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what happens if you don t pay your franchise tax | different states have penalties for late payments of franchise taxes which the franchise tax board will track and penalize corporations for in delaware the penalty for non payment or late payment is 200 with an interest of 1 5 per month 1the bottom linefranchise taxes allow corporations to do business within a state though states have varying tax rates for the corporations based on their legal filing and gross income levels | |
what is a franchisee | a franchisee is an independent business owner who operates a third party retail outlet called a franchise in doing so the franchisee has purchased the right to use an existing business s trademarks associated brands and proprietary knowledge to market and sell the same brand and uphold the same standards as the first business understanding franchisesfranchises are an extremely common way of doing business in the u s it is hard to drive more than a few blocks in most cities without seeing a franchise business examples of well known franchise business models include mcdonald s nyse mcd subway united parcel service nyse ups and h r block nyse hrb franchise business opportunities are available across a wide variety of industries | |
when a business wants to garner more market share or increase its geographical presence at a low cost one solution is to create a franchise using its product and brand name the franchisor is the original or existing business that sells the right to use its name and idea the franchisee is the individual who purchases the right to sell the franchisor s goods or services using its existing business model and trademark | the franchisee franchisor relationshipthe relationship between a franchisee and a franchisor is inherently one of advisee and advisor the franchisor provides guidance and support on hiring and training staff setting up shop advertising its products or services sourcing its supply and so on in return for the franchisor s advisory role use of intellectual property and experience the franchisee generally pays a startup fee plus an ongoing percentage of gross revenues to the franchisor at the start the franchisor assigns the franchisee an exclusive location far enough from its other franchises to avoid competition there are benefits and drawbacks to investing in an already successful business as with any investment research your options thoroughly before you decide to purchase a franchise franchisee benefitsoperating a franchise can be an ideal venture for an entrepreneur with little direct experience in business management because franchisee responsibilitiesa franchisee must follow the proven business model that is already in place down to its choice of location furnishings products and decor franchisors require this to maintain consistent quality among all of the locations using its brand name the franchisee is responsible for growing the franchise via the usual means of advertising and marketing within its exclusive area of operation however all marketing campaigns must be approved by the original establishment before their release as the manager of the franchise the franchisee is expected to protect the brand name by offering only approved products and services that are created by or sourced by the original company franchise example mcdonald sa company that notably grew a global presence using the franchise model is the fast food behemoth mcdonald s mcdonald s was founded in 1940 by the mcdonald brothers in san bernardino california however it was their business associate ray kroc who opened the first official franchise for the mcdonald s system inc a predecessor of today s mcdonald s corp mcd in 1955 in des plaines illinois a suburb of chicago kroc later bought the business from the brothers 1as of 2023 there were more than 38 000 mcdonald s restaurants in more than 100 countries and 93 of them are owned and operated by local business people 2mcdonald s either owns the land and buildings used by the franchisees or secures long term leases for the franchised sites as part of the contractual agreement with the company the franchisee pays a portion of the cost of seating d cor and signs in the location that the company provides mcdonald s indicates that it will only consider franchise buyers who have at least 500 000 in non borrowed personal resources 3the legendary success of the mcdonald s franchise story is partly a result of the company s commitment to maintaining consistent standards in its food a big mac in los angeles should and does have the same quality as one in london franchisees manage their own pricing decisions and staffing matters while benefiting from the brand equity and global experience of mcdonald s | |
does a franchisee own a business | yes a franchisee is the owner of the business the owner is licensed to use products supplied by the franchisor the franchisee is contractually obligated to use only products and services supplied by or authorized by the franchisor this limits the business owner s scope and autonomy a mcdonald s franchisee cannot sell a peanut butter and jelly sandwich or even hang a picture on the wall that isn t issued by mcdonald s | |
is a franchisee the same as a franchisor | no the franchisor is the entity that owns the intellectual property patents and trademarks of the brand or business being franchised a franchisee buys the right to operate a location of the franchisor can a franchisee be fired or removed a franchisee can effectively be fired the franchisor can shut down one of its licensed operators that breaks the rules those rules allow the franchisor to act quickly if a franchisee is discovered to be running a location that fails to meet health and safety guidelines among other infractions the bottom linethe franchise model is expanding in new directions the classic is the mcdonald s model in which a business person adopts the entire product line and merchandising model of a franchisor other companies such as dunkin domino s pizza burger king subway jiffy lube ups stores and re max also offer well known franchise opportunities still newer franchising models are emerging particularly in services businesses such as home health care and tax preparation there also is growth in business distribution franchises this is a supplier dealer relationship in which the dealer acquires exclusive rights to sell a supplier s goods within a certain area a franchise business is best suited to an individual who wants to buy into a proven business model and not invent one from scratch | |
what is a franked dividend | a franked dividend is an arrangement in australia that eliminates the double taxation of dividends the shareholder can reduce the tax paid on the dividend by an amount equal to the tax imputation credits 1 an individual s marginal tax rate and the tax rate for the company issuing the dividend affect how much tax an individual owes on a dividend understanding franked dividendsa franked dividend is paid with a tax credit attached and is designed to eliminate the issue of double taxation of dividends for investors basically it reduces a dividend receiving investor s tax burden dividends are paid by companies to their shareholders out of profits these payments are often periodic such as monthly quarterly semi annually or annually but can also be paid out through special distributions which are carried out as a standalone event since these payments are drawn from profits it implies dividends have already been subject to tax at the corporate level so a shareholder receiving the dividend should not be obligated for the tax on that dividend when it comes to paying their individual income taxes that would constitute double taxation franked dividends eliminate this double taxation by giving investors a tax credit commonly known as a franking credit for the amount of tax the business paid on that dividend the shareholder submits the dividend income plus the franking credit as income but will end up being taxed only on the dividend portion franked dividends can be fully franked 100 or partially franked less than 100 1 the formula for calculating a franking credit for a fully franked dividend paying 1 000 by a company whose corporate tax rate is 30 is franking credit dividend amount 1 company tax rate dividend amountfranking credit 1 000 1 0 30 1 000 1 000 0 70 1 000 428 57the shareholder would receive a fully franked dividend of 1 000 and their dividend statement would show a franking credit of 428 57 if the dividend were not franked the shareholder would have owed taxes on the entire 1 428 57 1 000 428 57 with the franking credit taxes only apply to the 1 000 even though they declare 1 428 57 as taxable income types of franked dividendsthere are two different types of franked dividends fully franked and partially franked when a stock s shares are fully franked the company pays tax on the entire dividend investors receive 100 of the tax paid on the dividend as franking credits in contrast shares that are not fully franked may result in tax payments for investors 1 businesses sometimes claim tax deductions perhaps due to losses from preceding years that allows them to avoid paying the entire tax rate on their profits in a given year when this happens the business does not pay enough tax to legally attach a full tax credit to the dividends paid to shareholders as a result a tax credit is attached to part of the dividend making that portion franked the rest of the dividend remains untaxed or unfranked this dividend is then said to be partially franked the investor is responsible for paying the remaining tax balance 1 benefits of franked dividendsthe tax advantages of franked dividends for investors are apparent but there are additional benefits for markets and society the classic argument against double taxation of income is that it deters investment in publicly traded companies that issue dividends many small businesses have flow through taxation so investors only have to pay income taxes large firms must pay corporate income tax and then their investors are taxed again on the dividend income double taxation seems unfair on the surface furthermore it distorts investment choices potentially leading to reduced economic efficiency and lower incomes franked dividends may have additional benefits within the stock market because unfranked dividends suffer from tax disadvantages there was a trend away from issuing them growth stocks in the u s most notably amazon amzn outperformed the market in part by reinvesting profits in their operations rather than issuing dividends stocks that do not issue dividends are necessarily more speculative so markets become less stable as those companies succeed in the long run reinvesting in firms instead of issuing dividends reduces competition efficiency and consumer choice franked dividends help to create more stable and competitive markets by lowering the tax burden on dividends real world examplefrom april 2016 to june 2019 new york based investment firm vaneck ran the vaneck vectors s p asx franked dividend etf the etf tracked the s p asx franked dividend index and included companies in the s p asx 200 that paid out 100 franked dividends in the preceding two years the fund changed its investment objective and name in june 2019 2 | |
what is fraud | fraud is an intentional act of deceit designed to reward the perpetrator or to deny the rights of a victim some of the most common types of fraud involve the insurance industry the stock market and the mortgage market but the targets usually include individuals as well as businesses sydney saporito investopediaunderstanding fraudany fraud involves falsification either by withholding important information lying or faking documents often the perpetrator of fraud knows something that the intended victim doesn t know at heart the individual or company committing fraud is taking advantage of information asymmetry the victim cannot or does not try to verify the false information despite state and federal laws that criminalize fraud these crimes do not always result in a criminal trial government prosecutors have substantial discretion in determining whether a case should go to trial and may pursue a settlement for a speedier and less costly resolution if a fraud case goes to trial the perpetrator may be convicted and sent to jail legal consequences of fraudif there is no criminal proceeding a victim of fraud can pursue a civil case this can result in money being recovered or rights reestablished proving that fraud has taken place requires the perpetrator to have committed specific acts the perpetrator has to provide a false statement as a material fact the perpetrator had to have known that the statement was untrue the perpetrator had to have intended to deceive the victim the victim has to demonstrate that they relied on the false statement finally the victim had to have suffered damages as a result of acting on the intentionally false statement 1types of financial fraudfinancial fraud comes in many varieties with the most common including mortgage fraud insurance fraud and securities fraud common mortgage fraud schemes include identity theft and income or asset falsification by mortgage applicants industry insiders may dupe the system via appraisal fraud or so called air loans which are applications for mortgages on nonexistent properties common scams include property flipping occupancy fraud and use of straw buyers a relatively small insurance claim may get a more cursory review than a large claim in other cases investigating a loss claim may be nearly impossible a claims investigator can t easily prove or disprove the alleged loss of a single piece of insured jewelry knowing this some individuals file claims for losses that didn t occur in this case insurance fraud has been committed the federal bureau of investigation fbi describes securities fraud as criminal activity that can include high yield investment fraud ponzi schemes pyramid schemes advance fee schemes foreign currency fraud broker embezzlement pump and dumps hedge fund related fraud and late day trading 2in many of these cases the fraudster seeks to dupe investors through misrepresentation these crimes are characterized by providing false or misleading information withholding key information purposefully offering bad advice and offering or acting on inside information prosecuting financial fraudfraud can have a devastating impact on investors in 2001 a massive corporate fraud was uncovered at enron a u s based energy company executives used a variety of techniques to disguise the company s financial health including the deliberate obfuscation of revenue and misrepresentation of earnings 3after the fraud was uncovered shareholders saw share prices plummet from around 90 to less than 1 company employees had their equity wiped out and lost their jobs after enron declared bankruptcy the company s ceo and cfo went to prison while its founder kenneth lay died of a heart attack shortly before he was to be sentenced the enron scandal was a major driver behind the regulations found in the sarbanes oxley act passed in 2002 4 | |
what is a recent example of a massive financial fraud | sam bankman fried founder and chief executive of the cryptocurrency exchange ftx was convicted of misappropriating about 8 billion of his customers deposits he stole the money for his personal use to pay off loans and to make political contributions he was sentenced to 25 years in prison on march 28 2024 5 | |
