of the internal revenue code irc the tax is levied on the entire taxable estate not just on the share a specific beneficiary receives executors also use form 706 to calculate the generation skipping transfer tax gstt imposed by chapter 13 of the irc 1form 706 is used by an executor of an estate to calculate the amount of tax owed on estates valued at more than 12 92 million if the decedent died in 2023 or 13 61 million in 2024 3form 706 also helps executors determine the overall value of an estate prior to distributing any assets to beneficiaries as outlined in the decedent s will or trust the irs treats any inheritance on a stepped up valuation or a step up basis that means the cost basis is adjusted to the fair market value of the inherited property as of the date of death 5using the stepped up valuation methodology allows heirs to minimize capital gains taxes the method also allows for a cleaner valuation process in terms of limiting the number of administrative tasks associated with the estate who can file form 706 form 706 must be filed by the executor of the estate of every u s citizen or resident to determine if the estate exceeds the exclusion amount add together amounts 1 2 and 3 below the gross estate includes the irs uses a stepped up valuation methodology in determining the value of an estate form 706 is available on the irs webpage related formsform 706 na united states estate and generation skipping transfer tax return is used to calculate estate tax and gstt liability for nonresident alien decedents 8form 706 gs d generation skipping transfer tax return for distributions is used to calculate taxes due on trust distributions subject to the gstt any skip person who receives a taxable distribution coming from a trust must use form 706 gs d to calculate and report the tax due 4a generation skipping transfer tax gst is a transfer of money or property either as an inheritance or a gift to someone who is two or more generations below the grantor the person who receives the inheritance or gift is called the skip person while a skip person is often a grandchild it could be anyone who s at least 37 years younger than the grantor 9the gstt is imposed on gifts and inheritances that a skip person receives this ensures that taxes are paid at each generational level the gstt has the same lifetime exemption as the federal estate and gift taxes 12 92 million for 2023 13 61 million for 2024 3trustees must report taxable distributions to skip persons using form 706 gs d 1 notification of distribution from a generation skipping trust note that trustees must also provide the skip person with the information needed to figure the tax due on the distribution 1 | |
where to mail form 706 | you must file a paper form 706 to report estate or gstt within nine months of the date of the decedent s death 6 if you can t file form 706 by the due date you can apply for an automatic six month extension using form 4768 application for extension of time to file a return and or pay u s estate and generation skipping transfer taxes 10file form 706 at the following address if you re using a private delivery service including dhl express fedex and ups send form 706 to if you re filing an amended form 706 use the following address even if you re using a private delivery service the estate tax and the gstt are due within nine months of the date of the decedent s death 13 make checks payable to united states treasury and note the decedent s name social security number and form 706 on the check alternatively you can pay online through the electronic federal tax payments system eftps 614 | |
does every estate have to file a form 706 | not all estates must file a form 706 a form has to be filed on behalf of someone who has died when the gross estate adjusted taxable gifts and tax exemption surpasses the filing limit for the year of the person s death 15 | |
what s the difference between irs form 706 and irs form 709 | irs form 706 is filed by the executor of an estate on behalf of someone who has died to determine what taxes are owed 16 while irs form 709 is filed by an individual to report to the government any gifts that have surpassed the annual limit 17 | |
what triggers an estate tax return | an estate that pulls in more than 600 in annual gross income must file form 1041 u s income tax return for estates and trusts the estate may also have to pay quarterly estimated taxes 18the bottom lineirs form 706 also known as the united states estate and generation skipping transfer tax return is used to report the value of a deceased individual s estate for federal estate tax purposes it includes information about the decedent s assets deductions and beneficiaries it s used by the irs to calculate any estate taxes which may be subject to an estate tax exclusion that changes dollar amounts each year | |
what is form 8283 noncash charitable contributions | form 8283 noncash charitable contributions is a tax form distributed by the internal revenue service irs and used by filers who wish to deduct non cash contributions made to a qualifying charitable organization deductions for non cash contributions are reported as itemized deductions 12non cash contributions can include securities property vehicles collectibles and art 3 the form can be downloaded from the irs website who can file form 8283 noncash charitable contributions this form is available for individuals partnerships and corporations to report their non cash charitable contributions if the deduction for the non cash gift equals more than 500 the only exception to the 500 rule is for c corporations which must file form 8283 only if their charitable donation exceeds 5 000 4 you can list up to five donations to five different organizations on form 8283 and if you had more donations you can attach as many form 8283s to your 1040 as you need 3form 8283 should not be used for out of pocket expenses generated by volunteer or charitable work or for cash or credit card contribution payments or expenses 4form 8283 cannot determine a taxpayer s charitable contribution limits 5 | |
how to file form 8283 noncash charitable contributions | the filer must first fill out their name and identifying number for corporations this is the employer identification number ein for individuals it is their social security number ssn 6the filer will then fill out the following information for each column in part i of section a part ii should be filled out if there was less than an entire interest in a property listed in the previous section 8 taxpayers who file form 8283 and have made contributions of motor vehicles boats and or airplanes may also include form 1098 c which shows the gross proceeds 69donated non cash items may require an appraisal to determine their value such items include art pieces valued at 20 000 or more most jewelry and gems and used household goods valued over 500 that are not in good or better condition 10appraisals are not required for publicly traded securities inventory or property held primarily for sale to customers in the ordinary course of your trade or business a qualified vehicle including a car boat or airplane if your deduction for the vehicle is limited to the gross proceeds from its sale and you obtained a contemporaneous written acknowledgment and intellectual property 11part i of section b which is similar to part i in section a is filled out by the taxpayer and or the appraiser the appraiser must also sign a declaration the appraisal is not required to be submitted with the form but it should be kept with the filer s records the recipient of the non cash donation must sign an acknowledgment and include its name identification number address and a signature from an authorized officer 1210 | |
what is internal revenue service irs form 8283 used for | form 8283 is used to report non cash contributions of more than 500 to qualifying charitable organizations the internal revenue service irs allows you to use such contributions as itemized deductions on your taxes who can file form 8283 the form can be utilized by individuals partnerships and corporations each form has room for five donations and you can submit as many forms as you have donations | |
do non cash contributions require an appraisal to prove their worth | only in certain circumstances art pieces valued at 20 000 or more need a written appraisal from a qualified appraiser a household good that is not in good or better condition must have an appraisal jewelry and gems almost always require an appraisal on the other hand all publicly traded securities and intellectual property are among the items that do not need an appraisal 1311 | |
what is irs form 8379 injured spouse allocation | the injured spouse on a jointly filed tax return can file form 8379 to regain their share of a joint refund that was seized to pay a past due obligation of the other spouse these obligations might include past due federal tax state tax child support or federal non tax debt such as a student loan the term injured refers to the negatively impacted spouse who does not owe the debt | |
what is form 8396 mortgage interest credit | form 8396 is an internal revenue service irs form used by homeowners to claim the mortgage interest credit the aim of the mortgage interest credit is to help lower income taxpayers afford homeownership you can only claim the credit if you receive a mortgage credit certificate mcc from a state or local government agency 1who can file form 8396 mortgage interest credit anyone who was issued an mcc from a state or local government agency should file this form in general an mcc is only issued to lower and moderate income individuals in connection with a new mortgage to buy a primary residence an mcc is issued under a qualified mortgage credit certificate program 2individuals who qualify can claim the credit each year using form 8396 for part of the home mortgage interest paid 2 | |
how to file form form 8396 mortgage interest credit | the filer of form 8396 must include details including their name the name of the issuer of the mcc the certificate number and issue date and their social security number on the form under part i the filer must figure out the current year s mortgage interest credit the mcc will show the rate you will use to figure out your credit the irs limits the mortgage interest credit to a maximum of 2 000 per year part ii is used to determine the following year s carryforward credit form 8396 is available on the irs website 3once the form is completed attach it to your individual federal income tax return form 1040 form 1040 sr or form 1040 nr if you have any unused credit to carry forward keep a copy of form 8396 to figure out your credit for the following year special considerations when filing form 8396 mortgage interest creditthere are some restrictions associated with the credit the residence must meet specific price and value requirements relative to the local housing market the home connected to the issued certificate must be in the same jurisdiction as the issuing agency the property must be the tax filer s primary residence in addition taxpayers who itemize their deductions on schedule a must offset the amount of their deduction for mortgage interest by the amount of the credit claimed a new mortgage credit certificate is issued if the mortgage is refinanced and homeowners who sell their residence within nine years may have to repay some of the credit issued 2form 8396 mortgage interest credit vs form 1098 mortgage interest statementform 8396 mortgage interest credit is different from form 1098 mortgage interest statement form 1098 shows the amount of interest and related expenses paid on a mortgage during the tax year and is sent out by banks and financial institutions the loan interest shown on the mcc is usually the same amount in box 1 of form 1098 4 | |
what is form 843 claim for refund and request for abatement | form 843 is a multipurpose tax document issued by the internal revenue service irs used by taxpayers to make a claim for a refund of certain assessed taxes or to request abatement of interest or penalties applied in error | |
what is form 843 claim for refund and request for abatement used for | form 843 can be used to ask the internal revenue service for abatement of certain taxes other than income including form 843 cannot be used to amend a previously filed income or employment tax return to who can file form 843 claim for refund and request for abatement there are several reasons a taxpayer can file form 843 this includes if a taxpayer s employer withholds too much income social security or medicare tax from a paycheck and will not make any adjustments this form can also be filed by a taxpayer s authorized representative another reason to file this form may be as a result of irs error or delay this happens when a taxpayer is wrongly assessed interest penalties or additions to tax that are not owed on these occasions a taxpayer can request that the irs fix the error s by filing a claim for refund or abatement a separate form 843 must generally be filed for each type of tax or fee and for each tax year if the irs believes a taxpayer claims an excessive refund amount it can add a penalty equal to 20 of the amount determined to be excessive | |
how to file form 843 claim for refund and request for abatement | form 843 requires basic information such as name address social security number tax period tax type and return type it requires a statement of the facts and issues as to why you are entitled to a refund or abatement penalty abatement requests require you to write the internal revenue code irc section number of the penalty on line 4 you can find this section number on the irs notice you received then you must choose a reason for your request in section 5a the choices are you can write an explanation of your request in section 7 remember to support your reasons with evidence and computations the irs allows you to attach additional pages if you need more space form 843 is available on the irs website 1 the form must be filed within two years from the date you paid the taxes or three years from the date the return was filed whichever is later special considerations for form 843if the irs denies your claim by sending a statutory notice of claim disallowance or if six months pass without any action you can petition the u s district court or the u s court of federal claims 2 3 you can also file a protective claim before the expiration of the statute of limitations to preserve your right to make a claim for a refund protective claims and real claims have the same legal effect | |
what is form 8606 | internal revenue service irs form 8606 nondeductible iras is used by filers who make nondeductible contributions to an individual retirement account ira a separate form should be filed for each tax year that nondeductible contributions are made normally contributions to an ira are deductible from ordinary income in some circumstances however people who participate in an employer retirement plan and whose households exceed a threshold of modified adjusted gross income magi might not be able to make these deductible contributions though they can still contribute to an ira 1who can file an 8606 participants should file form 8606 in conjunction with the standard income tax forms 1040 or 1040nr for individual filers any taxpayer with a cost basis above zero for ira assets a combination of post and pre tax contributions or deductible and nondeductible contributions should use form 8606 to prorate the taxable vs nontaxable distribution amounts if the taxpayer does not file irs form 8606 in a distribution year income taxes and possibly penalties may be due what would ordinarily be tax free money is now taxable re characterizing an irayounger investors should consider re characterizing traditional and simplified employee pension sep ira assets as roth assets assets that are so re characterized are immediately taxable as ordinary income money placed into a traditional or sep ira has usually never been taxed 2 when money comes out of a traditional or sep ira it becomes taxable already taxed money is not taxed when it comes out of the account not having to pay taxes on future distributions may outweigh the immediate tax bill caused by the re characterization investors should speak with a tax professional before attempting a re characterization form 8606 is also required whenever a taxpayer either converts a traditional or sep ira to a roth ira or receives an ira distribution that is attributable to previous nondeductible contributions 3 | |
how to file form 8606 | file form 8606 with form 1040 or 1040nr by the due date including due dates for extensions if you re not required to file an income tax return but are required to file form 8606 sign form 8606 and send it to the irs at the same time and place you would otherwise file a 1040 or 1040nr generally after a taxpayer files their return they can change a nondeductible contribution to a traditional ira to a deductible contribution or vice versa within the time limit for filing form 1040x amended u s individual income tax return 4 | |