what is medical fraud | most medical fraud involves false billing of insurance companies or the federal medicaid and medicaid systems for patient care that was never performed or was performed unnecessarily the fraud may be perpetrated by medical professionals by dishonest third party vendors by con artists pretending to be medical professionals or by collusion among those parties | |
what is identity theft | identity theft is the use of an individual s personal or financial information to carry out fraud in that person s name identity theft has ballooned in recent years because there are so many ways to steal information beyond straightforward pickpocketing most are digital methods like installing skimmers at atms and fuel pumps pirating users of public wi fi or phishing for information from unwary consumers 6the bottom linefraud artists commonly target businesses like insurance companies and banks but they often need to involve innocent individuals to pull it off identity theft involves using other people s personal information to steal items of value securities fraud means conning individual investors into buying stock based on false information plenty of government and corporate resources are devoted to fighting fraud but individual consumers need to be wary to avoid being victimized | |
the federal home loan mortgage corp fhlmc or freddie mac is a stockholder owned government sponsored enterprise gse chartered by congress in 1970 to keep money flowing to mortgage lenders which in turn supports homeownership and rental housing for middle income americans | freddie mac purchases guarantees and securitizes home loans and is a mainstay of the secondary mortgage market 1history of freddie macfreddie mac was created when congress passed the emergency home finance act in 1970 a wholly owned subsidiary of the federal home loan bank system fhlbs it represented an attempt to reduce interest rate risk for savings and loans associations and smaller banks in 1989 under the financial institutions reform recovery and enforcement act firrea freddie mac underwent a reorganization it became a publicly owned company with shares that could trade on the new york stock exchange 2in 2008 during the financial crisis sparked by the subprime mortgage meltdown the u s government specifically the federal housing finance agency took over the federal home loan mortgage corp though freddie mac is gradually transitioning toward independence it remains under federal conservatorship | |
how freddie mac works | the federal home loan mortgage corp or freddie mac was created to enhance the flow of credit to different parts of the economy along with fannie mae it is a key player in the secondary mortgage market freddie mac doesn t originate or service home mortgages rather it buys home loans from banks and other commercial mortgage lenders giving these institutions funds that they can then use to finance more loans and mortgages these loans must meet certain standards that freddie mac sets after purchasing a large number of these mortgages freddie mac either holds them in its own portfolio or combines and sells them as mortgage backed securities mbs to investors who are seeking a steady income stream either way it insures these mortgages that is it guarantees the timely payment of principal and interest on the loans as a result securities issued by freddie mac tend to be very liquid and carry a credit rating close to that of u s treasuries 3criticism of the federal home loan mortgage corp fhlmc freddie mac has come under criticism because its ties to the u s government allow it to borrow money at interest rates lower than those available to other financial institutions with this funding advantage it issues large amounts of debt known in the marketplace as agency debt or agencies and in turn purchases and holds a huge portfolio of mortgages known as its retained portfolio critics have argued that the unchecked growth of freddie mac and fannie mae led to the credit crisis of 2008 that plunged the u s into the great recession in response advocates of the enterprises argue that while freddie and fannie made bad business decisions and held insufficient capital during the housing bubble their portfolios made up only a tiny fraction of total subprime loans 4freddie mac vs fannie maefannie mae federal national mortgage association or fnma was created in 1938 as part of an amendment to the national housing act it was considered a federal government agency and its role was to act as a secondary mortgage market that could purchase hold or sell loans that were insured by the federal housing administration fannie mae stopped being a federal government agency and became a private public corporation under the charter act of 1954 2fannie mae and freddie mac are very similar both are publicly traded companies that were chartered to serve a public mission the main difference between the two comes down to the source of the mortgages they buy fannie mae buys mortgage loans from major retail or commercial banks while freddie mac buys its loans from smaller banks often called thrift banks or savings and loan associations that are focused on providing banking services to communities frequently asked questions faqs | |
how hard is it to get a freddie mac loan | to get a freddie mac loan you will have to meet the lender s criteria depending on the size of the loan you ll need a certain income as well as credit score to qualify you can receive a pre qualification letter that will let you know what amount of loan you can qualify for but this pre qualification is not a guarantee 5 | |
do you need a down payment for a freddie mac loan | you do need a down payment for freddie mac loans however if you meet certain qualifications you can get a loan for as little as 3 down 6 | |
does freddie mac have a 3 down program | freddie mac does have a program in which you can put 3 down on a home you must qualify for this program called homeone which serves first time buyers or cash out refinance borrowers you can use this loan to buy a single family home townhome or condo 6the bottom linethe federal home loan mortgage corp fhlmc or freddie mac plays a crucial role in the housing market by backing loans to borrowers freddie mac does not lend to borrowers directly but backs mortgages so that lenders will be encouraged to approve loans however you still must meet certain standards to qualify for a mortgage guaranteed by freddie mac | |
what is free carrier fca | free carrier is a trade term dictating that a seller of goods is responsible for the delivery of those goods to a destination specified by the buyer when used in trade the word free means the seller has an obligation to deliver goods to a named place for transfer to a carrier the destination is typically an airport shipping terminal warehouse or other location where the carrier operates it might even be the seller s business location the seller includes transportation costs in its price and assumes the risk of loss until the carrier receives the goods at this point the buyer assumes all responsibility investopedia crea taylor | |
how free carrier fca works | buyers and sellers engaged in economic trade requiring the shipment of goods can use fca shipping terms to describe any transportation point regardless of the number of transportation modes involved in the shipping process the point must be a location within the seller s home country however it s the seller s duty to safely transport the goods to that facility the carrier can be any kind of transportation service such as a truck train boat or airplane liability for the merchandise transfers from the seller to the carrier or buyer at the time the seller delivers the goods to the agreed port or area the seller is only responsible for delivery to the specified destination as part of the liability transfer it isn t obligated to unload the goods but the seller might be responsible for ensuring that the goods have been cleared for export out of the united states if the destination is the seller s premises under fca shipping terms the buyer doesn t have to deal with export details and licenses because this is the responsibility of the seller the buyer must arrange for transport however once goods arrive at the carrier and title transfers to the buyer the goods become an asset on the buyer s balance sheet many experts recommend that any party involved in international trade consult with an appropriate legal professional such as a trade attorney before using any trade term within a contract fca incotermscontracts involving international transportation often contain abbreviated trade terms or terms of sale that describe shipment specifics these might include the time and place of delivery payment the point at which the risk of loss shifts from the seller to the buyer and the party responsible for freight and insurance costs to help facilitate the delivery of such items the most commonly known trade terms are international commercial terms or incoterms incoterms are internationally recognized standards published by the international chamber of commerce icc these are often identical in form to domestic terms such as the uniform commercial code ucc but there can be slight differences in their official interpretations the term free carrier or fca is a typical and highly used example of incoterms it has been internationally recognized as a standard set of instructions to designate delivery terms fca shipping terms were included in incoterms starting in 1980 and have been revised every ten years 1established by the international chamber of commerce the incoterms rules may be purchased via the icc s website example of fcaunder fca shipping terms the seller delivers the goods to the destination named by the buyer the shipper has responsibility for the goods until they arrive there the buyer would be responsible for loading the goods for transport for example joe seller ships goods to bob buyer under an fca shipping term agreement bob opts to use his shipper with whom he s done business before joe agrees and it s his responsibility to deliver the goods to the shipper at this point all liability passes to bob | |
what is the difference between fca and fob | fca and fob are shipment terms used in different types of transportation fob delivery applies only to sea shipments and occurs when cargo is loaded onto a vessel loading the goods onto the vessel is the seller s responsibility under fca many more types of transport are allowable and loading onto the carrier is the buyer s responsibility the supplier is usually obligated to issue an export declaration once goods have been placed onto a buyer s vehicle | |
what is the difference between fca and ddp | under ddp shipping terms the seller has to pay for the transportation costs in addition the seller holds all risks and responsibilities for the transportation of the goods until the buyer receives them fca shipping terms are usually paid for by the buyer since the carrier is nominated by the buyer who pays for fca shipping under fca shipping terms the buyer often pays for the transportation as they are the party responsible for nominating the carrier to use who is responsible for export clearance under fca under fca shipping terms the seller is responsible for export duty taxes and custom clearance the buyer is responsible for importing items the bottom lineunder fca shipping terms the seller is responsible for pre carriage to a terminal delivery to the agreed upon destination and proof of delivery the seller is also responsible for export packaging licenses and customs formalities on the other hand under fca shipments the buyer pays for the goods is responsible for the main means of transportation and pays for loading charges the buyer also covers import duties taxes and formalities | |
what is free cash flow fcf | free cash flow fcf represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets unlike earnings or net income free cash flow is a measure of profitability that excludes the non cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet interest payments are excluded from the generally accepted definition of free cash flow investment bankers and analysts who need to evaluate a company s expected performance with different capital structures will use variations of free cash flow like free cash flow for the firm and free cash flow to equity which are adjusted for interest payments and borrowings jessica olah investopediaunderstanding free cash flow fcf free cash flow is the money that the company has available to repay its creditors or pay dividends and interest to investors some investors prefer to use fcf or fcf per share rather than earnings or earnings per share eps as a measure of profitability because the latter metrics remove non cash items from the income statement however because fcf accounts for investments in property plant and equipment pp e it can be lumpy and uneven over time making it less useful for the purpose of analysis benefits of free cash flowbecause fcf accounts for changes in working capital it can provide important insights into the value of a company and the health of its fundamental trends a decrease in accounts payable outflow could mean that vendors are requiring faster payment an increase in accounts receivable inflow could mean the company is collecting cash from its customers more quickly an increase in inventory outflow could indicate a building stockpile of unsold products including working capital in a measure of profitability provides an insight that is missing from the income statement for example assume that a company made 50 000 000 per year in net income each year for the last decade on the surface that seems stable but what if fcf was dropping over the last two years as inventories were rising outflow customers started to delay payments inflow and vendors began demanding faster payments outflow in this situation fcf would reveal a serious financial weakness that wouldn t be apparent from an examination of the income statement looking at fcf is also helpful for potential shareholders or lenders who want to evaluate how likely it is that the company will be able to pay its expected dividends or interest if the company s debt payments are deducted from free cash flow to the firm fcff a lender would have a better idea of the quality of cash flows available for paying additional debt shareholders can use fcf minus interest payments to predict the stability of future dividend payments free cash flow is often evaluated on a per share basis to evaluate the effect of dilution similar to the way that sales and earnings are evaluated limitations of free cash flowimagine a company has earnings before interest taxes depreciation and amortization ebitda of 1 000 000 in a given year also assume that this company has had no changes in working capital current assets current liabilities but it bought new equipment worth 800 000 at the end of the year the expense of the new equipment will be spread out over time via depreciation on the income statement which evens out the impact on earnings but because fcf accounts for the cash spent on new equipment in the current year the company will report 200 000 fcf 1 000 000 ebitda 800 000 equipment on 1 000 000 of ebitda that year if we assume that everything else remains the same and there are no further equipment purchases ebitda and fcf will be equal again the following year in this situation an investor will have to determine why fcf dipped so quickly one year only to return to previous levels and if that change is likely to continue moreover understanding the depreciation method being used will garner further insights for example net income and fcf will differ based on the amount of depreciation taken per year of the asset s useful life if the asset is being depreciated using the book depreciation method over a useful life of 10 years then net income will be lower than fcf by 80 000 800 000 10 years for each year until the asset is fully depreciated alternatively if the asset is being depreciated using the tax depreciation method the asset will be fully depreciated in the year it was purchased resulting in net income equaling fcf in subsequent years calculating free cash flowfcf can be calculated by starting with cash flows from operating activities on the statement of cash flows because this number will have already adjusted earnings for non cash expenses and changes in working capital investopedia sabrina jiangthe income statement and balance sheet can also be used to calculate fcf investopedia sabrina jiangother factors from the income statement balance sheet and statement of cash flows can be used to arrive at the same calculation for example if ebit was not given an investor could arrive at the correct calculation in the following way investopedia sabrina jiangwhile fcf is a useful tool it is not subject to the same financial disclosure requirements as other line items in the financial statements this is unfortunate because if you adjust for the fact that capital expenditures capex can make the metric a little lumpy fcf is a good double check on a company s reported profitability although the effort is worth it not all investors have the background knowledge or are willing to dedicate the time to calculate the number manually luckily there is software that helps make the calculation easier | |