what is irs form 8949 | form 8949 sales and other dispositions of capital assets is an internal revenue service irs form used to report capital gains and losses from investments the form is used by individual taxpayers as well as partnerships corporations trusts and estates taxpayers are required to report short and long term capital gains and losses from sales of investments 1 the information recorded on form 8949 reconciles the amounts reported to taxpayers and the irs on form 1099 b which brokerages send to their account holders annually who can file form 8949 according to the irs individuals partnerships corporations trusts and estates can file form 8949 in order to report the following 2anyone filing a joint return must complete as many pages of the form as necessary to report their transactions the totals from all completed pages of form 8949 are transferred to schedule d 2along with the list above corporations can use form 8949 to report the sale of stock of a specified 10 owned foreign corporation adjusted for the dividends received deduction under section 245a but only if the sale would otherwise generate a loss 2taxpayers with an eligible gain can invest it in a qualified opportunity fund and elect to defer part or all of that gain | |
how to file form 8949 | a capital gain or loss is generated when a capital asset is sold and reported to the irs for tax purposes schedule d capital gains and losses of irs form 1040 is used to report most capital gain or loss transactions form 8949 must be completed in order to arrive at the net gain or loss that is entered on schedule d 3along with the filer s name and taxpayer identification number form 8949 has two parts that need to be completed part i deals with short term assets held one year or less part ii is used for long term transactions those assets held for more than one year each asset sold must be identified along with its purchase and sale date and its purchase and sale price 4the transactions reported on form 8949 can be found on form 1099 b proceeds from broker and barter exchange transactions which is provided by brokerages once a year to their account holders and to the irs form 1099 b reports the cost basis of the investor s buy and sell transactions 5in some cases form 1099 b will not report the cost basis of an asset if this is the case the taxpayer must determine the base amount to calculate the gain or loss from a capital asset using a separate form 8949 a capital asset transaction for which no form 1099 b is issued must be listed on another form 8949 2form 8949 can also be used to correct any inaccuracies in the data reported on form 1099 b if the capital losses or gains for the year are reported for all assets on 1099 b with the correct basis then form 8949 is not necessary 2keep in mind though that schedule d is still required and must still be filed 2 | |
where to find form 8949 | all the pages of form 8949 sales and other dispositions of capital assets are available on the irs website can schedule d be completed without form 8949 no a taxpayer with capital gains or losses to report must file both form 8949 and schedule d form 8949 displays a list of every transaction including its cost basis its sale date and price and the total gain or loss the total short term and long term gains or losses are then used on schedule d to determine the total amount of capital gains taxes owed 6 | |
what information is required on form 8949 | information required for each asset reported on form 8949 includes the description of the stock or other asset the purchase price purchase date selling price and selling date | |
is form 8949 required for reporting cryptocurrency transactions | form 8949 may be required when you realize a gain on cryptocurrency by buying and then selling crypto for profit in a taxable account or exchanging crypto for goods or services that realize a gain in value 7the bottom lineform 8949 sales and other dispositions of capital assets is an irs form used by both individuals and businesses to report capital gains and losses from investments form 8949 and schedule d are required as part of your tax return whenever a capital asset such as stock is sold during the year 6each listing of an asset on form 8949 includes the description of the property its purchase price purchase date selling price and selling date for stock investors most of the information needed to complete form 8949 is included on form 1099 b that brokerages send to their account holders annually | |
what is sec form adv | the securities and exchange commission sec requires all professional investment advisers to submit sec form adv this form specifies the investment style assets under management aum and key officers of an advisory firm this form must be updated annually and it must be made available as a matter of public record for companies that manage funds in excess of 25 million 1there are several parts of sec form adv the first section includes identifying information if past disciplinary action was taken against the adviser this must be noted in the first section of sec form adv the second section deals with the aum investment strategy fee arrangements and service offerings of the firm understanding sec form advofficially called the uniform application for investment adviser registration and report by exempt reporting adviser sec form adv serves as a registration document that must be submitted to the sec and to state securities authorities 2the north american securities administrators association nasaa reviews and approves changes made to the document and it is supported by the financial industry regulatory authority finra 3potential and current clients of an investment adviser should always review the sec form adv on file that s because it provides transparent evidence of the asset mix within the firm as well as the professional background of key personnel most advisers offer a current sec form adv to any potential client early in the marketing process in fact investors should be immediately cautious of an adviser that does not freely offer the form upon request | |
how to file sec form adv | as noted above there are several parts to this form we ve highlighted some of the key information found in each below the first portion of form adv is organized as fill in the blank often easier for the adviser to compile and includes details about the sec reviews the information provided by the firm from this part of the form to process registrations and manages its regulatory and examination programs the second section of the form is a longer narrative that is prepared by the investment adviser this must be written in plain english and contain detailed information on the specific types of advisory services offered the fee schedule of the adviser disciplinary information and any conflicts of interest this latter part may include details on whether any directors have outside business interests that could impact their judgments or provide inside information 2this part should also include management background their educational history and business experiences these bios should extend to key advisory personnel as well this section is the most important primary disclosure document offered to clients by investment advisers brochures are always available to the public once they are filed 1sec form adv part 2 must also include a supplement which details information about key employees who directly provide investment advice to clients 1all investment advisers are required to submit annual updates to their brochures this includes any and all material changes that occur within the firm and any information and or activity that takes place that is critical to their business 2sec form crssec form adv previously included part 3 which was meant to serve as a summary of the previous sections as such it was called the relationship summary in june 2019 the sec amended the form and spun the third section off into an altogether new form called sec form crs or the relationship summary 6the form is meant to deliver to retail investors a brief customer or client relationship summary that provides information about the firm 6 it must be filed with the sec by every firm that provides retail investment services to their clients and it must be submitted to these individuals as noted above sec form crs is a summary of information from sec form adv therefore advisers must include the following information the form must be concise and written in plain english so it can be easily understood | |
how to access sec form adv | to request a copy of form adv contact the sec branch closest to you potential and current clients of an investment adviser should always review the form adv on file as it provides transparent evidence of the asset mix within the firm and the professional backgrounds of key personnel here is a link to a downloadable sec form adv | |
how do i find a firm s sec form adv | all firms must make the sec form adv they submit to regulation authorities public this means they can be easily accessed through the investment advisor public disclosure page of the securities and exchange commission s website you can also make a request directly to the firm keep in mind that all investment firms are required to provide new and existing clients with these forms | |
do brokers dealers file an sec form adv | yes anyone who provides investment services to their clients is expected to file sec form adv this includes investment firms or individual advisers it serves as a registration form with the securities and exchange commission and it must also be filed with one or more state securities authorities | |
what is sec form adv part 1 and part 2 | part 1 of sec form adv is meant to identify the firm that is submitting the form it includes information about the firm the services it provides who owns the business the clients it serves any business affiliations and any disciplinary actions it faced in the past this section is a fill in the blank or check box format which makes it easier to complete | |
what is sec form adv part 2a and 2b | part 2 of sec form adv serves as a brochure for the firm it provides disclosures about key information about the company including its business practices fees conflicts of interest and any discipline that it faced in the past this section is divided into two different sections part 2a is the brochure s cover page which has the identifying information while part 2b is the supplement details must be written concisely in simple english that can be easily understood | |
what is sec form adv part 3 | this section is called the relationship summary in june 2019 the sec amended sec form adv and turned part 3 into a separate form called sec form crs this form must be submitted by any firm that provides retail investment services to their clients since it serves as a summary of both parts of sec form adv it must include any identifying information as well as client relationships services provided and conflicts of interest among other things the bottom linesec form adv is one of just a number of filings that investment advisers and firms must submit in order to remain compliant investors can use this information to help guide them when choosing or making changes to their investment team s as such it s important for firms to ensure that the information submitted is concise and written in simple english that can be easily understood by anyone reading it keep in mind that the information submitted must be accurate any misleading information may result in the revocation of registration fines and even prosecution | |
what is the fortune 100 | the fortune 100 is a list of the top 100 companies in the united states within the fortune 500 a list of the 500 largest u s public and privately held companies published by fortune magazine fortune creates the list by ranking public and private companies that report annual revenue figures to a government agency the fortune 100 ranking is based on total revenues for the company s corresponding fiscal year understanding the fortune 100fortune first published its first fortune 500 in 1955 since that year it has published an annual list of the top 500 revenue producing companies 1 the fortune 100 is an unofficial list within the fortune 500 the fortune 100 described here is not the same as fortune s 100 best companies to work for 2the fortune 500 in 1955 was led by general motors a company that held the top position for more than 30 years general motors had revenues of 9 82 billion to top the list 3 the remaining nine rounded out as follows fortune includes in its 500 list all public and private companies that file financial statements with the government and are incorporated and operate in the united states requirements for the fortune 100at first the magazine s editors were stricter on which business sectors were included from 1955 to 1994 the fortune 100 list again a subset of the fortune 500 list only included businesses in the manufacturing mining and energy sectors this left out many of the top earning companies across the country however fortune did publish individual sector lists for the top 50 companies in the industries of banks utilities insurance retailers and transportation in 1994 fortune expanded its list of companies to include service companies opening the door for many newcomers to join this change added many new companies to the top 100 companies on the fortune 500 list and also dramatically increased the amount of annual revenue required to make the prestigious list the fortune 500 does not include foreign companies though many of the listed companies have significant international operations walmart which joined the list after 1994 was 1 in 2018 with 500 34 billion in revenue 4 it has been a frequent top 10 company since its inclusion 2023 fortune 100 top 10the highest ranked companies in the fortune 100 for the year 2023 are | |
how are the fortune 100 and fortune 500 different | based on rankings from fortune magazine s fortune 500 list the fortune 100 are the 100 largest public and private companies in the united states based on revenues the fortune 100 is a subset of the fortune 500 derived from a list of companies that operate in the united states and report to federal agencies prior to 1994 the fortune 100 only included companies that operated in the mining manufacturing and energy sectors it has since included companies that operate in the services sector | |
what is the history of the fortune 100 | in 1955 fortune magazine established the fortune 500 list at the time general motors ranked at the top of the list with revenues in excess of 9 8 billion this was a position that it continued to hold for the next three decades along with general motors many of the largest companies by revenue in 1955 are names that still exist today including chrysler exxon and general electric 3 | |
what is the difference between fortune 100 and fortune 100 best companies to work for | the fortune 500 ranks the highest revenue generating companies in the united states each year by contrast the fortune 100 best companies to work for are ranked according to a survey of employees who are asked about topics including trust in their organization reaching their potential and the effectiveness of leaders among other variables to be eligible companies must employ at least 1 000 employees and government agencies are not applicable 5the bottom linethe fortune 100 comprises the top 100 companies in the broader fortune 500 list a ranking of american companies by annual revenue to appear on this list is a feather in the cap of a company and moving up in the ranks is often seen as a positive sign of growth many of the companies on the fortune 100 also appear in the s p 500 index | |
what is the fortune 500 | the term fortune 500 refers to a list of 500 of the largest companies in the united states compiled by fortune magazine every year companies are ranked by their annual revenues for their respective fiscal years this list includes both public and private companies using publicly available revenue data to be a fortune 500 company is widely considered to be a mark of prestige understanding the fortune 500fortune magazine was founded in 1929 by henry robinson luce 1 the first issue was published the following year and has since become one of the world s leading business publications originally printed monthly the magazine put out 16 issues every year and also has a major presence online the magazine compiled its first list of the most successful american companies both public and private in 1955 it was created by editor edgar p smith in an effort to measure the size and power of american businesses during a time when the country s economic power was the envy of the world 2 originally called the fortune industrial 500 the name of the list was shortened to fortune 500 the fortune 500 survey includes companies that are incorporated and operate in the united states and file financial statements with government agencies this includes companies that are both publicly traded and privately held private companies that don t file financial statements with government agencies foreign corporations are excluded as are american companies consolidated by other companies and those that neglect to report full financial statements for at least three quarters of the current fiscal year 3 as of 2020 companies are ranked by total revenues for their respective fiscal years as reported on their 10 k filings or comparable financial statements about two thirds of the fortune 500 appear on the s p 500 index so consider an s p 500 index fund if you want to invest in many of these companies more than 1 800 american companies have been featured on the list over the course of its history the list has changed dramatically from the very first fortune 500 4 mergers and acquisitions m a shifts in production output and bankruptcies have taken companies off of the list the impact of a recession can also take out multiple companies from individual sectors the fortune 500 list can often be a telling sign of how strong the economy is or if there has been an economic recovery after poor performing years special considerationsas of 2020 walmart wmt took to the top spot on the fortune 500 list for the eighth year in a row the company earned revenue of 524 billion 5 online retailer amazon amzn took the second spot with revenues of 280 5 billion jumping up four spots from 2019 6 exxon mobil xom came in third with revenues of 265 billion while apple aapl and cvs health cvs ranked in fourth and fifth 7 the three most profitable companies on the 2020 list were as follows notable newcomers to the list include dow dow baker hughes bkr and uber uber the history of the fortune 500as noted above the idea for the list came from edgar p smith who was an assistant managing editor for fortune smith s idea took off and provided the grounds for the popular annual list 2 the original fortune 500 lists contained only companies that were in the manufacturing mining and energy sectors limiting inclusion for many big name companies to secure a spot on the list a company had to produce 49 7 million in annual revenue 4 in the original 1955 fortune 500 list general motors gm was the top company with annual revenues of 9 8 billion the fortune 500 underwent its biggest change in 1995 the new list continued to include companies from the original manufacturing mining and energy sectors but it also included service companies for the first time 8 the change greatly impacted the future of the fortune 500 list for example service companies made up 291 of the 500 entries that year three of the newly included service companies even made the top 10 listings in the fortune 500 walmart ranked fourth at t was number five and sears roebuck took the ninth spot on the list 9 walmart has spent several years at number one a position it would not have held if this change didn t occur 10 | |
what is a forward contract | a forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date a forward contract can be used for hedging or speculation although its non standardized nature makes it particularly apt for hedging investopedia paige mclaughlinunderstanding forward contractsunlike standard futures contracts a forward contract can be customized to a commodity amount and delivery date commodities traded can be grains precious metals natural gas oil or even poultry a forward contract settlement can occur on a cash or delivery basis forward contracts do not trade on a centralized exchange and are therefore regarded as over the counter otc instruments while their otc nature makes it easier to customize terms the lack of a centralized clearinghouse also gives rise to a higher degree of default risk because of their potential for default risk and lack of a centralized clearinghouse forward contracts are not as easily available to retail investors as futures contracts forward contracts vs futures contractsboth forward and futures contracts involve the agreement to buy or sell a commodity at a set price in the future but there are slight differences between the two while a forward contract does not trade on an exchange a futures contract does settlement for the forward contract takes place at the end of the contract while the futures contract settles on a daily basis most importantly futures contracts exist as standardized contracts that are not customized between counterparties 1example of a forward contractconsider the following example of a forward contract assume that an agricultural producer has two million bushels of corn to sell six months from now and is concerned about a potential decline in the price of corn it thus enters into a forward contract with its financial institution to sell two million bushels of corn at a price of 4 30 per bushel in six months with settlement on a cash basis in six months the spot price of corn has three possibilities risks of forward contractsthe market for forward contracts is huge since many of the world s biggest corporations use it to hedge currency and interest rate risks however since the details of forward contracts are restricted to the buyer and seller and are not known to the general public the size of this market is difficult to estimate the large size and unregulated nature of the forward contracts market mean that it may be susceptible to a cascading series of defaults in the worst case scenario while banks and financial corporations mitigate this risk by being very careful in their choice of counterparty the possibility of large scale default does exist another risk that arises from the non standard nature of forward contracts is that they are only settled on the settlement date and are not marked to market like futures what if the forward rate specified in the contract diverges widely from the spot rate at the time of settlement in this case the financial institution that originated the forward contract is exposed to a greater degree of risk in the event of default or non settlement by the client than if the contract were marked to market regularly | |
what is a forward dividend yield | a forward dividend yield is an estimation of a year s dividend expressed as a percentage of the current stock price the year s projected dividend is measured by taking a stock s most recent actual dividend payment and annualizing it the forward dividend yield is calculated by dividing a year s worth of future dividend payments by a stock s current share price understanding a forward dividend yieldfor example if a company pays a q1 dividend of 25 cents and you assume the company s dividend will be consistent the firm will be expected to pay 1 00 in dividends over the course of the year 25 cents x 4 quarters if the stock price is 10 the forward dividend yield is 10 1 10 x 100 the opposite of a forward dividend yield is a trailing dividend yield which shows a company s actual dividend payments relative to its share price over the previous 12 months when future dividend payments are not predictable the trailing dividend yield can be one way to measure value when future dividend payments are predictable or have been announced the forward dividend yield is a more accurate tool forward dividend yield is also know as indicated yield an additional form of dividend yield is the indicated yield or the dividend yield that one share of stock would return based on its current indicated dividend to calculate indicated yield multiply the most recent dividend issued by the number of annual dividend payments the indicated dividend divide the product by the most current share price indicated yield mrd of dpey stock pricewhere mrd most recent dividenddpey dividend payments each year begin aligned text indicated yield frac text mrd times text of dpey text stock price textbf where text mrd text most recent dividend text dpey text dividend payments each year end aligned indicated yield stock price mrd of dpey where mrd most recent dividenddpey dividend payments each year for example if a stock trading at 100 has a most recent quarterly dividend of 0 50 the indicated yield would be indicated yield of stock abc 0 50 4 100 2 text indicated yield of stock abc frac 0 50 times4 100 2 indicated yield of stock abc 100 0 50 4 2 forward dividend yields and corporate dividend policya company s board of directors determines the dividend policy of the company in general more mature and established companies issue dividends while younger rapidly growing firms often choose to put any excess profits back into the company for research development and expansion purposes common types of dividend policies include the stable dividend policy in which the company issues dividends when earnings are up or down the goal of a stable dividend policy is to align with the firm s goal for long term growth instead of its quarterly earnings volatility with a constant dividend policy a company issues a dividend each year based on a percentage of the company s earnings with constant dividends investors experience the full volatility of company earnings finally with a residual dividend policy a company pays out any earnings after it pays for its own capital expenditures and working capital needs | |
what is a good dividend yield | generally a dividend yield between 2 and 6 is considered a good dividend yield yields above 6 are considered to be higher risk stocks which depending on the investor s risk tolerance may be a risky investment not worth exploring as of march 10 2022 the average dividend yield for the s p 500 since inception is 4 29 and its current dividend yield is 1 42 12 | |
what is a good p e ratio | the higher the p e ratio means the more willing investors are to pay a higher share price now for a stock with the expectation of growth in the future the average p e ratio of the s p 500 since inception is 15 97 while its current p e ratio is 24 29 3 | |
does tesla pay dividends | no tesla has not and does not intend on paying dividends the company believes in keeping its retained earnings to fund the growth of the company | |
what is a forward exchange contract fec | a forward exchange contract fec is a special over the counter otc foreign currency forex transaction that allows traders to exchange currencies that are infrequently traded these may include minor currencies as well as blocked or otherwise inconvertible currencies forward contracts are agreements between two parties to exchange a pair of currencies at a specific time in the future these transactions typically take place on a date after the spot contract settles and are used to protect the buyer from currency price fluctuations formula and calculation of forward exchange contract fec the forward exchange rate for a contract can be calculated as | |
where | understanding forward exchange contracts fecs as noted above fecs are otc transactions that allow investors to trade currencies that aren t commonly traded in the forex market including minor currencies and blocked or inconvertible currencies an fec involving such a blocked currency is known as a non deliverable forward ndf fecs are not traded on exchanges and they don t trade standard currency amounts these contracts cannot be canceled except by the mutual agreement of both parties involved the parties involved in the contract are generally interested in hedging a foreign exchange position or taking a speculative position all fecs set out the they also stipulate that the prevailing spot rate on the fixing date be used to conclude the transaction the contract s rate of exchange is fixed and specified for a specific date in the future this allows the parties involved to better budget for future financial projects and be aware of their income or costs from the transaction ahead of time the nature of fecs protects both parties from unexpected or adverse movements in the currencies future spot rates forward exchange rates for most currency pairs can usually be obtained for up to 12 months in the future or up to 10 years for the four major pairs special considerationsthe largest forward exchange markets include the chinese yuan cny indian rupee inr south korean won krw new taiwan dollar twd brazilian real brl and russian ruble rub the largest otc markets take place in london with active markets also in new york singapore and hong kong some countries including south korea have limited but restricted onshore forward markets in addition to an active ndf market the largest segment of fec trading is done against the u s dollar usd there are also active markets using the euro eur the japanese yen jpy and to a lesser extent the british pound gbp and the swiss franc chf forward exchange rates for most currency pairs can be obtained for up to 12 months in advance there are four pairs of currencies known as the major pairs these are the exchange rates can be obtained for a period of up to 10 years for these pairs 1 contract times as short as a few days are also available from many providers although a contract can be customized most entities won t see the full benefit of an fec unless setting a minimum contract amount at 30 000 example of forward exchange contract fec here s a hypothetical example to show how fecs work let s assume that the u s dollar and canadian dollar cad spot rate is 1 cad buys 0 80 usd the u s three month rate is 0 75 and the canadian three month rate is 0 25 in this case the three month usd cad fec rate would be calculated as the difference due to the rates over 90 days is one one hundredth of a cent | |
what is a currency forward | a currency forward is a foreign exchange contract it guarantees the exchange rate for a future currency sale or purchase by locking it in because it comes with a rate that s locked in it is a binding agreement as such the buyer and seller cannot break the contract and must adhere to it this type of contract doesn t trade on an exchange rather it is traded over the counter | |
what is the most actively traded currency pair | the currency pair that is most actively traded in the foreign exchange market is the euro u s dollar eur usd trading in this pair accounts for about 30 of the transactions in the foreign exchange market 2 | |
what does the term non convertible currency mean | the term non convertible currency refers to a currency that doesn t trade freely on the foreign exchange market it is also known as a blocked currency even though a non convertible currency is legal tender in one country it is virtually impossible to exchange it for another currency governments typically restrict convertibility for economic reasons including when they have low foreign currency reserves the north korean won kpw is an example of a blocked or non convertible currency the bottom linethe foreign exchange market is the most liquid and largest one in the world so it should come as no surprise that there are different nuances to this market forward exchange contracts are special contracts that trade over the counter investors can use these contracts to trade currency pairs that aren t very common these contracts can be somewhat complex which is why novice traders should do their homework before considering anything like them doing your research can help you minimize your losses and avoid investment shock | |
what is forward integration | forward integration is a business strategy that involves a form of downstream vertical integration whereby the company owns and controls business activities that are ahead in the value chain of its industry this might include among others direct distribution or supply of the company s products this type of vertical integration is conducted by a company advancing along the supply chain a good example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets or a clothing label that opens up its own boutiques selling its designs directly to customers instead of or in addition to selling them through department stores | |
how forward integration works | often referred to as cutting out the middleman forward integration is an operational strategy implemented by a company that wants to increase control over its suppliers manufacturers or distributors so it can increase its market power for a forward integration to be successful a company needs to gain ownership over other companies that were once customers this strategy differs from backward integration in which a company tries to increase ownership over companies that were once its suppliers a company implements forward integration strategies when it wants to exert a wider control over the value chain of its industry optimize economies of scope and target better cost structure thereby increasing its industry market share and profitability the rise of the internet has made forward integration both easier and a more popular approach to business strategy a manufacturer for example has the ability to set up an online store and use digital marketing to sell its products previously it had to use retail companies and marketing firms to effectively sell the products the goal of forward integration is for a company to move forward in the supply chain increasing its overall ownership of the industry standard industries are made up of five steps in the supply chain raw materials intermediate goods manufacturing marketing and sales and after sale service if a company wants to conduct a forward integration it must advance along the chain while still maintaining control of its current operations its original place in the chain so to speak special considerations for forward integrationcompanies should be aware of the costs and scope associated with a forward integration they should only engage in this sort of strategy if there are cost benefits and if the integration won t dilute its current core competencies sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than expand on its own example of forward integrationfor example the company intel supplies dell with intermediate goods its processors that are placed within dell s hardware if intel wanted to move forward in the supply chain it could conduct a merger or acquisition of dell in order to own the manufacturing portion of the industry additionally if dell wanted to engage in forward integration it could seek to take control of a marketing agency that the company previously used to market its end product however dell cannot seek to take over intel if it wants to integrate forward only a backward integration allows a movement up the supply chain its case | |