how to define good free cash flow | fortunately most financial websites provide a summary of fcf or a graph of fcf s trend for most public companies however the real challenge remains what constitutes good free cash flow many companies with very positive free cash flow also have dismal stock trends and the opposite can also be true using the trend of fcf can help you simplify your analysis one important concept from technical analysts is to focus on the trend over time of fundamental performance rather than the absolute values of fcf earnings or revenue essentially if stock prices are a function of the underlying fundamentals then a positive fcf trend should be correlated with positive stock price trends on average a common approach is to use the stability of fcf trends as a measure of risk if the trend of fcf is stable over the last four to five years then bullish trends in the stock are less likely to be disrupted in the future however falling fcf trends especially fcf trends that are very different compared to earnings and sales trends indicate a higher likelihood of negative price performance in the future this approach ignores the absolute value of fcf to focus on the slope of fcf and its relationship to price performance example of free cash flowconsider the following example in this example there is a strong divergence between the company s revenue and earnings figures and its cash flow based on these trends an investor would be on alert that something may not be going well with the company but that the issues haven t made it to the so called headline numbers such as revenue and earnings per share these issues can be attributed to several potential causes a company could have diverging trends like these because management is investing in property plant and equipment to grow the business in the previous example an investor could detect that this is the case by looking to see if capex was growing between 2019 and 2021 if fcf capex were still upwardly trending this scenario could be a good thing for the stock s value low cash flows can also be a sign of poor inventory control a company with strong sales and revenue could nonetheless experience diminished cash flows if too many resources are tied up in storing unsold products a cautious investor could examine these figures and conclude that the company may suffer from faltering demand or poor cash management a change in working capital can be caused by inventory fluctuations or by a shift in accounts payable and receivable if a company s sales are struggling they may choose to extend more generous payment terms to their clients ultimately leading to a negative adjustment to fcf alternatively perhaps a company s suppliers are not willing to extend credit as generously and now require faster payment that will reduce accounts payable which is also a negative adjustment to fcf in the late 2000s and early 2010s many solar companies were dealing with this exact kind of credit problem sales and income could be inflated by offering more generous terms to clients however because this issue was widely known in the industry suppliers were less willing to extend terms and wanted to be paid by solar companies faster 1in this situation the divergence between the fundamental trends was apparent in fcf analysis but was not immediately obvious by examining the income statement alone | |
how is free cash flow calculated | there are two main approaches to calculating fcf the first approach uses cash flow from operating activities as the starting point and then makes adjustments for interest expense the tax shield on interest expense and any capital expenditures capex undertaken that year the second approach uses earnings before interest and taxes ebit as the starting point then adjusts for income taxes non cash expenses such as depreciation and amortization changes in working capital and capex in both cases the resulting numbers should be identical but one approach may be preferred over the other depending on what financial information is available | |
what does fcf indicate | free cash flow indicates the amount of cash generated each year that is free and clear of all internal or external obligations in other words it reflects cash that the company can safely invest or distribute to shareholders while a healthy fcf metric is generally seen as a positive sign by investors it is important to understand the context behind the figure for instance a company might show high fcf because it is postponing important capex investments in which case the high fcf could actually present an early indication of problems in the future | |
how important is fcf | free cash flow is an important financial metric because it represents the actual amount of cash at a company s disposal a company with consistently low or negative fcf might be forced into costly rounds of fundraising in an effort to remain solvent if a company has enough fcf to maintain its current operations but not enough fcf to invest in growing its business that company might eventually fall behind its competitors for yield oriented investors fcf is also important for understanding the sustainability of a company s dividend payments as well as the likelihood of a company raising its dividends in the future the bottom linechecking a company s free cash flow fcf and especially checking the trend of free cash flow over time can be useful to investors considering a company s stock and to others such as bankers considering loaning the company money shareholders can use fcf minus interest payments as a gauge of the company s ability to pay dividends or interest bankers can consider fcf as a measure of the company s ability to take on additional debt luckily nobody has to calculate this number manually most financial websites provide a summary of fcf or a graph of fcf s trend for publicly traded companies correction nov 10 2022 an example in a previous version of this article classified customer payments as outflows when they are in fact considered inflows | |
what is free cash flow to equity fcfe | free cash flow to equity fcfe is a measure of how much cash is available to the equity shareholders of a company after all expenses reinvestment and debt are paid fcfe is a measure of equity capital usage understanding free cash flow to equity fcfe free cash flow to equity is composed of net income capital expenditures working capital and debt net income is located on the company income statement capital expenditures can be found within the cash flows from the investing section on the cash flow statement working capital is also found on the cash flow statement however it is in the cash flows from the operations section in general working capital represents the difference between the company s most current assets and liabilities these are short term capital requirements related to immediate operations net borrowings can also be found on the cash flow statement in the cash flows from the financing section it is important to remember that interest expense is already included in net income so you do not need to add back interest expense formula for fcfefcfe cash from operations capex net debt issued text fcfe text cash from operations text capex text net debt issued fcfe cash from operations capex net debt issued | |
what does fcfe tell you | the fcfe metric is often used by analysts in an attempt to determine the value of a company this method of valuation gained popularity as an alternative to the dividend discount model ddm especially if a company does not pay a dividend although fcfe may calculate the amount available to shareholders it does not necessarily equate to the amount paid out to shareholders analysts use fcfe to determine if dividend payments and stock repurchases are paid for with free cash flow to equity or some other form of financing investors want to see a dividend payment and share repurchase that is fully paid by fcfe if fcfe is less than the dividend payment and the cost to buy back shares then the company is funding with either debt or existing capital or issuing new securities existing capital includes retained earnings made in previous periods this is not what investors want to see in a current or prospective investment even if interest rates are low some analysts argue that borrowing to pay for share repurchases is a good investment when shares are trading at a discount and when rates are historically low however this is only the case if the company s share price goes up in the future if the company s dividend payment funds are significantly less than the fcfe then the firm is using the excess to increase its cash level or to invest in marketable securities finally if the funds spent to buy back shares or pay dividends are approximately equal to the fcfe then the firm is paying it all to its investors example of how to use fcfeusing the gordon growth model the fcfe is used to calculate the value of equity using this formula vequity fcfe r g v text equity frac text fcfe left r g right vequity r g fcfe | |
where | this model is used to find the value of the equity claim of a company and is only appropriate to use if capital expenditure is not significantly greater than depreciation and if the beta of the company s stock is close to 1 or below 1 | |
what is free cash flow to equity fcfe made of | capital expenditures debt net income and working capital comprise free cash flow to equity fcfe | |
what is the formula for fcfe | add capital expenditures and net debt issued then subtract cash from operations and you have free cash flow to equity who uses fcfe analysts often use free cash flow to equity to try to determine a company s valuethe bottom linefree cash flow to equity measures how much cash is available to a company s equity shareholders after all expenses reinvestment and debt are paid it is a measure of equity capital usage | |
what is free cash flow to the firm fcff | free cash flow to the firm fcff represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses taxes working capital and investments fcff is a measurement of a company s profitability after all expenses and reinvestments it is one of the many benchmarks used to compare and analyze a firm s financial health investopedia michela buttignolunderstanding free cash flow to the firm fcff fcff represents the cash available to investors after a company pays all its business costs invests in current assets e g inventory and invests in long term assets e g equipment fcff includes bondholders and stockholders as beneficiaries when considering the money left over for investors the fcff calculation is an indicator of a company s operations and its performance fcff considers all cash inflows in the form of revenues all cash outflows in the form of ordinary expenses and all reinvested cash to grow the business the money left over after conducting all these operations represents a company s fcff free cash flow is arguably the most important financial indicator of a company s stock value the value price of a stock is considered to be the summation of the company s expected future cash flows however stocks are not always accurately priced understanding a company s fcff allows investors to test whether a stock is fairly valued fcff also represents a company s ability to pay dividends conduct share repurchases or pay back debt holders any investor looking to invest in a company s corporate bond or public equity should check its fcff a positive fcff value indicates that the firm has cash remaining after expenses a negative value indicates that the firm has not generated enough revenue to cover its costs and investment activities in the latter case an investor should dig deeper to assess why costs and investment exceed revenues it could be the result of a specific business purpose as in high growth tech companies that take consistent outside investments or it could be a signal of financial problems the calculation for fcff can take several forms and it s important to understand each version the most common equation is the following fcff ni nc i 1 tr li iwc where ni net income nc non cash charges i interest tr tax rate li long term investments iwc investments in working capital begin aligned text fcff text ni text nc text i times 1 text tr text li text iwc textbf where text ni text net income text nc text non cash charges text i text interest text tr text tax rate text li text long term investments text iwc text investments in working capital end aligned fcff ni nc i 1 tr li iwcwhere ni net incomenc non cash chargesi interesttr tax rateli long term investmentsiwc investments in working capital free cash flow to the firm can also be calculated using other formulations other formulations of the above equation include fcff cfo ie 1 tr capex where cfo cash flow from operations ie interest expense capex capital expenditures begin aligned text fcff text cfo text ie times 1 text tr text capex textbf where text cfo text cash flow from operations text ie text interest expense text capex text capital expenditures end aligned fcff cfo ie 1 tr capexwhere cfo cash flow from operationsie interest expensecapex capital expenditures fcff ebit 1 tr d li iwc where ebit earnings before interest and taxes d depreciation begin aligned text fcff text ebit times 1 text tr text d text li text iwc textbf where text ebit text earnings before interest and taxes text d text depreciation end aligned fcff ebit 1 tr d li iwcwhere ebit earnings before interest and taxesd depreciation fcff ebitda 1 tr d tr li fcff iwc where ebitda earnings before interest taxes depreciation and amortization begin aligned text fcff text ebitda times 1 text tr text d times text tr text li phantom text fcff text iwc textbf where text ebitda text earnings before interest taxes depreciation text and amortization end aligned fcff ebitda 1 tr d tr lifcff iwcwhere ebitda earnings before interest taxes depreciationand amortization if we look at exxon s statement of cash flows we see that the company had 8 519 billion in operating cash flow below in blue in 2018 the company also invested in new plant and equipment purchasing 3 349 billion in assets in blue the purchase is a capital expenditure capex cash outlay during the same period exxon paid 300 million in interest subject to a 30 tax rate 1fcff can be calculated using this version of the formula fcff cfo ie 1 tr capex begin aligned text fcff text cfo text ie times 1 text tr text capex end aligned fcff cfo ie 1 tr capex in the above example fcff would be calculated as follows fcff 8 5 1 9 million 3 0 0 million 1 3 0 fcff 3 3 4 9 million 5 3 8 billion begin aligned text fcff 8 519 text million 300 text million times 1 30 phantom text fcff 3 349 text million 5 38 text billion end aligned fcff fcff 8 519 million 300 million 1 30 3 349 million 5 38 billion the difference between cash flow and free cash flow to the firm fcff cash flow is the net amount of cash and cash equivalents being transferred into and out of a company positive cash flow indicates that a company s liquid assets are increasing enabling it to settle debts reinvest in its business return money to shareholders and pay expenses cash flow is reported on the cash flow statement which contains three sections detailing activities those three sections are cash flow from operating activities investing activities and financing activities fcff is the cash flows a company produces through its operations after subtracting any outlays of cash for investment in fixed assets like property plant and equipment and after depreciation expenses cash flow taxes working capital and interest are accounted for in other words free cash flow to the firm is the cash left over after a company has paid its operating expenses and capital expenditures special considerationsalthough it provides a wealth of valuable information that investors appreciate fcff is not infallible crafty companies still have leeway when it comes to accounting sleight of hand without a regulatory standard for determining fcff investors often disagree on exactly which items should and should not be treated as capital expenditures investors must thus keep an eye on companies with high levels of fcff to see if these companies are under reporting capital expenditures and research and development companies can also temporarily boost fcff by stretching out their payments tightening payment collection policies and depleting inventories these activities diminish current liabilities and changes to working capital but the impacts are likely to be temporary | |
what is free cash flow yield | free cash flow yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share the ratio is calculated by taking the free cash flow per share divided by the current share price 1 free cash flow yield is similar in nature to the earnings yield metric which is usually meant to measure gaap generally accepted accounting principles earnings per share divided by share price the formula for free cash flow yield is f r e e c a s h f l o w y i e l d f r e e c a s h f l o w p e r s h a r e m a r k e t p r i c e p e r s h a r e free cash flow yield frac free cash flow per share market price per share free cash flow yield market price per sharefree cash flow per share investopedia jiaqi zhou | |
what does the free cash flow yield reveal | generally the lower the ratio the less attractive a company is as an investment because it means investors are putting money into the company but not receiving a very good return in exchange a high free cash flow yield result means a company is generating enough cash to easily satisfy its debt and other obligations including dividend payouts 1some investors regard free cash flow which excludes capital expenditures but considers other ongoing costs a business incurs to keep itself running as a more accurate representation of the returns shareholders receive from owning a business they prefer to use free cash flow yield as a valuation metric over an earnings yield in addition to sustaining ongoing operations cash flow from operations is also a funding source for a company s long term capital investments before tapping into any outside financing a company first uses its operating cash flow to meet capital expenditure requirements anything left is referred to as free cash flow and becomes available to equity holders for investors preferring cash flow yield as a valuation metric over valuation multiples the free cash flow yield would be a more accurate representation of investment returns compared to yields based on cash flow not fully returnable or accounting earnings the difference between cash flow and earningsfree cash flow derives from operating cash flow which is the net result of actual cash received and paid during a company s operations using cash flow to measure operating results is different from accounting based earnings reporting earnings track every element of revenue and expense regardless of cash involvements while earnings in principle summarize a company s total net income on account cash flow concerns a company s ability to sustain its ongoing operations the more cash a company amasses from operations the easier it is to continue carrying out its business and to ultimately generate more earnings the ability to yield cash flow can be a better indication of a company s longer term valuation cash flow yield versus a valuation multipleinvestors may evaluate a company s worth by comparing its cash flows business return with its equity value cash flow can be a proper return representation and market price a close proxy of equity value investors may judge a company s worth based on the percentage of its cash flow over the equity s market price which is referred to as cash flow yield alternatively investors may look at a company s worth using a valuation multiple calculated as its equity s market price over the amount of cash flow evaluating an investment using cash flow yield can be more intuitive than a valuation multiple as cash flow yield directly shows the cash returned as a percentage of the investment | |
what is free enterprise | the term free enterprise refers to an economy where the market determines prices products and services rather than the government businesses and services are free from government control in a free enterprise environment free enterprise is characterized by different factors including private property rights alternatively free enterprise could refer to an ideological or legal system whereby commercial activities are primarily regulated through private measures investopedia zoe hansenunderstanding free enterprisefree enterprise is a system wherein market forces determine the production supplies and prices of goods and services as such it is also referred to as a free market free markets are in principle and practice defined by private property rights voluntary contracts and competitive bidding for goods and services in the marketplace this is contrasted with public ownership of property coercive activity and fixed or controlled distribution of goods and services another definition of free enterprise is in terms of economics and was offered by the nobel winning economist friedrich hayek hayek described such systems as spontaneous order hayek s point was that free enterprise is not unplanned or unregulated instead he said that planning and regulation arise from the coordination of decentralized knowledge among innumerable specialists not bureaucrats 1a free enterprise legal system tends to produce capitalism in the absence of central planning this may lead to voluntary socialism or even agrarianism in capitalist economic systems think of the united states consumers and producers determine which goods and services to produce and which to purchase contracts are entered into voluntarily and may even be enforced privately competitive bidding determines market prices in western countries free enterprise is associated with laissez faire economies and philosophical libertarianism however free enterprise is distinct from capitalism capitalism refers to a method by which scarce resources are produced and distributed free enterprise refers to a set of legal rules regarding commercial interaction free enterprise may also be referred to as free trade or free market goals of free enterprisea free enterprise society hopes to achieve different goals when a free enterprise society in fully operational consumers often have freedom efficiency stability security growth opportunities and justice history of free enterprisethe first written intellectual reference to free enterprise systems may have emerged in china in the fourth or fifth century bc when laozi or lao tzu argued that governments hampered growth and happiness by interfering with individuals 2legal codes resembling free enterprise systems were not common until much later the original home of contemporary free markets was england between the 16th and 18th centuries this growth coincided with and probably contributed to the first industrial revolution and the birth of modern capitalism at one time the english legal code was completely free of international trade barriers tariffs barriers to entry in most industries and limitations on private business contracts the united states also used a largely free market legal approach during the 18th and 19th centuries in modern times however both the united states and the united kingdom are better classified as mixed economies countries like singapore hong kong and switzerland are more reflective of free enterprise the opposite of a free enterprise economy is a planned controlled or command economy free enterprise in the united statesthe u s economic system of free enterprise has five main principles the freedom for individuals to choose businesses the right to private property profits as an incentive competition and consumer sovereignty advantages and disadvantages of free enterprisein a free enterprise the market faces no bureaucracy processes are theoretically more efficient and may be administratively less expensive to operate a business and interact with consumers this is especially true in highly regulated markets though increased competition may shift costs elsewhere market participants are usually allowed greater expression and flexibility entrepreneurs aren t constrained by public policy or dictated on what goods need to be produced a cornerstone theory of free enterprise is that the best companies will innovate to continue to meet market demand while companies that fail will cease to exist as they no longer have a place in the market instead of government policy deciding how resources are allowed a free enterprise s large benefit is that consumers have a greater voice in the economy the consumer determines the ultimate prices of a good which products are needed in a market and what goods fail or succeed it is up to a firm in a free enterprise to understand these consumer preferences and adjust their operations accordingly goods that are generally not profitable to manufacture will not be produced in a free enterprise this is because there is no economic incentive for a firm to produce these goods unless there is government aid or a stipend this may also include limitations on where goods are delivered for example government funds may partially pay for telecommunication services to be distributed to rural areas without this funding those communities may not receive service a free enterprise may also spur unfavorable activity due to the prioritization of profits consider enron which didn t follow public financial reporting regulations resulting in financial ruin when there are little to no rules to follow entities within a free enterprise may sacrifice worker safety environmental standards or ethical behavior in favor of making more money a free enterprise doesn t come with bailouts this means economic downturns are theoretically more severe as public funds can t be used to aid failing institutions that would cause major ripple effects by dissolving this is especially true in today s interconnected society where one large bankruptcy could negatively financially impact firms around the world less bureaucraticmay be less expensive to operate a businessallows for greater entrepreneurial freedomprioritizes consumer demand and preferencesmay result in unprofitable products being dissolvedmay restrict where goods are distributed tomay entice illicit behavior due to prioritizing profitsmay result in greater market crashes due to no bailoutsexamples of free enterpriseconsider the differences between two companies apple aapl a public company and sungard data systems a private company because both companies transact within the united states neither is truly in a free enterprise environment imagine each company wants to raise capital the securities and exchange commission sec has outlined regulations that public companies like apple must meet to sell additional shares and be listed on public exchanges this also includes meeting public reporting and filing requirements with fewer restrictions in place as a private company sungard data systems may raise capital more freely as it does not experience as many government restrictions another example of free enterprise or lack thereof is the financial crisis that led to the great recession in response to the economic calamity congress authorized the use of the trouble assets relief program tarp emergency funds for distressed financial institutions 3 in a truly free enterprise governments would not intervene to aid struggling businesses instead these companies would be allowed to fail allowing for the market to resolve itself with new market participants entering the space to claim the newly vacated market opportunity | |
what is the main goal of free enterprise | the main goal of free enterprise is to allow citizens to dictate market and decide the value of trade instead of relying on government intervention or public policy free enterprise s main goal is to allow markets to move themselves without constraint self discovering efficiencies and inaccuracies | |
what is the main benefit of free enterprise | some may argue the main benefit of free enterprise is freedom in one sense individuals may transact with little to no restricting barriers especially those set by policy or trade regulation in another sense individuals are allowed to creatively express and transact based on a seemingly endless range of consumer choices | |
what is the difference between capitalism and free enterprise | free enterprise and capitalism are related though the two terms are different free enterprise refers to how a free market system has minimal barriers regarding the exchange of wealth or transacting of goods and services on the other hand capitalism is primarily centered on the creation of that wealth or production of those goods both relate to an individual initiating their own decisions with fewer market mechanisms governing the control of their resources | |
what is the difference between socialism and free enterprise | whereas free enterprise is the notion around letting goods and services freely generate market results on their own socialism is focused on governing how resources are distributed these government policies may dictate how resources are used who receives goods or what pricing mechanisms certain market participants may face the bottom linefree enterprise refers to an economic concept where markets are not governed by policy instead market participants set pricing do not face export or regulation requirements and have more freedom in choosing how they transact though free enterprise is rooted in granting individuals more freedom market failures may be more devastating without government intervention | |