what is a forward market | a forward market is an over the counter marketplace that sets the price of a financial instrument or asset for future delivery forward markets are used for trading a range of instruments but the term is primarily used with reference to the foreign exchange market it can also apply to markets for securities and interest rates as well as commodities | |
how a forward market works | a forward market leads to the creation of forward contracts while forward contracts like futures contracts may be used for both hedging and speculation there are some notable differences between the two forward contracts can be customized to fit a customer s requirements while futures contracts have standardized features in terms of their contract size and maturity forwards are executed between banks or between a bank and a customer futures are done on an exchange which is a party to the transaction the flexibility of forwards contributes to their attractiveness in the foreign exchange market pricingprices in the forward market are interest rate based in the foreign exchange market the forward price is derived from the interest rate differential between the two currencies which is applied over the period from the transaction date to the settlement date of the contract in interest rate forwards the price is based on the yield curve to maturity foreign exchange forwardsinterbank forward foreign exchange markets are priced and executed as swaps this means that currency a is purchased vs currency b for delivery on the spot date at the spot rate in the market at the time the transaction is executed at maturity currency a is sold vs currency b at the original spot rate plus or minus the forward points this price is set when the swap is initiated the interbank market usually trades for straight dates such as a week or a month from the spot date three and six month maturities are among the most common while the market is less liquid beyond 12 months amounts are commonly 25 million or more and can range into the billions customers both corporations and financial institutions such as hedge funds and mutual funds can execute forwards with a bank counter party either as a swap or an outright transaction in an outright forward currency a is bought vs currency b for delivery on the maturity date which can be any business day beyond the spot date the price is again the spot rate plus or minus the forward points but no money changes hands until the maturity date outright forwards are often for odd dates and amounts they can be for any size non deliverable forwardscurrencies for which there is no standard forward market can be traded via a non deliverable forward these are executed off shore to avoid trading restrictions are only executed as swaps and are cash settled in dollars or euros the most commonly traded currencies are the chinese remnimbi south korean won and indian rupee | |
what are forward points | in currency trading forward points are the number of basis points added to or subtracted from the current spot rate of a currency pair to determine the forward rate for delivery on a specific value date when points are added to the spot rate this is called a forward premium when points are subtracted from the spot rate it is a forward discount the forward rate is based on the difference between the interest rates of the two currencies currency deals always involve two currencies and the time until the maturity of the deal forward points are also known as the forward spread basis points can be either added or taken away from the spot rate if they are added they are forward points if subtracted they are discount points | |
what is a forward premium | a forward premium is a situation in which the forward or expected future price for a currency is greater than the spot price it is an indication by the market that the current domestic exchange rate is going to increase against the other currency this circumstance can be confusing because an increasing exchange rate means the currency is depreciating in value understanding forward premiumsa forward premium is frequently measured as the difference between the current spot rate and the forward rate so it is reasonable to assume that the future spot rate will be equal to the current futures rate according to the forward expectation s theory of exchange rates the current spot futures rate will be the future spot rate this theory is rooted in empirical studies and is a reasonable assumption over a long term time horizon typically a forward premium reflects possible changes arising from differences in the interest rate between the two currencies of the two countries involved forward currency exchange rates are often different from the spot exchange rate for the currency if the forward exchange rate for a currency is more than the spot rate a premium exists for that currency a discount happens when the forward exchange rate is less than the spot rate forward rate premium calculationthe basics of calculating a forward rate require both the current spot price of the currency pair and the interest rates in the two countries see below consider this example of an exchange between the japanese yen and the u s dollar in this case the dollar is strong relative to the yen since the dollar s forward value exceeds the spot value by a premium of 0 12 yen per dollar the yen would trade at a discount because its forward value regarding dollars is less than its spot rate to calculate the forward discount for the yen you first need to calculate the forward exchange and spot rates for the yen in the relationship of dollars per yen for the calculation of periods other than a year you would input the number of days as shown in the following example a three month forward rate is equal to the spot rate multiplied by 1 the domestic rate times 90 360 1 foreign rate times 90 360 to calculate the forward rate multiply the spot rate by the ratio of interest rates and adjust for the time until expiration so the forward rate is equal to the spot rate x 1 domestic interest rate 1 foreign interest rate as an example assume the current u s dollar to euro exchange rate is 1 1365 the domestic interest rate or the u s rate is 5 and the foreign interest rate is 4 75 plugging the values into the equation results in f 1 1365 x 1 05 1 0475 1 1392 in this case it reflects a forward premium | |
what is a forward premium | a forward premium is a situation in which the forward or expected future price for a currency is greater than the spot price it is an indication by the market that the current domestic exchange rate is going to increase against the other currency this circumstance can be confusing because an increasing exchange rate means the currency is depreciating in value understanding forward premiumsa forward premium is frequently measured as the difference between the current spot rate and the forward rate so it is reasonable to assume that the future spot rate will be equal to the current futures rate according to the forward expectation s theory of exchange rates the current spot futures rate will be the future spot rate this theory is rooted in empirical studies and is a reasonable assumption over a long term time horizon typically a forward premium reflects possible changes arising from differences in the interest rate between the two currencies of the two countries involved forward currency exchange rates are often different from the spot exchange rate for the currency if the forward exchange rate for a currency is more than the spot rate a premium exists for that currency a discount happens when the forward exchange rate is less than the spot rate forward rate premium calculationthe basics of calculating a forward rate require both the current spot price of the currency pair and the interest rates in the two countries see below consider this example of an exchange between the japanese yen and the u s dollar in this case the dollar is strong relative to the yen since the dollar s forward value exceeds the spot value by a premium of 0 12 yen per dollar the yen would trade at a discount because its forward value regarding dollars is less than its spot rate to calculate the forward discount for the yen you first need to calculate the forward exchange and spot rates for the yen in the relationship of dollars per yen for the calculation of periods other than a year you would input the number of days as shown in the following example a three month forward rate is equal to the spot rate multiplied by 1 the domestic rate times 90 360 1 foreign rate times 90 360 to calculate the forward rate multiply the spot rate by the ratio of interest rates and adjust for the time until expiration so the forward rate is equal to the spot rate x 1 domestic interest rate 1 foreign interest rate as an example assume the current u s dollar to euro exchange rate is 1 1365 the domestic interest rate or the u s rate is 5 and the foreign interest rate is 4 75 plugging the values into the equation results in f 1 1365 x 1 05 1 0475 1 1392 in this case it reflects a forward premium | |
what is forward price to earnings forward p e | forward price to earnings forward p e is a version of the ratio of price to earnings p e that uses forecasted earnings to calculate the ratio although these earnings estimates aren t as reliable as current or historical earnings data forward p e analysis may still offer valuable insights to investors p e ratios vary significantly by sector due to differences in growth rates risk profiles and capital structures specific to each industry for instance regional banks which tend to have stable earnings typically have a forward p e of around 16 in contrast the healthcare information and technology sector driven by rapid innovation and higher growth expectations has a much higher forward p e of 133 forward p e guides capital market analysts on what to expect in future earning cycles these expectations influence stock prices which will adjust based on the actual earnings compared to the forecasts understanding forward price to earnings forward p e the forecasted earnings in the formula below are typically projected for the following 12 months or the next full year fiscal fy period the forward p e can be contrasted with the trailing p e ratio for example assume a company has a current share price of 50 and this year s earnings per share eps are 5 analysts estimate that the company s earnings will grow by 10 over the next fiscal year the company has a current p e ratio of the forward p e on the other hand would be 50 5 x 1 10 9 1x note that the forward p e is smaller than the current p e since the forward p e accounts for future earnings growth relative to today s share price to illustrate this with a real example apple s aapl stock currently has a forward p e of 34 57 with the stock priced at 233 analysts expect apple s future annual earnings per share to be 6 74 this demonstrates how forward p e ratios provide insight into expected future performance based on current market prices | |
what does forward price to earnings reveal | analysts like to consider the p e ratio as a price tag on earnings used to calculate a company s relative value based on its earnings in theory 1 of earnings should be worth the same across different companies but this is rarely the case in practice for instance if company a trades at 5 per share and company b at 10 per share the market values company b s earnings more this difference can be interpreted in various ways for example it might indicate that company b s earnings are overvalued or that company b s superior management and business model warrant a higher valuation the trailing p e ratio compares today s price against earnings for the past 12 months or the last fiscal year reflecting historical data in contrast the forward p e ratio uses earnings estimates to project the company s future value based on expected earnings for example if the current price of company b is 10 and earnings are expected to double to 2 next year the forward p e ratio would be 5x indicating the company is valued at half its current p e ratio a lower forward p e ratio compared to the current p e suggests analysts expect earnings to increase conversely a higher forward p e ratio indicates expectations of declining earnings forward p e vs trailing p eforward p e uses projected earnings per share while trailing p e relies on past performance by dividing the current share price by the total eps earnings over the past 12 months trailing p e is the most popular metric because it s objective is to assume that the company has reported earnings accurately some investors prefer trailing p e because they don t trust earnings estimates made by others however trailing p e has shortcomings namely that past performance doesn t guarantee future results investors may be better off focusing on future earnings power rather than past earnings another issue with trailing p e is that the eps number remains constant while stock prices fluctuate if a significant event causes the stock price to rise or fall dramatically the trailing p e may not accurately reflect these changes limitations of forward p esince forward p e relies on estimated future earnings it can be subject to miscalculation and analyst bias companies might underestimate earnings to beat future consensus estimates or overstate them and adjust later analysts estimates can also differ from company estimates adding to potential confusion that s one key reason forward p e ratios are often cited as indicators of a stock s value but studies show that trailing p e ratios are more reliable for predicting future performance if you use forward p e as the central basis of your investment thesis research the companies thoroughly updates to a company s guidance can significantly affect the forward p e possibly altering your investment perspective it s wise to use both forward and trailing p e ratios to form a more reliable assessment | |
how to calculate forward p e in excel | using microsoft excel you can calculate a company s forward p e for the next fiscal year the forward p e formula is the company s market price per share divided by its expected earnings per share to set up your excel sheet for example assume that company abc is currently trading at 50 and has an expected eps of 2 60 on the other hand company def currently has a market value per share of 30 and has an expected eps of 1 80 | |
why might a forward p e ratio be higher than p e | if the forward p e ratio is higher than the current p e ratio it indicates that analysts expect the company s earnings to decrease in the future however these estimates aren t always accurate and can be subject to revisions | |
why do forward p e ratios vary by sector | forward p e ratios tend to vary by sector due to differences in industry growth rates risk profiles and capital structures the technology sector for example often has higher forward p e ratios because investors anticipate rapid growth and significant future earnings in these industries sectors such as utilities often have lower forward p e ratios since they re viewed as having slower growth potential | |
what is considered a good forward p e | there is no good forward p e ratio as it varies by industry however a lower forward p e ratio may indicate a stock is undervalued relative to its future earnings potential the bottom linethe forward p e ratio can be a valuable tool for investors providing insight into a company s future earnings potential relative to its current stock price but while it can help predict future performance it s important to also recognize its limitations including relying on analysts estimates which can be inaccurate investors should use forward p e alongside other metrics such as trailing p e peg ratio and book value to get a comprehensive view a balanced approach to stock analysis and valuation is your best bet and consulting an investment professional can provide additional guidance | |
what is a forward rate | a forward rate is an interest rate applicable to a financial transaction that will take place in the future forward rates are calculated from the spot rate and are adjusted for the cost of carry to determine the future interest rate that equates the total return of a longer term investment with a strategy of rolling over a shorter term investment the term may also refer to the rate fixed for a future financial obligation such as the interest rate on a loan payment investopedia theresa chiechiunderstanding forward ratesin forex the forward rate specified in an agreement is a contractual obligation that must be honored by the parties involved for example consider an american exporter with a large export order pending for europe and the exporter undertakes to sell 10 million euros in exchange for dollars at a forward rate of 1 35 euros per u s dollar in six months time the exporter is obligated to deliver 10 million euros at the specified forward rate on the specified date regardless of the status of the export order or the exchange rate prevailing in the spot market at that time for this reason forward rates are widely used for hedging purposes in the currency markets since currency forwards can be tailored for specific requirements unlike futures which have fixed contract sizes and expiry dates and therefore cannot be customized in the context of bonds forward rates are calculated to determine future values for example an investor can purchase a one year treasury bill or buy a six month bill and roll it into another six month bill once it matures the investor will be indifferent if both investments produce the same total return for example the investor will know the spot rate for the six month bill and will also know the rate of a one year bond at the initiation of the investment but they will not know the value of a six month bill that is to be purchased six months from now forward rates in practiceto mitigate reinvestment risks the investor could enter into a contractual agreement that would allow them to invest funds six months from now at the current forward rate now fast forward six months if the market spot rate for a new six month investment is lower the investor could use the forward rate agreement to invest the funds from the matured t bill at the more favorable forward rate if the spot rate is high enough the investor could cancel the forward rate agreement and invest the funds at the prevailing market rate of interest on a new six month investment | |