what is free float methodology | the free float methodology is a method of calculating the market capitalization of a stock market index s underlying companies with the free float methodology market capitalization is calculated by taking the equity s price and multiplying it by the number of shares readily available in the market rather than using all of the shares both active and inactive shares as is the case with the full market capitalization method the free float method excludes locked in shares such as those held by insiders promoters and governments understanding free float methodologythe free float methodology is sometimes referred to as float adjusted capitalization according to some experts the free float method is considered to be a better way of calculating market capitalization as opposed to the full market capitalization method for example full market capitalization includes all of the shares provided by a company through its stock issuance plan companies often issue unexercised stock to insiders through stock option compensation plans other holders of unexercised stock can include promoters and governments full market capitalization weighting for indexes is rarely used and would significantly change the return dynamic of an index because companies have various levels of strategic plans in place for issuing stock options and exercisable shares the free float methodology is usually thought to provide a more accurate reflection of market movements and stocks actively available for trading in the market when using a free float methodology the resulting market capitalization is smaller than what would result from a full market capitalization method an index that uses a free float methodology tends to reflect market trends because it only takes into consideration the shares that are available for trade it also makes the index more broad based because it lessens the concentration of the top few companies in the index | |
how to calculate market capitalization using the free float method | free float methodology is calculated as follows ffm share price x number of shares issued locked in shares the free float methodology has been adopted by many of the world s major indexes it is used by the s p 500 index by morgan stanley capital international msci world index and by the financial times stock exchange group ftse 100 index there is also a relationship between free float methodology and volatility the number of free floating shares of a company is inversely correlated to volatility typically a larger free float means that the stock s volatility is lower because there are more traders buying and selling the shares that means that a smaller free float equates to higher volatility since fewer trades move the price significantly and there are a limited amount of shares available to be bought and or sold most institutional investors prefer trading companies with a larger free float because they can buy or sell a large number of shares without having a big impact on the price price weighted vs market capitalization weightedindexes in the market are usually weighted by either price or market capitalization both methodologies weigh the returns of the indexes individual stocks by their respective weighting types market capitalization weighting is the most common index weighting methodology the leading capitalization weighted index in the united states is the s p 500 index the type of weighting methodology used by an index significantly affects the index s overall returns price weighted indexes calculate the returns of an index by weighing the individual stock returns of the index by their price levels in a price weighted index stocks with a higher price receive a higher weighting and thus have more influence on the returns of the index regardless of their market capitalizations price weighted indexes versus capitalization weighted indexes vary considerably due to their index methodology in the trading market very few indexes are price weighted the dow jones industrial average djia is an example of one of the few price weighted indexes in the market example of free float methodologysuppose that stock abc is trading at 100 and has 125 000 shares in total out of this amount 25 000 shares are locked in meaning that they are held by large institutional investors and company management and are not available for trading using the free float methodology abc s market capitalization is 100 x 100 000 total number of shares available for trading 10 million | |
how do you calculate free float | to calculate free float you take a company s outstanding shares and subtract its restricted shares to get the company s free float market capitalization take the free float number and multiply it by a company s share price | |
is the s p 500 index free float | yes the s p 500 index utilizes a free float methodology this means that for all of the companies in the s p 500 their market cap is free floating only the available shares for public trading are taken into consideration for the calculation no restricted shares 1 | |
how do you calculate market cap | market cap or market capitalization is calculated by taking a company s outstanding shares and multiplying them by the company s share price for example if a company had 50 000 shares outstanding and a share price of 10 its market cap would be 500 000 the bottom linefree float methodology is a method of calculating a company s market cap by removing its locked in shares it is used by index providers in order to present a more accurate picture of a company s available shares for trading | |
what is the free look period | the free look period is the required time period in which a new life insurance policy owner can terminate the policy without any penalties such as surrender charges a free look period often lasts 10 or more days depending on the insurer and state law during the free look period the contract holder can decide whether or not to keep the insurance policy if they are not satisfied and wish to cancel they can receive a full refund of their premium free look periods are most commonly associated with life insurance policies but can apply to other products as well like annuity contracts laws vary by state for example texas requires a free look period of at least 10 to 20 days | |
how free look periods work | insurance policies are legal contracts that grant rights and responsibilities to both the insurer and policyholder if you are not satisfied with the terms and conditions of the policy you have purchased you can cancel and return the policy within a specified period after receiving it and your premiums will be fully refunded the time frame will vary depending on your insurer and state law during the free look period sometimes known as the free examination period the purchaser can continue to ask the insurer questions regarding the contract to better understand the policy if refunded the amount given back may equate to the value of the account at cancellation or the number of payments depending on the state in which the policy was written the free look period is for the benefit of a policyholder it provides additional time to review a new contract in depth policyholders might also ask their agent lawyer or company representative to review their policy s terms and conditions once a policyholder is in receipt of a new life insurance policy the free look period begins if you decide to cancel the policy you must notify your agent or company representative history of the free look periodthe u s life insurance industry was once very poorly regulated and rife with scams back in the 1930s and 1940s the industry tended to attract unscrupulous characters much of the life insurance industry got a bad reputation because of high pressure tactics badgering of customers and many disreputable insolvent or nonexistent insurance companies that never paid claims the industry has vastly improved since those days the negative reputation of the past forced the industry to reform its practices state governments became involved with complaints about abusive sales strategies responding with legislation which is one reason free look periods exist example of the free look periodlet s say you live in texas and buy a variable life insurance policy two days after signing up you receive your executed policy documents in the mail your free look period begins when your receive those documents in texas you have 10 to 20 days to review the policy and decide whether you want to keep it two days later you brings your policy to your lawyer to review and you re advised to cancel the policy and go with another insurer instead you take your lawyer s advice and advise your insurer the next day that you want to cancel the policy the insurer is obliged under law to comply and you will be refunded your initial premium payment | |
what is a 30 day free look period | if a life insurance policy has a 30 day free look period it mean you have 30 days from when your policy starts to cancel the policy with no penalties the length of a free look period will vary by provider and by state can you cancel life insurance policy at any time you can cancel a life insurance policy at any time however if you cancel a policy after your free look period ends you will not have your premium refunded although you can receive your cash value in a lump sum minus any fees can you cancel a life insurance policy online you can cancel a life insurance policy by contacting the provider which you can usually do online by phone or by mail the exact cancellation process will depend on the type of life insurance you have and you may have to sign a lost policy release lpr form | |
when does a free look period begin | a free look period for a life insurance policy begins when you receive the policy or the day the policy is delivered check with the insurance company for what date they are considering as the delivery date the bottom linefree look periods provide you a time period to decide whether you want to keep your insurance policy if you decide to cancel your policy you can receive your premium refunded and you will not have to pay a penalty if you are in the process of buying life insurance check with your insurance provider to learn more about the specific terms of their first look policy | |
what is a free market | the free market is an economic system based on supply and demand with little or no government control one of the central principles of a free market is the concept of voluntary exchange which is defined as any transaction in which two parties freely trade goods or services free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions based on its political and legal rules a country s free market economy may range between very large or entirely illegal investopedia julie bangunderstanding free marketthe term free market is sometimes used as a synonym for laissez faire capitalism when most people discuss the free market they mean an economy with unobstructed competition and only private transactions between buyers and sellers however a more inclusive definition should include any voluntary economic activity so long as it is not controlled by coercive central authorities using this description laissez faire capitalism and voluntary socialism are each examples of a free market even though the latter includes common ownership of the means of production the critical feature is the absence of coercive impositions or restrictions regarding economic activity coercion may only take place in a free market by prior mutual agreement in a voluntary contract such as contractual remedies enforced by tort law the free market s connection with capitalism and individual libertyno modern country operates with completely uninhibited free markets that said the most free markets tend to coincide with countries that value private property capitalism and individual rights this makes sense since political systems that shy away from regulations or subsidies for individual behavior necessarily interfere less with voluntary economic transactions additionally free markets are more likely to grow and thrive in a system where property rights are well protected and capitalists have an incentive to pursue profits free markets and financial marketsin free markets a financial market can develop to facilitate financing needs for those who cannot or do not want to self finance for example some individuals or businesses specialize in acquiring savings by consistently not consuming all of their present wealth others specialize in deploying savings in pursuit of entrepreneurial activity such as starting or expanding a business these actors can benefit from trading financial securities such as stocks and bonds for example savers can purchase bonds and trade their present savings to entrepreneurs for the promise of future savings plus remuneration or interest with stocks savings are traded for an ownership claim on future earnings there are no modern examples of purely free financial markets common constraints on the free marketall constraints on the free market use implicit or explicit threats of force common examples include prohibition of specific exchanges taxation regulations mandates on specific terms within an exchange licensing requirements fixed exchange rates competition from publicly provided services price controls and quotas on production purchases of goods or employee hiring practices common justifications for politically imposed constraints on free markets include consumer safety fairness between various advantaged or disadvantaged groups in society and the provision of public goods whatever the outward justification business firms and other interest groups within society often lobby to shape these constraints in their own favor in a phenomenon known as rent seeking when free market behavior is regulated the scope of the free market is curtailed but usually not eliminated entirely and voluntary exchanges may still take place within the framework of government regulations some exchanges may also take place in violation of government rules and regulations on illegal markets which may be in some ways considered an underground version of the free market however market exchange is still heavily constrained because on an illegal market competition often takes the form of violent conflict between rival groups of producers or consumers as opposed to free market competition or rent seeking competition via the political system as a result in an illegal market competitive advantage tends to flow to those who have a relative advantage at violence so monopolistic or oligopolistic behavior is likely and barriers to entry are high as weaker players are driven out of the market measuring economic freedomin order to study the effects of free markets on the economy economists have devised several well known indexes of economic freedom these include the index of economic freedom published by the heritage foundation and the economic freedom of the world and economic freedom of north america indexes published by the fraser institute these indexes include items such as the security of property rights the burden of regulation and openness of financial markets among many other items empirical analysis comparing these indexes to various measures of economic growth development and standards of living shows overwhelming evidence of a relationship between free markets and material well being across countries | |
what are some examples of free market economies | most countries exhibit a combination of qualities from free market and command economies even those with limited government regulation still maintain some level of intervention countries that rank highly in indices of economic freedom based on factors related to free markets like low taxes and minimal regulations include singapore switzerland and ireland | |