what is a forward rate agreement fra | a forward rate agreement fra is an over the counter otc contract between parties in which the underlying is an interest rate in an fra one side of the contract called the long side is obligated to pay a fixed rate interest on a given amount in the future the other party called the short side must pay according to a floating interest rate index on the same future date for the same amount 1 the duration of an fra is typically one interest rate period e g 90 days but it can be whatever length of time the parties agree on fras provide a glimpse into the market s expectations for future interest rates unlike implied forward rates which are derived from rates trading right now fras are traded directly in the market offering a more direct view of where market participants believe interest rates are headed at their core fras are derivative contracts with a value that is based on an underlying interest rate index when an fra is initiated its value is zero and neither party pays a premium the fixed rate in an fra contract is the market s consensus view of where the underlying interest rate will be at the contract s maturity date this makes fras valuable for gauging market sentiment and managing interest rate risk by locking in a future interest rate businesses and investors can protect themselves from potential rate changes investopedia theresa chiechi | |
how forward rate agreements work | fras typically involve two parties exchanging a fixed interest rate for a variable one the party paying the fixed rate is the borrower or long side while the party paying the variable rate is the lender or short side people enter into an fra wanting to lock in an interest rate if they believe rates are likely to rise as such they want to fix their borrowing costs today through the agreement suppose the u s federal reserve is likely to hike u s interest rates in a monetary tightening cycle companies would then want to fix their borrowing costs before rates rise too dramatically fras are very flexible and settlement dates can be tailored to the needs of those involved in the transaction the cash difference between the fra and the reference rate or floating rate is settled on the value date or settlement date 1formula and calculation for a forward rate agreement fra frap r fra n p p y 1 1 r p y where frap fra payment fra forward rate agreement rate or fixed interest rate that will be paid r reference or floating interest rate used in the contract n p notional principal or amount of the loan that interest is applied to p period or number of days in the contract period y number of days in the year based on the correct day count convention for the contract begin aligned text frap left frac r text fra times np times p y right times left frac 1 1 r times left frac p y right right textbf where text frap text fra payment text fra text forward rate agreement rate or fixed interest text rate that will be paid r text reference or floating interest rate used in text the contract np text notional principal or amount of the loan that text interest is applied to p text period or number of days in the contract period y text number of days in the year based on the correct text day count convention for the contract end aligned frap y r fra np p 1 r yp 1 where frap fra paymentfra forward rate agreement rate or fixed interestrate that will be paidr reference or floating interest rate used inthe contractnp notional principal or amount of the loan thatinterest is applied top period or number of days in the contract periody number of days in the year based on the correctday count convention for the contract suppose company a enters into an fra with company b in which company a will receive a fixed reference rate of 4 on a principal amount of 5 million in half a year and the fra rate will be set at 50 basis points less than that rate in return company b will receive the one year term secured overnight financing rate sofr determined in three years on the principal amount the sofr is an influential interest rate banks use to price u s dollar denominated derivatives and loans the daily sofr is taken from the treasury repurchase market where investors offer banks overnight loans backed by their bond assets term sofr is a forward looking rate providing a term structure for sofr to be used in floating rate loans and notes the agreement will be settled in cash at the beginning of the forward period discounted by an amount calculated using the contract rate and period the formula for the fra payment takes into account these five variables assume the following data and plug these numbers into the formula above the fra payment frap is thus calculated as frap 0 04 0 035 5 million 181 360 1 1 0 04 181 360 12 569 44 0 980285 12 321 64 begin aligned text frap left frac 0 04 0 035 times 5 text million times 181 360 right quad times left frac 1 1 0 04 times left frac 181 360 right right 12 569 44 times 0 980285 12 321 64 end aligned frap 360 0 04 0 035 5 million 181 1 0 04 360181 1 12 569 44 0 980285 12 321 64 if the payment amount is positive then the fra seller pays this amount to the buyer otherwise the buyer pays the seller remember the day count convention is typically 360 days in a year note also that the notional amount of 5 million is not exchanged instead the two companies involved in this transaction use that figure to calculate the interest rate differential forward rate agreement fra vs interest rate futuresfras are different from interest rate futures though both are derivatives based on the expectation of future interest rates the main difference between fras and interest rate futures lies in their level of customization as otc contracts fras can be made to the parties specifications the terms of the agreement such as the notional amount fixed interest rate and settlement date can be tailored to meet the specific needs of the counterparties 3by contrast interest rate futures are standardized contracts traded on exchanges they have fixed contract sizes expiration dates and other terms which makes them less adaptable to unique hedging requirements however this standardization also makes interest rate futures more liquid and easier to trade since fras are private agreements between two parties each party is exposed to the risk that the other may default on their obligations this means that the creditworthiness of the counterparty is a crucial consideration in fra transactions 1interest rate futures meanwhile are traded through exchanges which act as the intermediary between buyers and sellers the exchange clearing house guarantees the contracts significantly reducing counterparty risk for traders the settlement processes for fras and interest rate futures also differ fras are typically settled in cash at the end of the contract term with the payment based on the difference between the agreed upon fixed rate and the prevailing market rate interest rate futures are marked to market daily meaning that gains and losses are realized on a daily basis moreover because interest rate futures are exchange traded they are subject to greater regulatory oversight than fras this increased regulation provides more transparency and reduces the risk of default limitations of forward rate agreementsthe downside of fras is the risk borrowers face if the market rate has moved adversely causing the borrower to take a loss on the cash settlement the fra also has lower levels of regulation and oversight related to the transaction compared with futures contracts it can sometimes be difficult for a party to close an fra before the maturity date and the agreements are also subject to counterparty risk as there is a potential that a contract participant could default | |
what happens if you sell a forward rate agreement fra | the seller of a forward rate agreement fra or the lender in the transaction agrees to accept a fixed interest rate at a predetermined future date if there has been a decrease in the floating market interest rate then the fra seller benefits from having locked in the higher rate 4 | |
why would you buy a forward rate agreement | the main reason to buy a forward rate agreement fra is to hedge against future increases in interest rates by locking in an interest rate to be paid at a specific date in the future fra purchasers provide themselves with a measure of protection should market rates rise | |
what was libor and why was it abandoned | the london interbank offered rate or libor was a benchmark interest rate at which major global banks lent to one another in the international interbank market for short term loans the decision to abandon libor was primarily driven by two key factors manipulation scandals and the evolving nature of financial markets in the early 2010s investigations revealed that several banks had manipulated libor submissions to benefit their trading positions undermining trust in the rate s integrity in addition the 2007 to 2008 financial crisis exposed the fragility and potential unreliability of the interbank lending market with fewer banks participating in daily rate submissions libor was no longer a good or reliable benchmark the bottom linean fra is an otc contract that establishes an interest rate to be paid at a predetermined future date the parties in the fra do not exchange the notional amount instead they settle the contract in cash based on the rate difference and the contract s notional value parties can enter into an fra to hedge against or benefit from future interest rate movements borrowers can use an fra to fix their borrowing costs while lenders can lock in a predetermined rate should market rates fall | |
what are the four asian tigers | the four asian tigers are the high growth economies of hong kong singapore south korea and taiwan fueled by exports and rapid industrialization the four asian tigers have consistently maintained high levels of economic growth since the 1960s and have collectively joined the ranks of the world s wealthiest nations hong kong and singapore are among the most prominent worldwide financial centers while south korea and taiwan are essential hubs for the global manufacturing of automobile and electronic components as well as information technology understanding the four asian tigersalso known as the asian dragons the countries that make up the four asian tigers share common characteristics including a sharp focus on exports an educated populace and high savings rates the economies of the four tigers have proven resilient enough to withstand local crises such as the asian financial crisis of 1997 and global shocks like the credit crunch of 2008 1the international monetary fund includes the four asian tigers in its category of 35 most advanced economies in the 1960s south korea s per capita gross domestic product was comparable to the poorest countries in asia and africa but in the four decades since then the country has observed substantial growth affected in part by a system of close government directed credit and import restrictions 2 as of april 2023 south korea had a total gdp of 1 72 trillion and a per capita gdp of 33 390 with a growth rate of 1 5 and a population of 51 6 million 3despite its contentious relationship with china taiwan has thrived over the last four decades as of april 2023 taiwan s gdp per capita was 33 910 due to pressure from china the country is not a part of the united nations but it has nevertheless emerged as a reliable exporter its gdp was 790 73 billion with a growth rate of 2 1 making this nation of 23 3 million people one of the strongest economies in asia 45hong kong is considered a special administrative region sar in china which gives it freedom over all its activities except for its defense until the year 2047 at which time hong kong and china will reassess their relationship 6 the latest reports show that the region ranks exceptionally high on scales measuring economic freedom boasting a gdp of approximately 383 billion as of april 2023 a gdp per capita of 52 430 a growth rate of 3 5 and a population of 7 3 million 7although it has only 5 7 million citizens singapore had a gdp of 515 6 billion a gdp per capita of 91 100 as of april 2023 and a growth rate of 1 5 8 considered one of the least corrupt nations in the world singapore has a notoriously transparent regulatory environment and well secured property rights which provide valuable commercial security to its private sector 9special considerationsmalaysia thailand the philippines and indonesia are sometimes referred to as the tiger cub economies because while they have developed more slowly than the four asian tigers in the decades since the 1950s they have nonetheless grown at a steady rate 10 | |
what is the 4 rule | the 4 rule for retirement budgeting suggests that a retiree withdraw 4 of the balance in their retirement account s in the first year after retiring and then withdraw the same dollar amount adjusted for inflation every year thereafter the 4 rule is intended to supply a steady stream of income while maintaining an adequate account balance for future years assuming a reasonable rate of return on investment the withdrawals will consist primarily of interest and dividends experts disagree on whether the 4 rule is the best option many including the creator of the rule say that 5 is a better rule for all but the worst case scenario others caution that 3 is safer understanding the 4 rulethe 4 rule is a guideline used by some financial planners and retirees to estimate a comfortable but safe income for retirement an individual s life expectancy plays an important role in determining whether the rate will be sustainable retirees who live longer need their portfolios to last longer and their medical costs and other expenses can increase with age history of the 4 rulethe concept of the 4 rule is attributed to bill bengen a financial adviser in southern california who created it in the mid 1990s some people say that the rule has been over simplified because he actually said that the 4 rule was based on a worst case scenario and that 5 would be a more realistic number 1the rule was created using historical data on stock and bond returns over the 50 year period from 1926 to 1976 focusing heavily on the severe market downturns of the 1930s and early 1970s bengen concluded that even during untenable markets no historical case existed in which a 4 annual withdrawal rate exhausted a retirement portfolio in fewer than 33 years 2accounting for inflationwhile some retirees who adhere to the 4 rule keep their withdrawal rate constant the rule allows retirees to increase the rate to keep pace with inflation possible ways to adjust for inflation include setting a flat annual increase of 2 per year which is the federal reserve s target inflation rate or adjusting withdrawals based on actual inflation rates the former method provides steady and predictable increases while the latter method more effectively matches income to cost of living changes while the 4 rule recommends maintaining a balanced portfolio of 50 common stocks and 50 intermediate term treasury bonds some financial experts say that you should maintain a different allocation such as reducing exposure to stocks in retirement in favor of a mix of cash bonds and stocks advantages and disadvantages of the 4 rulewhile following the 4 rule can make it more likely that your retirement savings will last the remainder of your life it doesn t guarantee it the rule is based on the past performance of the markets so it doesn t necessarily predict the future what was considered a safe investment strategy in the past may not be a safe investment strategy in the future if market conditions change there are several scenarios in which the 4 rule might not work for a retiree a severe or protracted market downturn can erode the value of a high risk investment vehicle much faster than it can a typical retirement portfolio furthermore the 4 rule does not work unless a retiree remains loyal to it year in and year out violating the rule one year to splurge on a major purchase can have severe consequences down the road as this reduces the principal which directly impacts the compound interest that you will depend on for sustainability however there are obvious benefits to the 4 rule it is simple to follow and provides for a predictable steady income and if it is successful the 4 rule will protect you from running short of funds in retirement it s simple to followprovides predictable steady incomeprotects you from running out of money in retirementrequires strict adherence doesn t respond to lifestyle changes | |