what is the opposite of free market | the opposite of a free market is a planned economy or a command economy in such an economic system the government controls most or all of the means of production and distribution of wealth the government may also dictate prices of goods services and labor | |
what is an example of voluntary exchange in everyday life | examples of voluntary exchange abound in everyday life in the u s for instance you may go to a coffee shop every morning the owner of the store can freely choose how they would like to set their prices as a consumer you can freely able to choose whether or not to make a purchase the bottom linea free market is one where voluntary exchange and the laws of supply and demand are the basis for the economic system crucially a free market is defined by the absence of government control while no modern country has a completely free market those that have relatively free markets tend to value private property capitalism and individual liberties | |
what is a free market | the free market is an economic system based on supply and demand with little or no government control one of the central principles of a free market is the concept of voluntary exchange which is defined as any transaction in which two parties freely trade goods or services free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions based on its political and legal rules a country s free market economy may range between very large or entirely illegal investopedia julie bangunderstanding free marketthe term free market is sometimes used as a synonym for laissez faire capitalism when most people discuss the free market they mean an economy with unobstructed competition and only private transactions between buyers and sellers however a more inclusive definition should include any voluntary economic activity so long as it is not controlled by coercive central authorities using this description laissez faire capitalism and voluntary socialism are each examples of a free market even though the latter includes common ownership of the means of production the critical feature is the absence of coercive impositions or restrictions regarding economic activity coercion may only take place in a free market by prior mutual agreement in a voluntary contract such as contractual remedies enforced by tort law the free market s connection with capitalism and individual libertyno modern country operates with completely uninhibited free markets that said the most free markets tend to coincide with countries that value private property capitalism and individual rights this makes sense since political systems that shy away from regulations or subsidies for individual behavior necessarily interfere less with voluntary economic transactions additionally free markets are more likely to grow and thrive in a system where property rights are well protected and capitalists have an incentive to pursue profits free markets and financial marketsin free markets a financial market can develop to facilitate financing needs for those who cannot or do not want to self finance for example some individuals or businesses specialize in acquiring savings by consistently not consuming all of their present wealth others specialize in deploying savings in pursuit of entrepreneurial activity such as starting or expanding a business these actors can benefit from trading financial securities such as stocks and bonds for example savers can purchase bonds and trade their present savings to entrepreneurs for the promise of future savings plus remuneration or interest with stocks savings are traded for an ownership claim on future earnings there are no modern examples of purely free financial markets common constraints on the free marketall constraints on the free market use implicit or explicit threats of force common examples include prohibition of specific exchanges taxation regulations mandates on specific terms within an exchange licensing requirements fixed exchange rates competition from publicly provided services price controls and quotas on production purchases of goods or employee hiring practices common justifications for politically imposed constraints on free markets include consumer safety fairness between various advantaged or disadvantaged groups in society and the provision of public goods whatever the outward justification business firms and other interest groups within society often lobby to shape these constraints in their own favor in a phenomenon known as rent seeking when free market behavior is regulated the scope of the free market is curtailed but usually not eliminated entirely and voluntary exchanges may still take place within the framework of government regulations some exchanges may also take place in violation of government rules and regulations on illegal markets which may be in some ways considered an underground version of the free market however market exchange is still heavily constrained because on an illegal market competition often takes the form of violent conflict between rival groups of producers or consumers as opposed to free market competition or rent seeking competition via the political system as a result in an illegal market competitive advantage tends to flow to those who have a relative advantage at violence so monopolistic or oligopolistic behavior is likely and barriers to entry are high as weaker players are driven out of the market measuring economic freedomin order to study the effects of free markets on the economy economists have devised several well known indexes of economic freedom these include the index of economic freedom published by the heritage foundation and the economic freedom of the world and economic freedom of north america indexes published by the fraser institute these indexes include items such as the security of property rights the burden of regulation and openness of financial markets among many other items empirical analysis comparing these indexes to various measures of economic growth development and standards of living shows overwhelming evidence of a relationship between free markets and material well being across countries | |
what are some examples of free market economies | most countries exhibit a combination of qualities from free market and command economies even those with limited government regulation still maintain some level of intervention countries that rank highly in indices of economic freedom based on factors related to free markets like low taxes and minimal regulations include singapore switzerland and ireland | |
what is the opposite of free market | the opposite of a free market is a planned economy or a command economy in such an economic system the government controls most or all of the means of production and distribution of wealth the government may also dictate prices of goods services and labor | |
what is an example of voluntary exchange in everyday life | examples of voluntary exchange abound in everyday life in the u s for instance you may go to a coffee shop every morning the owner of the store can freely choose how they would like to set their prices as a consumer you can freely able to choose whether or not to make a purchase the bottom linea free market is one where voluntary exchange and the laws of supply and demand are the basis for the economic system crucially a free market is defined by the absence of government control while no modern country has a completely free market those that have relatively free markets tend to value private property capitalism and individual liberties | |
what is the free rider problem | the free rider problem is the burden on a shared resource that is created by its use or overuse by people who aren t paying their fair share for it or aren t paying anything at all the free rider problem can occur in any community large or small in an urban area a city council may debate whether and how to force suburban commuters to contribute to the upkeep of its roads and sidewalks or the protection of its police and fire services a public radio or broadcast station devotes airtime to fundraising in hopes of coaxing donations from listeners who aren t contributing understanding the free rider problemthe free rider problem is an issue in economics it is considered an example of a market failure that is it is an inefficient distribution of goods or services that occurs when some individuals are allowed to consume more than their fair share of the shared resource or pay less than their fair share of the costs free riding prevents the production and consumption of goods and services through conventional free market methods to the free rider there is little incentive to contribute to a collective resource since they can enjoy its benefits even if they don t as a consequence the producer of the resource cannot be sufficiently compensated the shared resource must be subsidized in some other way or it will not be created | |
when the free rider problem arises | the free rider problem as an economics issue only occurs under certain conditions economists point out that no business would voluntarily produce goods or services under these conditions when the free rider problem looms businesses back away either the shared resource will not be provided or a public agency must provide it using taxpayer funds as an economic issue the problem occurs when everyone can consume a resource in unlimited amounts no one can limit anyone else s consumption but someone has to produce and maintain the resource on the positive side some people in every community will demonstrate that they feel a responsibility to pay their fair share some combination of a high sense of trust positive reciprocity and a sense of collective duty makes them willing to pay their fair share beyond economicsthe free rider problem can crop up when the resource is shared by all and free to all like air if a community sets voluntary pollution standards that encourage all residents to cut back on carbon based fuels many will respond positively but some will refuse to make any change in their habits if enough follow the standards the air quality will improve and all the residents will benefit equally even the free riders investopedia sydney burnssolutions to the free riding problemcommunities that face a free riding problem may try any of several solutions | |
what is a free trade agreement fta | a free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them under a free trade policy goods and services can be bought and sold across international borders with little or no government tariffs quotas subsidies or prohibitions to inhibit their exchange the concept of free trade is the opposite of trade protectionism or economic isolationism investopedia julie bang | |
how a free trade agreement fta works | in the modern world free trade policy is often implemented by means of a formal and mutual agreement of the nations involved however a free trade policy may simply be the absence of any trade restrictions a government doesn t need to take specific action to promote free trade this hands off stance is referred to as laissez faire trade or trade liberalization governments with free trade policies or agreements in place do not necessarily abandon all control of imports and exports or eliminate all protectionist policies in modern international trade few free trade agreements ftas result in completely free trade the benefits of free trade were outlined in on the principles of political economy and taxation published by economist david ricardo in 1817 1for example a nation might allow free trade with another nation with exceptions that forbid the import of specific drugs not approved by its regulators animals that have not been vaccinated or processed foods that do not meet its standards it might also have policies in place that exempt specific products from tariff free status in order to protect home producers from foreign competition in their industries in principle free trade on the international level is no different from trade between neighbors towns or states however it allows businesses in each country to focus on producing and selling the goods that best use their resources while other businesses import goods that are scarce or unavailable domestically that mix of local production and foreign trade allows countries to experience faster growth while better meeting the needs of their consumers this view was first popularized in 1817 by economist david ricardo in his book on the principles of political economy and taxation he argued that free trade expands the diversity and lowers the prices of goods available in a nation while better exploiting its homegrown resources knowledge and specialized skills 1free trade modelsprior to the 1800s global trade was dominated by the theory of mercantilism this theory placed priority on having a favorable balance of trade relative to other countries and accumulating more gold and silver in order to attain a favorable balance of trade countries would often place trade barriers like taxes and tariffs to discourage their residents from purchasing foreign goods this incentivized consumers to purchase locally made products thereby supporting domestic industries ricardo introduced the law of comparative advantage which states that countries can attain the maximum benefits through free trade ricardo demonstrated that if countries prioritize producing the goods that they can produce more cheaply than other countries i e where they have a comparative advantage they will be able to produce more goods in total than they would by limiting trade 2advantages and disadvantages of free tradefree trade has allowed many countries to attain rapid economic growth by focusing on exports and resources where they have a strong comparative advantage many countries have been able to attract foreign investment capital and provide relatively high paying jobs for local workers for consumers free trade creates a competitive environment where countries strive to provide the lowest possible prices for their resources this in turn allows manufacturers to provide lower prices for finished goods ultimately increasing the buying power for all consumers however there are economic losers when a country opens its borders to free trade domestic industries may be unable to compete with foreign competitors causing local unemployment large scale industries may move to countries with lax environmental and labor laws resulting in child labor or pollution free trade can also make countries more dependent on the global market for example while the prices of some goods may be lower in the world market there are strategic benefits for a country that produces those goods domestically in the event of a war or crisis the country may be forced to rebuild these industries from scratch allows consumers to access the cheapest goods on the world market allows countries with relatively cheap labor or resources to benefit from foreign exports under ricardo s theory countries can produce more goods collectively by trading on their respective advantages competition with foreign exports may cause local unemployment and business failures industries may relocate to jurisdictions with lax regulations causing environmental damage or abusive labor practices countries may become reliant on the global market for key goods leaving them at a strategic disadvantage in times of crisis public opinion on free tradefree trade divides economists and the general public research suggests that economists in the u s support free trade policies at significantly higher rates than the general public 3in fact the american economist milton friedman said the economics profession has been almost unanimous