is based on a worst case scenario of portfolio performance | 5 not 4 may be a more realistic numberthe 4 rule and economic crisesaccording to michael kitces a financial planner the 4 rule was developed to take the worst economic situations into account such as 1929 and has held up well for those who retired during the two most recent financial crises as kitces points out this is of course not a reason to go beyond it safety is a key element for retirees so even if following the 4 rule may leave those who retire in calmer economic times with a huge amount of money left over kitces notes in general a 4 withdrawal rate is really quite modest relative to the long term historical average return of almost 8 on a balanced 60 40 portfolio 3meantime some experts pointing to the recent low interest rates on bonds and savings suggest that 3 might be a safer withdrawal rate the best strategy is to review your situation with a financial planner starting with how much you have saved what your current investments are and when you plan to retire read about investopedia s 10 rules of investing by picking up a copy of our special issue print edition | |
does the 4 rule still work | the 4 rule was created to meet the financial needs of a retiree even during a worst case economic scenario such as a prolonged market downturn many financial advisers say that 5 allows for a more comfortable lifestyle while adding only a little more risk supporters of a more cautious approach pick 3 as a safer number | |
how long will my money last using the 4 rule | the 4 rule is intended to make your retirement savings last for 33 years and potentially more this rate of withdrawals means that most of the money used will be the interest and gains on investments not principal assuming a reasonably healthy market return | |
does the 4 rule work for early retirement | the 4 rule is focused on preparing you for retirement at age 65 if you re hoping to retire early or expect to keep working past age 65 your long term financial needs will be different the bottom linefor most people managing retirement savings is a balancing act if you withdraw too much too fast you ll risk running out of money not withdrawing enough money can deny you the full benefit of your hard earned savings for those who want a rule of thumb to follow the 4 rule is an imperfect but easy to use choice | |
what are the 4 ps of marketing | the four ps or marketing are a marketing mix comprised of four key elements product price place and promotion these are the key factors that are involved in introducing a product or service to the public often referred to as a marketing mix they provide a framework that companies can use to successfully market a product or service to consumers since the four ps were introduced in the 1950s more ps have been added to the mix including people process and physical evidence investopedia julie bangunderstanding the 4 ps of marketingneil borden an advertising professor at harvard popularized the idea of the marketing mix and the concepts that would later be known primarily as the four ps in the 1950s his 1964 article the concept of the marketing mix demonstrated the ways that companies could use advertising tactics to engage their consumers 1decades later the concepts that borden popularized are still being used by companies to advertise their goods and services borden s ideas were developed and refined over a number of years by other key players in the industry e jerome mccarthy a marketing professor at michigan state university refined the concepts in borden s article and named them the four ps of marketing mccarthy co wrote the book basic marketing a managerial approach further popularizing the idea 2at the time the concept was introduced it helped companies breach the physical barriers that could hamper widespread product adoption today the internet has helped businesses to overcome some of these barriers people process and physical evidence are extensions of the original four ps and are relevant to current trends in marketing any successful marketing strategy should be revisited from time to time the marketing mix you create is not intended to be static it needs to be adjusted and refined as your product grows and your customer base changes 1 productcreating a marketing campaign starts with an understanding of the product itself who needs it and why what does it do that no competitor s product can do perhaps it s a new thing altogether and is so compelling in its design or function that consumers will have to have it when they see it the job of the marketer is to define the product and its qualities and introduce it to the consumer defining the product also is key to its distribution marketers need to understand the life cycle of a product and business executives need to have a plan for dealing with products at every stage of the life cycle the type of product also dictates in part how much it will cost where it should be placed and how it should be promoted many of the most successful products have been the first in their category for example apple was the first to create a touchscreen smartphone that could play music browse the internet and make phone calls apple reported total sales of the iphone for fy 2022 at 205 4 billion 3 in 2021 it hit the milestone of 2 billion iphones sold 42 priceprice is the amount that consumers will be willing to pay for a product marketers must link the price to the product s real and perceived value while also considering supply costs seasonal discounts competitors prices and retail markup in some cases business decision makers may raise the price of a product to give it the appearance of luxury or exclusivity or they may lower the price so more consumers will try it marketers also need to determine when and if discounting is appropriate a discount can draw in more customers but it can also give the impression that the product is less desirable than it was uniqlo headquartered in japan is a global manufacturer of casual wear like its competitors gap and zara uniqlo creates low priced fashion forward garments for younger buyers | |
what makes uniqlo unique is that its products are innovative and high quality it accomplishes this by purchasing fabric in large volumes continually seeking the highest quality and lowest cost materials in the world the company also directly negotiates with its manufacturers and has built strategic partnerships with innovative japanese manufacturers | uniqlo also outsources its production to partner factories that gives it the flexibility to change production partners as its needs change finally the company employs a team of skilled textile artisans that it sends to its partner factories all over the world for quality control production managers visit factories once a week to resolve quality problems 53 placeplace is the consideration of where the product should be available in brick and mortar stores and online and how it will be displayed the decision is key the makers of a luxury cosmetic product would want to be displayed in sephora and neiman marcus not in walmart or family dollar the goal of business executives is always to get their products in front of the consumers who are the most likely to buy them that means placing a product only in certain stores and getting it displayed to the best advantage the term placement also refers to advertising the product in the right media to get the attention of target consumers for example the 1995 movie goldeneye was the 17th installment in the james bond movie franchise and the first that did not feature an aston martin car instead bond actor pierce brosnan got into a bmw z3 although the z3 was not released until months after the film had left theaters bmw received 9 000 orders for the car the month after the movie opened 4 promotionthe goal of promotion is to communicate to consumers that they need this product and that it is priced appropriately promotion encompasses advertising public relations and the overall media strategy for introducing a product marketers tend to tie together promotion and placement elements to reach their core audiences for example in the digital age the place and promotion factors are as much online as offline specifically where a product appears on a company s web page or social media as well as which types of search functions will trigger targeted ads for the product the swedish vodka brand absolut sold only 10 000 cases of its vodka in 1980 by 2000 the company had sold 4 5 million cases thanks in part to its iconic advertising campaign the images in the campaign featured the brand s signature bottle styled as a range of surreal images a bottle with a halo a bottle made of stone or a bottle in the shape of the trees standing on a ski slope to date the absolut campaign is one of the longest running continuous campaigns of all time from 1981 to 2005 6 | |
how to use the 4 ps of marketing in your marketing strategy | the four ps provide a framework on which to build your marketing strategy think through each factor and don t worry when the factors overlap that s inevitable first analyze the product you will be marketing what are the characteristics that make it appealing consider similar products that are already on the market your product may be tougher easier to use more attractive or longer lasting its ingredients might be environmentally friendly or naturally sourced identify the qualities that will make it appealing to your target consumers think through the appropriate price for the product it s not simply the cost of production plus a profit margin you may be positioning it as a premium or luxury product or as a bare bones lower priced alternative placement involves identifying the type of store online and off that stocks products like yours for consumers like yours promotion can only be considered in the context of your target consumer the product might be appealing to a hip younger crowd or to upscale professionals or to bargain hunters your media strategy needs to reach the right audience with the right message example of the four ps of marketingto put this into perspective let s consider a fictional skincare company that produces organic skincare products here s how the four ps might be utilized | |
how does apple use the four ps of marketing | apple utilizes the four ps of marketing by focusing on product innovation evident in its continuous development of cutting edge technology like the iphone macbook and apple watch pricing strategy apple often positions its products as premium offerings targeting a more affluent consumer base place apple emphasizes distribution through its own retail stores online platforms and strategic partnerships with authorized resellers promotional efforts apple emphasizes sleek design user experience and aspirational branding creating a sense of exclusivity and desirability around its products | |
how do you use the 4 ps of marketing | the model of the 4ps can be used when you are planning a new product launch evaluating an existing product or trying to optimize the sales of an existing product a careful analysis of these four factors product price place and promotion helps a marketing professional devise a strategy that successfully introduces or reintroduces a product to the public | |
when did the 4 ps become the 7 ps | the focus on the four ps product price place and promotion has been a core tenet of marketing since the 1950s three newer ps expand the marketing mix for the 21st century | |
what are some examples of the 4 ps of marketing | the bottom linethe four ps of marketing product price place promotion are often referred to as the marketing mix these are the key elements involved in planning and marketing a product or service and they interact significantly with each other considering all of these elements is one way to approach a holistic marketing strategy | |
what is the fourth world | the fourth world is an outdated term used to describe the most underdeveloped poverty stricken and marginalized regions of the world many inhabitants of these nations do not have any political ties and are often hunter gatherers that live in nomadic communities or are part of tribes they may be fully functional and self surviving but during the cold war were ascribed fourth world status based on their economic performance 1understanding fourth worldduring the cold war each country was classed as belonging to a certain type of world a position that has since evolved as these classifications have evolved the first world was used to describe countries whose views aligned with nato and capitalism the second world referred to countries that supported communism and the soviet union and the third world referenced the nations that were not actively aligned with either side these countries included impoverished former european colonies and all the nations of africa the middle east latin america and asia the term fourth world was born later as an extension of the developing third world to describe places and populations characterized by extremely low income per capita and limited natural resources 1fourth world nations consisted of those excluded from mainstream society for example the aboriginal tribes in south america or australia are entirely self sufficient but do not participate in the global economy these tribes can function free from any assistance from others but from a global standpoint were considered to be fourth world nations fourth world nations do not contribute or consume anything on the global scale and are unaffected by any global events political borders did not define fourth world areas in many cases they were defined as nations without sovereign status emphasizing instead the perceived non recognition and exclusion of ethnically and religiously defined peoples from the politico economic world system such as the first nations groups throughout north central and south america 2history of the fourth world termthe term fourth world was believed to have been first used in canada by mbuto milando the first secretary of the tanzanian high commission in a conversation with george manuel chief of the national indian brotherhood now the assembly of first nations milando stated that when native peoples come into their own on the basis of their own cultures and traditions that will be the fourth world the term became synonymous with stateless poor and marginal nations following the publication of manuel s the fourth world an indian reality in 1974 3 since 1979 think tanks such as the center for world indigenous studies have used the term to define the relationships between ancient tribal and non industrial nations and modern political nation states 4in 2007 the united nations un declaration on the rights of indigenous peoples undrip was introduced to promote minimum standards for the survival dignity and well being of the indigenous peoples of the world 5 since then communications and organizing among fourth world peoples accelerated in the form of international treaties for trade travel and security | |
what is a fractal | the fractal indicator is based on a simple price pattern that is frequently seen in financial markets outside of trading a fractal is a recurring geometric pattern that is repeated on all time frames from this concept the fractal indicator was devised the indicator isolates potential turning points on a price chart it then draws arrows to indicate the existence of a pattern the bullish fractal pattern signals the price could move higher a bearish fractal signals the price could move lower bullish fractals are marked by a down arrow and bearish fractals are marked by an up arrow image by sabrina jiang investopedia 2021the formulas for fractals are | |
how to calculate the fractal indicator | calculating fractals has more to do with visual acuity than math | |
what the fractal indicator tells you | the fractal indicator will generate signals frequently the existence of a fractal isn t necessarily important since the pattern is so common the fractal is indicating the possibility of a trend change this is because fractals are essentially showing a u shape in price a bearish fractal has the price moving upward and then downward forming an upsidedown u a bullish fractal occurs when the price is moving down but then starts to move up forming a u because fractals occur so frequently and many of the signals aren t reliable entry points fractals are typically filtered using some other form of technical analysis bill williams also invented the alligator indicator which isolates trends by combining fractals with trend analysis a trader may decide to only trade bullish fractals signals while the price trend is up if the trend is down they may take only short trades on bearish fractal signals for example fractals could also be used with other indicators such as pivot points or fibonacci retracement levels a fractal is only acted on if it aligns with one of these other indicators and potentially the longer term price direction for example assume a stock is trending higher the price is pulling back and reaches a 50 fibonacci retracement level since the trend is up and the price is near a fibonacci retracement level the trader will take a trade if a bullish fractal forms the difference between the fractal indicator and chart patternsthe fractal indicator is unique in that it identifies a price pattern and marks it on the chart fractals are specific five bar patterns chart patterns can also be drawn on the chart although they are not limited to five price bars popular chart patterns include wedges flags and head and shoulders to list a few while some software will mark chart patterns on a chart most chartists find and isolate chart patterns by hand limitations of using the fractal indicatorthe main problem with fractals is that there are so many of them they occur frequently and trying to trade all of them will rapidly deplete a trading account due to losing trades these are called false signals or whipsaws therefore filter the signals with some other indicator or form of analysis the arrows for the indicator are typically drawn over the high or low point which is the middle of the fractal not where the fractal completes therefore the arrows can be visually deceiving since the pattern is actually completing two bars to the right of the arrow the first available entry point after seeing an arrow is the opening price of the third bar to the right of the arrow | |