on the subject of the desirability of free trade 4free trade policies have not been as popular with the general public the key issues include unfair competition from countries where lower labor costs allow price cutting and a loss of good paying jobs to manufacturers abroad the call on the public to buy american may get louder or quieter with the political winds but it never goes silent not surprisingly the financial markets see the other side of the coin free trade is an opportunity to open another part of the world to domestic producers moreover free trade is now an integral part of the financial system and the investing world american investors now have access to most foreign financial markets and to a wider range of securities currencies and other financial products however completely free trade in the financial markets is unlikely in our times there are many supranational regulatory organizations for world financial markets including the basel committee on banking supervision the international organization of securities commission iosco and the committee on capital movements and invisible transactions examples of free trade agreementsthe european union is a notable example of free trade today the member nations form an essentially borderless single entity for the purposes of trade and the adoption of the euro by most of those nations smooths the way further 56it should be noted that this system is regulated by a central bureaucracy that must manage the many trade related issues that come up between representatives of member nations 7the united states currently has a number of free trade agreements in place these include multi nation agreements such as the united states mexico canada agreement usmca which covers canada and mexico and the central america dominican republic free trade agreement cafta dr which includes costa rica the dominican republic el salvador guatemala honduras and nicaragua there are also separate trade agreements with nations from australia to peru 8910collectively these agreements mean that about half of all industrial goods entering the u s come in free of tariffs according to government figures the average import tariff on industrial goods is 2 11all these agreements collectively still do not add up to free trade in its most laissez faire form american special interest groups have successfully lobbied to impose trade restrictions on hundreds of imports including steel sugar automobiles milk tuna beef and denim | |
why were free trade zones created in china | starting in 2013 china began establishing free trade zones around key ports and coastal areas these were areas where national regulations were relaxed in order to facilitate foreign investment and business development 12 | |
what is a free trade area | a free trade area is a group of countries that have agreed to mutually lower or eliminate trade barriers for trade within the area this allows participating countries to benefit from reduced tariffs while maintaining their existing protections for trade with countries outside of the area | |
what are the arguments against free trade | opponents often assert that free trade invites foreign competition with domestic industries causing job loss and harming key industries in some cases free trade causes manufacturers to move their operations to countries with fewer regulations rewarding companies that cause pollution or use abusive labor practices in other cases countries with weak intellectual property laws may steal technology from foreign companies the bottom linefree trade refers to policies that permit inexpensive imports and exports without tariffs or other trade barriers in a free trade agreement a group of countries agrees to lower their tariffs or other barriers to facilitate more exchanges with their trading partners this allows all countries to benefit from lower prices and access to one another s resources | |
what is a free trade area | a free trade area is a region in which several countries sign a free trade agreement and maintain little to no barriers to trade in the form of tariffs or quotas among one another free trade areas facilitate international trade and any associated gains along with the international division of labor and specialization these deals are highly criticized for costs associated with increasing economic integration and for artificially restraining free trade 1understanding free trade areascontrary to what it sounds like a free trade area isn t necessarily a physical location rather it is an agreement between a group of countries that put up few or no barriers to trade in the form of tariffs or quotas among them free trade areas tend to increase the volume of international trade among member countries and allow them to increase their specialization in their respective comparative advantages to develop a free trade area participating nations must set rules for how it will operate they must address the following questions | |
how these questions are answered in a specific free trade agreement tends to be based on political influences within and power relations among countries this shapes the degree of how free the trade is and its scope the goal is to create a trade policy upon which all participating countries can feasibly agree | benefits of free trade areasthe benefits of free trade areas include providing consumers with increased access to less expensive and or higher quality foreign goods and the lowering of prices as governments reduce or eliminate tariffs producers can acquire a greatly expanded market of potential customers or suppliers free trade areas can also encourage economic development in countries as a whole benefiting some of the population through increased living standards free trade is favored by some advocates of free market economics because they say it improves efficiency and innovation by encouraging competition they also suggest that it promotes fairness in the markets and economy as it eliminates monopolies that can hurt consumers this lowers the barriers to entry for new competitors 2the history of international trade agreements is a long one but the current general acceptance of free trade agreements dates to the bretton woods conference in the aftermath of world war ii 3criticism of free trade areascritics argue that free trade areas can hurt the economies of participating countries and to some extent the global economy for instance certain workers may lose jobs and face related hardships as production moves to areas where comparative advantage or home market effects make those industries less costly to run and more efficient overall some investments in fixed physical and human capital will end up losing value or as entirely sunk costs producers may struggle with increased competition this can lead to a deterioration of workplace environments especially if companies look for cheap labor by outsourcing jobs in developing nations other drawbacks include making an economy too dependent on just a few products preventing the growth of infant industries that need economic protection endangering security if a country becomes too dependent on imports of vital resources and forcing countries to lower environmental standards to compete 4president donald trump was highly critical and moved the country away from free trade agreements instituting tariffs as a form of economic warfare president biden and his administration have not rescinded trump s tariffs despite calls to do so 5example of free trade areasthe united states participates in 14 free trade areas with 20 countries 6 one of the best known and largest free trade areas was created by the signing of the north american free trade agreement nafta on jan 1 1994 this agreement signed by canada the united states and mexico encouraged trade among these north american countries 7these three countries replaced nafta with the united states mexico canada agreement usmca in 2018 it went into effect on july 1 2020 8 the u s also participates in the central american free trade area dominican republic cafta dr which includes the dominican republic costa rica el salvador nicaragua honduras and guatemala 9 individual agreements are in place between the u s and australia bahrain chile colombia panama peru singapore israel jordan korea oman and morocco 6the u s began negotiations in march 2010 for the trans pacific partnership tpp to create a high standard broad based regional pact for a regional asia pacific trade agreement however trump pulled the u s out of the agreement on jan 30 2017 one of his first official acts the agreement proceeded without the u s as a participant 10the transatlantic trade and investment partnership t tip was intended as a companion to tpp by creating an agreement with the european union eu 11 the agreement fell through in 2016 after greenpeace leaked 248 classified pages from the negotiations 1213 although no free trade agreement exists between the eu and the u s a reduction of tariffs in august 2020 was announced to increase market access for hundreds of millions of dollars in u s and eu exports 14 | |
what is a free trade area | a free trade area is an agreement formed by a group of like minded countries that agree to reduce trade barriers such as tariffs and quotas among others it encourages international trade among the member countries | |
what are the advantages of a free trade area | the advantages include greater access to low priced high quality goods lower prices overall greater efficiency and innovation in production increased economic development and living standards and overall economic growth | |
what are the disadvantage of a free trade area | it can cause jobs to migrate to a country where the cost of production is lower harm the growth of nascent industries that are just beginning to develop allow an economy to become dependent on too few products endanger security if a country becomes dependent on the importation of a vital resource and lead to reduced environmental standards due to the need to compete with other countries that have lower standards the bottom linea free trade area is an agreement among a group of nations to reduce or eliminate trade barriers such as quotas or tariffs there are potential advantages as well as disadvantages for a member nation including improved access to high quality low priced goods and increased economic development on the plus side and job migration out of a country as well as developing a dependence on two few goods on the down side the u s currently participates in 14 free trade areas with 20 different countries | |
what is freemium | a combination of the words free and premium freemium is a type of business model that offers basic features of a product or service to users at no cost and charges a premium for supplemental or advanced features a company using a freemium model provides basic services on a complimentary basis often in a free trial or limited version for the user while also offering more advanced services or additional features at a premium understanding freemiumunder a freemium model a business gives away services at no cost to the consumer as a way to establish the foundation for future transactions by offering basic level services for free companies build relationships with customers eventually offering them advanced services add ons enhanced storage or usage limits or an ad free user experience for an extra cost the freemium model tends to work well for internet based businesses with small customer acquisition costs but high lifetime value it allows users to utilize basic features of a software game or service for free then charges for upgrades to the basic package it is a popular tactic for companies just starting out as they try to lure users to their software or service since the 1980s freemium has been common practice with many computer software companies they offer basic programs that are free for consumers to try but have limited capabilities to get the full package you have to upgrade and pay a charge it is a popular model for gaming companies as well all people are welcome to play the game for free but special features and more advanced levels are only unlocked when the user pays for them freemium games and services can catch users off guard as they may not be aware of how much they or their kids are spending on the game since payments are made in small increments the term freemium is attributed to jarid lukin of alacra a provider of corporate information and workflow tools who coined it in 2006 1advantages and disadvantages of freemiumfreemium business models are popular and have the advantage of acquiring a large set of initial users under a pressure free trial especially when there s no cost associated with trying out an app or a service most people are willing to take a new app or service for a spin giving the company an easy way to acquire potential users and study their usage behavior in many cases companies still benefit from their free users though these users may not be explicitly purchasing upgrades or items the company can collect their user information and data show them ads to make revenue and boost their own business numbers to continue to enhance the application especially for startups or companies that are trying to build a following for their product the freemium model brings a large amount of brand awareness while not having to provide a lot of customer support on the flip side some of the disadvantages of the freemium model are that free users never convert to paid users ultimately though some companies are perfectly happy with their free users and have accounted for these free users to make up a majority of their forecasted earnings through their ad consumption or time spent on the app they may offer too many features on the free version that prevents users from ever upgrading to the premium version in addition users may eventually get tired of a free version as it doesn t offer additional bells and whistles but encounter other barriers or an unwillingness to upgrade to the premium version companies can easily acquire potential users and collect their user information and data companies can make revenue on ads and boost their own business numbers to enhance the application for startups it provides a large amount of brand awareness without requiring a lot of customer support free users never convert to paid users too many features on the free version may prevent users from upgrading to a premium version users may get tired of a free version that doesn t offer additional bells and whistles | |
how to convert a free user to a paid user | converting a free user to a paid one is at the crux of many businesses dilemmas especially when a business s longevity is hinging on converting users there can be additional pressure to upsell their free users and make a larger profit margin off them ultimately for the freemium model to work and move people along to more expensive plans companies must do a mix of the following examples of freemiumspotify is one of the best known companies with a highly successful freemium model the online music streaming service boasts an impressive 615 million users and 239 million of those users are paid subscribers 2while users of the free version of spotify are able to access all the same music as premium users they have to listen to ads and have a limited number of skips on songs they want among other drawbacks for some these limitations don t pose a challenge but for music aficionados who want more control and higher audio quality paying for the premium version is well worth the price another example of a company that uses the freemium business model is skype the firm that allows you to make video or voice calls over the internet there s no cost to set up a skype account the software can be downloaded for free and there s no charge for their basic service calling from a computer or a cellphone or tablet to another computer but for more advanced services such as placing a call to a landline or a mobile phone you do have to pay albeit a small amount compared to conventional phone company charges 3a third employer of the freemium model one of the earliest to do so is king the developer of the highly popular internet game candy crush saga the addictive activity available on the king com site on facebook and on apps is free to play it allows users an allotted number of lives within a certain time frame but charges for extra lives if someone wants to play more during that window users also can pay for boosters or extra moves to help win the levels and advance through the game more easily 4 | |