what is fractional reserve banking | fractional reserve banking is a system in which only a fraction of bank deposits are required to be available for withdrawal banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit fractional reserves work to expand the economy by freeing capital for lending today most economies financial systems use fractional reserve banking understanding fractional reserve banking | |
when you deposit money in your savings account your bank can use an amount specified as capital to fund loans and pay you for using your money for instance say you deposited 2 000 in a savings account savings accounts pay interest generally between 0 5 and 2 so you receive an interest payment on your money and the bank can use part of it in a loan in turn the bank might want to access 80 of your money to use as loans to other customers | you receive interest as an incentive for keeping money in an account the bank can use to create loans the federal reserve sets interest rates they are based on economic circumstances and how it decides it can best meet its dual mandate of maximum employment and price stability if a bank needs capital to fund loans withdrawals pay debts or meet other obligations it can borrow from other banks and pay them interest as a last resort the federal reserve maintains a service called the discount window where it lends money to banks at a higher interest rate than they charge between themselves 1 this encourages banks to seek funds from each other rather than the fed interest is charged between financial institutions based on a range set by the federal reserve board of governors called the federal reserve target rate range the average interest rate banks charge each other is referred to as the effective federal funds rate fractional reserve banking processthe fractional reserve banking process creates money that is inserted into the economy when you deposit that 2 000 your bank might lend 90 of it to other customers along with 90 from five other customers accounts this creates enough capital to finance 9 000 in loans your balance still reflects 2 000 and the customers that the bank borrowed from also see their balances remain unchanged if all five customers have account balances of 2 000 it will look something like this history of fractional reserve bankingfractional reserve banking supposedly has its roots in an era when gold and silver were traded goldsmiths would issue promissory notes which were later used as a means of exchange the smiths used the deposited gold to issue loans with interest and fractional banking was born in the u s the national bank act was passed in 1863 to require banks to keep reserves on hand to protect depositor funds from being used in risky investments 2 in 1913 the federal reserve act created the system of federal reserve banks we now know collectively as the federal reserve system banks were required to keep reserve balances with the federal reserve banks 3reserve requirements for banks under the federal reserve act were set at 13 10 and 7 depending on the type of bank in 1917 in the 1950s and 60s the fed had set the reserve ratio as high as 17 5 for certain banks and it remained between 8 to 10 throughout much of the 1970s through the 2010s 4during this period banks with fewer than 16 3 million in assets were not required to hold reserves however banks with fewer than 124 2 million in assets but more than 16 3 million had to have a reserve size of 3 and those banks with more than 124 2 million in assets had a 10 reserve requirement 5on march 26 2020 the 10 and 3 required reserve ratios against net transaction deposits were reduced to 0 for all banks essentially removing the reserve requirements altogether 5 it was replaced with interest on reserve balances iorb or interest paid on reserves the banks hold as an incentive rather than a requirement 6fractional reserve banking vs other types of bankingmost countries today use fractional reserve banking because it is not feasible to use 100 reserve banking moreover a system that requires banks to hold 100 of deposits cannot create more money without devaluing its currency thus banks would need to hold a significant amount of capital to issue loans this would greatly reduce growth in developing and developed economies because the banks could not issue debt to businesses and consumers that rely on it for large purchases and investments a system backed by precious metals such as gold is also prone to this problem if a specific amount of a country s currency has to be represented by a certain amount of gold the country is limiting its growth potential because there is a finite amount of gold available to meet the growing demand for capital the currency s value would continuously be reduced fractional reserve banking allows a country to grow its money supply to meet the demand for growth advantages and disadvantages of fractional reserve bankingbanks don t need to hold vast amounts of capitalbanks stimulate the economy by lendingallows for macroeconomic regulationconsumer panic can cause mass withdrawals and lack of capitaltoo much lending can cause the economy to overheatcriticisms of fractional reserve bankingthe one main criticism of fractional reserve banking is that there are insufficient funds for everyone to withdraw at once however this is generally not an issue because people won t need to remove all of their capital under most circumstances before the introduction of the fed in the early 20th century the national bank act of 1863 imposed 25 reserve requirements for u s banks under its charge this can be witnessed by reviewing the greek financial crisis that began in 2009 in 2015 greece defaulted on its debts to the international monetary fund amidst a global financial crisis as a result citizens flocked to the banks to withdraw their funds and the banks were forced to close their doors to prevent a complete withdrawal of capital from a struggling system further back in time at the start of the great depression in the u s consumers rushed to banks to withdraw all of their funds leading to the collapse of new york s bank of the united states | |
what is the difference between fractional reserve banking and 100 reserve | fractional reserve banking permits banks to use funds i e the bulk of deposits that would be otherwise unused and idle to generate returns in the form of interest rates on new loans and to make more money available to grow the economy it can thus allocate capital better to where it is most needed reserves of 100 require banks to hold all deposited money | |
is fractional reserve banking legal | yes most countries use fractional reserve banking because it is currently the only financial system model that allows banks to earn a reliable profit without the ability to earn money on their assets banks would have to fund their operations by charging extremely high deposit fees | |
where did fractional reserve banking originate | nobody knows when fractional reserve banking originated but it is certainly not a modern innovation goldsmiths during the middle ages issued demand receipts for gold on hand that exceeded the amount of physical gold they had under custody knowing that on any given day only a tiny fraction of that gold would be demanded the bottom linefractional reserve banking is the banking system used throughout the world today banks use fractional reserves to create loans for businesses and consumers without the ability to do this an economy s growth is stunted leaving it to flounder while those that need money for large purchases and investments rely on a bank s substantial holdings fractional reserve banking is important for modern economies because the alternatives limit the amount of money that can be created or manipulated in an economy to encourage or discourage growth correction april 9 2023 this article has been edited to correct a calculation error in a hypothetical example in the section fractional reserve banking process | |
what is a fractional share | less than one full share of equity is called a fractional share such shares may be the result of stock splits dividend reinvestment plans drips or similar corporate actions typically fractional shares aren t available from the stock market and while they have value to investors they are also difficult to sell understanding a fractional sharefractional shares come about in a number of ways including dividend reinvestment plans stock splits mergers and acquisitions dividend reinvestment plans drip often create fractional shares a dividend reinvestment plan is a plan in which a dividend offering corporation or brokerage firm allows investors to use dividend payouts to purchase more of the same shares as this amount drips back into the purchase of more shares it is not limited to whole shares reinvesting capital gain distributions and dollar cost averaging programs can also result in purchasing fractional shares stock splits don t always result in an even number of shares a 3 for 2 stock split would create three shares for every two shares an investor owns so an investor with an odd number of shares would end up with a fractional share after the split three shares would become 4 five would become 7 and so on mergers and acquisitions m as may also create fractional shares since companies combine new common stock using a predetermined ratio the ratio often results in fractional shares for shareholders some brokerage firms will split whole shares intentionally so they can sell fractional shares to clients this division of shares is most often the case with high priced stocks like amazon amzn or alphabet google s parent company googl as of march 2020 amzn was selling for more than 1 800 per share and googl was selling for more than 1 100 per share 12 fractional shares often can be the only way individual investors can buy stock insuch companies for example a young investor with limited funds might have their heart set on buying stock in amazon starting with 1 000 to invest they won t have enough to buy a full share of stock so they might find a brokerage firm willing to sell a fractional share they could invest half of the money in one third of a share of amazon and use the other half to invest in lower priced stocks that would allow them to buy full shares in the event of stocks splits mergers and acquisitions shareholders sometimes are given the option of obtaining cash in lieu of the fractional shares the income received is taxable trading fractional sharesthe only way to sell fractional shares is through a major brokerage firm which can join them with other fractional shares until a whole share is attained if the selling stock does not have a high demand in the marketplace selling the fractional shares might take longer than hoped not everyone wants to hold onto fractional shares especially if they ended up with them for inadvertent reasons such as stock splits an investor might have 225 shares of xyz stock priced at 12 per share after a 3 for 2 stock split they would end up with 337 shares priced at 8 per share if there is a high demand for xyz stock in the market they ll be more likely to find a brokerage firm willing to take the fractional share or they could find a brokerage firm willing to sell another half share to bring their total number of shares to 338 real world example of a fractional sharein november of 2019 interactive brokers became the first of the major online brokers to offer fractional shares trading 3 on january 29 2020 fidelity announced it will offer fractional shares trading of equities and etfs 4 | |
what is a franchise | a franchise is a type of license that grants a franchisee access to a franchisor s proprietary business knowledge processes and trademarks thus allowing the franchisee to sell a product or service under the franchisor s business name in exchange for acquiring a franchise the franchisee usually pays the franchisor an initial start up fee and annual licensing fees investopedia mira norianunderstanding franchises | |
when a business wants to increase its market share or geographical reach at a low cost it may franchise its product and brand name a franchise is a joint venture between a franchisor and a franchisee the franchisor is the original business it sells the right to use its name and idea the franchisee buys this right to sell the franchisor s goods or services under an existing business model and trademark | franchises are an effective way for entrepreneurs to start a business especially when entering a highly competitive industry such as fast food or an industry that is established and requires time to develop its operating processes from scratch one big advantage to purchasing a franchise is you have access to an established company s brand name management knowledge processes and procedures financial toolbox and metrics you won t need to spend time and resources building them and getting your name and product out to customers the franchise business model has a storied history in the united states the concept dates to the mid 19th century when two companies the mccormick harvesting machine company and the i m singer company developed organizational marketing and distribution systems recognized as the forerunners to franchising these novel business structures were developed in response to high volume production and allowed mccormick and singer to sell their reapers and sewing machines to an expanding domestic market 3before buying into a franchise investors should carefully read the franchise disclosure document which franchisors are required to provide this document contains information about franchise fees expenses performance expectations and other key operating details 1the earliest food and hospitality franchises were developed in the 1920s and 1930s a w root beer launched franchise operations in 1925 howard johnson restaurants opened its first outlet in 1935 expanding rapidly and paving the way for the restaurant chains and franchises that define the american fast food industry until this day 4there were 790 492 franchise establishments in 2022 that supported the u s economy with an expected 805 436 for 2023 these franchises contributed over 500 billion to the economy in the food sector franchises included recognizable brands such as mcdonald s taco bell dairy queen denny s jimmy john s and dunkin other popular franchises include hampton by hilton and days inn as well as 7 eleven and anytime fitness 5franchise basics and regulationsfranchise contracts are complex and vary for each franchisor typically a franchise agreement includes three categories of payment to the franchisor first the franchisee must purchase the controlled rights or trademark from the franchisor in the form of an upfront fee second the franchisor often receives payment for providing training equipment or business advisory services finally the franchisor receives ongoing royalties or a percentage of the operation s sales a franchise contract is temporary akin to a lease or rental of a business it does not signify business ownership by the franchisee depending on the contract franchise agreements typically last between five and 30 years with serious penalties if a franchisee violates or prematurely terminates the contract in the u s franchises are regulated at the state level however the federal trade commission ftc established one federal regulation in 1979 the franchise rule is a legal disclosure a franchisor must give to prospective buyers the franchisor must fully disclose any risks benefits or limits to a franchise investment 1this information covers fees and expenses litigation history approved business vendors or suppliers estimated financial performance expectations and other key details this disclosure requirement was previously known as the uniform franchise offering circular before it was renamed the franchise disclosure document in 2007 1advantages and disadvantages of franchisesthere are many advantages to investing in a franchise and also drawbacks widely recognized benefits include a ready made business formula to follow a franchise comes with market tested products and services and in many cases established brand recognition if you re a mcdonald s franchisee decisions about what products to sell how to layout your store or even how to design your employee uniforms have already been made some franchisors offer training and financial planning or lists of approved suppliers but while franchises come with a formula and track record success is never guaranteed disadvantages include heavy start up costs as well as ongoing royalty costs to take the mcdonald s example further the estimated total amount of money it costs to start a mcdonald s franchise ranges from 1 3 million to 2 3 million on top of needing liquid capital of 500 000 6by definition franchises have ongoing fees that must be paid to the franchisor in the form of a percentage of sales or revenue this percentage can range between 4 6 and 12 5 depending on the industry 2for uprising brands there are those who publicize inaccurate information and boast about ratings rankings and awards that are not required to be proven so franchisees might pay high dollar amounts for no or low franchise value franchisees also lack control over territory or creativity with their business financing from the franchisor or elsewhere may be difficult to come by other factors that impact all businesses such as poor location or management are also possibilities ready made business formulamarket tested products and servicesestablished brand recognitionlarge decisions already madelist of approved supplierstraining and financial planning providedsuccess not guaranteedlarge start up costsongoing feeslack of territory choicelack of creative controlfranchise vs startupif you don t want to run a business based on someone else s idea you can start your own but starting your own company is risky though it offers rewards both monetary and personal when you start your own business you re on your own much is unknown will my product sell will customers like what i have to offer will i make enough money to survive the failure rate for new businesses is high two thirds of businesses survive just two years and 50 survive just five years if your business is going to beat the odds you alone can make that happen 7to turn your dream into reality expect to work long and hard hours with no support or expert training if you venture out solo with little or no experience the deck is stacked against you if this sounds like too big a burden the franchise route may be a wiser choice people typically purchase a franchise because they see other franchisees success stories franchises offer careful entrepreneurs a stable tested model for running a successful business on the other hand for entrepreneurs with a big idea and a solid understanding of how to run a business launching your own startup presents an opportunity for personal and financial freedom deciding which model is right for you is a choice only you can make | |
what are the advantages of franchises | some of the widely recognized advantages of franchises include a ready made business formula to follow market tested products and services and in many cases established brand recognition for example if you re a mcdonald s franchisee decisions about what products to sell how to layout your store or even how to design your employee uniforms have already been made some franchisors offer training and financial planning or lists of approved suppliers however despite these benefits success is never guaranteed | |
what are the risks of franchises | disadvantages include heavy start up costs as well as ongoing royalty costs by definition franchises have ongoing fees that must be paid to the franchisor in the form of a percentage of sales or revenue this percentage can range between 4 6 and 12 5 depending on the industry 2there is also the risk of a franchisee being duped by inaccurate information and paying high dollar amounts for no or low franchise value franchisees also lack control over territory or creativity with their business financing from the franchisor or elsewhere may be difficult to come by and franchisees could be adversely affected by poor location or management | |
how does the franchisor make money | typically a franchise agreement includes three categories of payment to the franchisor first the franchisee must purchase the controlled rights or trademark from the franchisor in the form of an upfront fee second the franchisor often receives payment for providing training equipment or business advisory services finally the franchisor receives ongoing royalties or a percentage of the operation s sales the bottom linea franchise can be a great way for an individual to enter the world of entrepreneurship as the majority of the groundwork has already been laid and you are leveraging off an established successful and well known business and brand name there are also many businesses with franchises to choose from for a fee and start up costs you can be on your way to being your own boss and entering a possibly lucrative career though it must be noted that success is not guaranteed and franchises require a lot of work to be profitable | |
what is a franchise tax | the term franchise tax refers to a tax paid by certain enterprises that want to do business in some states also called a privilege tax it gives the business the right to be chartered and or to operate within that state companies in some states may also be liable for the tax even if they are chartered in another state despite the name a franchise tax is not a tax on franchises and is separate from federal and state income taxes that must be filed annually understanding franchise taxesa franchise tax is a state tax levied on certain businesses for the right to exist as a legal entity and to do business within a particular jurisdiction as of 2020 these states included alabama arkansas california delaware georgia illinois louisiana mississippi new york north carolina oklahoma tennessee and texas kansas missouri pennsylvania and west virginia all discontinued their corporate franchise taxes contrary to what the name implies a franchise tax is not a tax imposed on a franchise rather it s charged to corporations partnerships and other entities like limited liability corporations llcs that do business within the boundaries of that state some entities are exempt from franchise taxes namely fraternal organizations nonprofits and certain llcs a more comprehensive list of exemptions is noted below companies that do business in multiple states are generally charged a franchise tax in the state in which they are formally registered contrary to what the name implies a franchise tax is not a tax imposed on a franchise franchise tax ratesfranchise taxes do not replace federal and state income taxes so it s not an income tax these are levies that are paid in addition to income taxes they are usually paid annually at the same time other taxes are due the amount of franchise tax can differ greatly depending on the tax rules within each state some states calculate the amount of franchise tax owed based on an entity s assets or net worth while other states look at the value of a company s capital stock still other states may charge a flat fee to all businesses operating in their jurisdiction or calculate the tax rate on the company s gross receipts or paid in capital depending on the size of the corporation and how it decides to file delaware franchise tax rates range from anywhere between 175 to 250 000 annually meanwhile limited partnerships lp limited liability companies llc and general partnerships formed in the state of delaware are only required to pay an annual tax of 300 1small business taxes in california are layered with a franchise tax applying in certain situations for example the franchise tax does not apply to corporations and llcs that elect to be treated as corporations however california franchise tax rates do apply to s corporations llcs lps and limited liability partnerships llps in california the franchise tax rate for s corporations is the greater of either 800 or 1 5 of the corporation s net income for llcs the franchise tax is 800 llcs that elect to be taxed as a corporation are subject to california s corporate income tax instead of a franchise tax meanwhile franchise taxes for llp and lps vary but must pay the minimum 800 franchise tax 2a company that does business in multiple states may have to pay franchise taxes in all the states it is formally registered in state vs federal franchise taxesone fundamental distinction that businesses must understand is the difference between state and federal franchise taxes the most apparent difference between state and federal franchise taxes lies in their jurisdictional scope state franchise taxes are levied by individual states meaning each state has its own set of rules rates and requirements in contrast federal franchise taxes fall under the purview of the federal government and are uniform across all states while both state and federal franchise taxes serve to generate revenue for the government they have somewhat different purposes state franchise taxes primarily fund state government operations and services such as infrastructure projects education and healthcare federal franchise taxes contribute to funding the operations of the federal government including national defense social programs and public services at the federal level another difference lies in the tax base used to calculate state and federal franchise taxes as you ve seen in this article state franchise taxes often vary in their calculation each state takes in different considerations for their rate federal franchise taxes however typically focus on income and are based on a business s taxable income as determined by federal tax laws because there is only one federal government there is only one methodology here last compliance with state and federal franchise tax obligations are similar but still differ businesses must adhere to the filing deadlines and requirements established by each state where they conduct business to fulfill their state franchise tax obligations alternatively federal tax compliance means following the regulations and deadlines set forth by the internal revenue service franchise tax exemptionsfranchise tax exemptions provide relief for certain businesses from the obligation to pay franchise taxes one common exemption criterion is based on business size with many jurisdictions offering exemptions or reduced tax rates for small businesses these exemptions may be determined by factors such as annual revenue total assets or number of employees aiming to alleviate the tax burden on startups and smaller enterprises fostering entrepreneurship and economic growth certain types of businesses or entities may qualify for specific franchise tax exemptions based on their organizational structure or purpose as well nonprofit organizations are often exempt from franchise taxes as they operate for charitable educational or religious purposes rather than for profit motives similarly governmental entities and certain types of cooperatives may also be eligible for exemptions from franchise taxes as an incentive for offering services that benefit society taxing authorities may offer a financial incentive via a tax exemption additionally jurisdictions may offer franchise tax exemptions for businesses engaged in particular industries or activities deemed beneficial to the economy or society note that this extends beyond the types of companies talked about in the last paragraph for example these exemptions are often designed to incentivize investment in specific sectors such as renewable energy manufacturing or research and development governments aim to stimulate innovation job creation and overall economic development so they may be willing to offer financial benefits in exchange for a focus in these areas consequences of not paying franchise taxesthe consequences of not paying franchise taxes can be significant for businesses governing bodies will often impose financial penalties which can accrue over time as long as unpaid taxes hang out unpaid failure to pay franchise taxes can damage a business s credit rating and reputation making it more challenging to secure financing or conduct business transactions in the future as the company attempts to work with others and has to undergo credit checks pending franchise taxes may disrupt its ability to secure credit lines or financing alternatives 3in addition to financial penalties businesses that fail to pay franchise taxes may face legal consequences including the possibility of having their business licenses revoked or suspended many jurisdictions require businesses to be in good standing regarding their tax obligations to maintain their legal authority to operate therefore not paying franchise taxes could jeopardize whether or not a business can even operate persistent non compliance with franchise tax obligations can escalate the severity of consequences eventually leading to more drastic measures such as tax liens or levies tax liens give taxing authorities a legal claim on a business s assets as collateral for unpaid taxes potentially resulting in the seizure or sale of property to satisfy the tax debt for example the government may place a lien on company assets the government may then sell those assets to raise money that are used in part to pay off the franchise taxes while this means the franchise taxes and accrued penalties are now paid it also means the business could be disrupted for example consider if the only company car was seized and sold during this process 4franchise taxes and tax planning strategiesa company can take certain steps to be more strategic about the franchise taxes it pays one strategy is to optimize the business s legal structure to take advantage of favorable tax treatment for example businesses may consider structuring as a pass through entity such as a limited liability company or a partnership this makes it so the company can avoid double taxation at both the entity and individual levels businesses can also strategically manage their taxable assets and liabilities to reduce their franchise tax burden this can involve careful consideration of factors such as asset valuation methods inventory management practices and debt financing arrangements the goal here is to be mindful of what items account for the company s taxable net worth or capital base by minimizing this the company can save on taxes businesses may also be able to get deductions credits and exemptions to lower their franchise tax position this can include leveraging deductions for business expenses such as rent utilities salaries and supplies companies may also be able to get credits for the economic activity items mentioned above since the government may want companies to do these activities there may be relevant credits related to such as research and development job creation or environmental conservation special considerationsa company that does business in multiple states may have to pay franchise taxes in all the states it is formally registered in sole proprietorships are not usually subject to franchise taxes and other forms of state business income tax in part because these businesses are not formally registered with the state in which they do business the following entities are not subject to franchise tax with an example citation to the texas comptroller office 5franchise tax vs income taxthere are some key differences between a franchise and income tax unlike state income taxes franchise taxes are not based on a corporation s profit a business entity must file and pay the franchise tax regardless of whether it makes a profit in any given year state income taxes and how much is paid on the other hand are dependent on how much an organization makes during the year income tax is also applied to all corporations that derive income from sources within the state even though they may not do business within its boundaries doing business may be defined differently by some states as several factors are considered in establishing nexus including whether the company sells in the state has employees in the state or has an actual physical presence in the state delaware is well known as a tax shelter especially for corporations that do not conduct business in delaware instead they have to pay a franchise tax administered by the delaware department of state example of a franchise taxas noted above each state may have a different method of calculating franchise taxes let s use texas as an example the state s comptroller levies taxes on all entities that do business in the state and requires them to file an annual franchise tax report every year by may 15th the state calculates its franchise tax based on a company s margin which is computed in one of four ways corporate revenue is calculated by subtracting statutory exclusions from the amount of revenue reported on a corporation s federal income tax return | |
what is the franchise tax board | the franchise tax board is usually a state operated tax agency for both personal and business taxes | |
is the franchise tax board the same as the irs | the franchise tax board operates similarly to the irs but operates at the state level rather than the federal for example the california franchise tax board states that its mission is to help taxpayers file tax returns timely accurately and pay the correct amount to fund services important to californians 6 | |
when are franchise taxes due | franchise tax deadlines vary by state in delaware the franchise tax deadline is march 1 of each year 1 |
Subsets and Splits
No saved queries yet
Save your SQL queries to embed, download, and access them later. Queries will appear here once saved.