is a free trial the same as a freemium | free trials and freemiums are slightly different free trials are typically time bound and only allow a user to test out a few parts of a product or service meanwhile freemium models allow their free users to access the full application indefinitely | |
do freemiums increase the number of customers | freemium models lower new users barriers to entry increasing a business s number of total customers by allowing some to test out a limited version of the product without financial commitment | |
which companies use freemium | many companies use freemium models including spotify dropbox hinge slack and asana can freemium lead to a loss of income theoretically businesses with freemium models can lose money if their conversion rate to premium users is too low the bottom linefreemium is a type of business model that offers basic features of a product or service to users at no cost and charges a premium for supplemental or advanced features | |
what is a frequency distribution | a frequency distribution is a representation either in a graphical or tabular format that displays the number of observations within a given interval the frequency is how often a value occurs in an interval while the distribution is the pattern of frequency of the variable the interval size depends on the data being analyzed and the goals of the analyst the intervals must be mutually exclusive and exhaustive frequency distributions are typically used within a statistical context generally frequency distributions can be associated with the charting of a normal distribution understanding a frequency distributionas a statistical tool a frequency distribution provides a visual representation of the distribution of observations within a particular test analysts often use a frequency distribution to visualize or illustrate the data collected in a sample for example the height of children can be split into several different categories or ranges in measuring the height of 50 children some are tall and some are short but there is a high probability of a higher frequency or concentration in the middle range the most important factors for gathering data are that the intervals used must not overlap and must contain all of the possible observations to calculate frequency distribution visual representation of a frequency distributionboth histograms and bar charts provide a visual display using columns with the y axis representing the frequency count and the x axis representing the variable to be measured in the height of children for example the y axis is the number of children and the x axis is the height the columns represent the number of children observed with heights measured in each interval in general a histogram chart will typically show a normal distribution which means that the majority of occurrences will fall in the middle columns frequency distributions can be a key aspect of charting normal distributions that show observation probabilities divided among standard deviations frequency distributions can be presented as a frequency table a histogram or a bar chart below is an example of a frequency distribution as a table frequency distribution in tradingfrequency distributions are not commonly used in the world of investments however traders who follow richard d wyckoff a pioneering early 20th century trader use an approach to trading that involves frequency distribution investment houses still use the approach which requires considerable practice to teach traders the frequency chart is referred to as a point and figure chart and was created out of a need for floor traders to take note of price action and to identify trends 2the y axis is the variable measured and the x axis is the frequency count each change in price action is denoted in xs and os traders interpret it as an uptrend when three xs emerge in this case demand has overcome supply in the reverse situation when the chart shows three os it indicates that supply has overcome demand 2 | |
what are the types of frequency distribution | the types of frequency distribution are grouped frequency distribution ungrouped frequency distribution cumulative frequency distribution relative frequency distribution and relative cumulative frequency distribution | |
what is the importance of a frequency distribution | a frequency distribution is a means to organize a large amount of data it takes data from a population based on certain characteristics and organizes the data in a way that is comprehensible to an individual who wants to make assumptions about a given population | |
how can i construct a frequency distribution | to construct a frequency distribution first note the specific classes determined by intervals in one column then sum the numbers in each isolated category based on how many times it shows up the frequency can then be noted in the second column the bottom linea frequency distribution is used to display the number of observations within a particular interval this method while not always commonly used in investing is still used by some traders in this case the frequency chart is called a point and figure chart and is used to identify trends through the observation of price action | |
what is freudian motivation theory | freudian motivation theory posits that unconscious psychological forces such as hidden desires and motives shape an individual s behavior like their purchasing patterns this theory was developed by sigmund freud who in addition to being a medical doctor is synonymous with the field of psychoanalysis understanding freudian motivation theoryfreudian motivation theory is frequently applied to a number of disciplines including sales and marketing to help understand the consumer s motivations when it comes to making a purchasing decision more precisely freud s theory has been applied to the relationship between the qualities of a product such as touch taste or smell and the memories that it may evoke in an individual recognizing how the elements of a product trigger an emotional response from the consumer can help a marketer or salesperson understand how to lead a consumer toward making a purchase the freudian motivation theory explains the sales process in terms of a consumer fulfilling conscious functional needs such as blinds to cover a window as well as unconscious needs such as the fear of being seen naked by those outside a salesperson trying to get a consumer to purchase furniture for example may ask if this is the first home that the consumer has lived in on their own if the consumer indicates yes this may prompt the salesperson to mention how the furniture is warm or comfortable triggering a feeling of safety freudian motivation theory tenetsfreud believed that the human psyche could be divided into the conscious and unconscious mind the ego the representation of the conscious mind is made up of thoughts memories perceptions and feelings that give a person their sense of identity and personality the id which represents the unconscious mind is the biologically determined instincts that someone possesses since birth and the superego represents the moderating factor of society s traditional morals and taboos as seen in the fact that not every person acts on impulse these ideas can help market researchers determine why a consumer has made a particular purchase by focusing on their conscious and unconscious motivations as well as the weight of societal expectations freudian motivation theory put to use | |
what is frictional unemployment | frictional unemployment is a type of short term unemployment that occurs when workers look for new employment or transition out of old jobs and into new ones this temporary period of unemployment is the result of voluntary transitions within an economy it stands in contrast with structural unemployment which stems from economic shifts that make it difficult for workers to find work frictional unemployment can be evident in a growing stable economy and is regarded as a part of natural unemployment the minimum unemployment rate in an economy due to economic forces and the movement of labor the frictional unemployment rate is calculated by dividing the workers actively looking for jobs by the total labor force the workers actively looking for jobs are typically classified into three categories workers who left their job people returning to the workforce and new entrants causes of frictional unemploymentrecent graduates from school and other first time job seekers may lack the resources or efficiency for finding a company that has an available and suitable job for them as a result they don t take on other work temporarily holding out for better paying jobs temporary transitions such as moving to another town or city will also add to frictional unemployment as there is often a gap in time between when workers quit their job and when they find a new ones workers quitting their job to look for better pay add to frictional unemployment in other cases workers may resign from their job to go back to school or learn a new skill because they believe they need the skill to earn more income others might leave the workforce for personal reasons such as to care for a family member sickness retirement or pregnancy when the workers return to the workforce to look for a job they re counted as part of frictional unemployment the phenomenon of people quitting their job without having another one to move into to is an indication that they believe the economy is robust enough to not fear unemployment in recent years it s become a closely tracked indicator of consumer confidence called the quit rate this phenomenon is also more likely to occur when individuals have had time to build up their savings having resources on hand to handle months of unemployment unemployment benefits paid by the government can sometimes lead to frictional unemployment because the income allows workers to be selective in finding their next job further adding to their time unemployed it can also occur due to companies abstaining from hiring because they believe there are not enough qualified individuals available for the job frictional unemployment can be a positive sign that workers are voluntarily seeking better positions providing businesses with a wider array of qualified potential employees impact of frictional unemploymentlike all other forms of unemployment there are downstream implications that impact companies and management when frictional unemployment is high employers may find it difficult to retain talent frictional unemployment often means workers may be comparing different offers waiting for strong opportunities and requiring investment from their company to be retained frictional unemployment also tends to mean the economy is doing well employees are more willing to seek better opportunities when there are more opportunities to browse this likely occurs when the economy is fully functioning and companies have a larger number of open positions last frictional unemployment may have implications on how people live their lives friction unemployment indicates that people may be inspired to seek out other work opportunities similarly to how covid 19 may have put certain work tendencies in perspective for some friction unemployment may mean that people are more concerned about a greater purpose and seeking better livelihoods advantages of frictional unemploymentfrictional unemployment always exists in an economy with a free moving labor force and is beneficial because it s an indicator that individuals are seeking better positions by choice it also helps businesses because it gives them a wider selection of potentially highly qualified candidates applying for positions it is short term and thus does not place much of a drain on government resources frictional unemployment is reduced by quickly matching prospective job seekers with job openings thanks to the internet workers can use social media and job posting websites to search for jobs which can lead to quicker turnaround times in getting hired frictional unemployment vs other types of unemploymentfrictional unemployment is not as worrisome as cyclical unemployment which is predominant in a recession and caused by businesses laying off employees in a recession with unemployment rising frictional unemployment actually tends to decline because workers are usually afraid to leave their jobs to look for a better one seasonal unemployment is the situation where workers are unemployed during certain times of the year as a result of decreasing demand as seasons change and demand fluctuates certain jobs return seasonal unemployment often doesn t last as the peak season often means many workers become employed once again structural unemployment is a more serious form of unemployment this type of unemployment occurs when there are fundamental structural changes to the economy such as changing industries for example consider how environmentally friendly solutions have replaced less eco friendly options as consumer demand changes to green solutions jobs from less desirable industries begin to close as of november 2022 the united states unemployment rate was 3 7 1frictional unemployment and economic stimulusfrictional unemployment is the only form of unemployment that is largely unaffected by economic stimulus from the government for example during bad economic times the federal reserve bank might lower interest rates to encourage borrowing the hope is that the added money will spur spending by consumers and businesses leading to growth and a reduction in unemployment however added money doesn t address the causes of frictional unemployment except perhaps in giving some workers the courage to become unemployed while searching for a new job still as noted above a challenging economic landscape would probably forestall such a choice | |
what is the main cause of frictional unemployment | frictional unemployment is mainly caused by voluntary conversions to new jobs within a highly functioning economy frictional unemployment is often caused by people willingly step aside from their job to seek jobs with better pay opportunity or work life balance | |
why is frictional unemployment a problem | frictional unemployment may be difficult on employers as employees are more willing to voluntarily step aside from their jobs companies must be mindful to invest resources in top performers else those individuals are likely to look for other opportunities on the other hand frictional unemployment may also be difficult on job seekers because more people are voluntarily looking for a job there may be more competition that makes it more difficult for workers to find new roles | |
what is the difference between frictional and cyclical unemployment | cyclical employment is the natural ebb and flow of the economy as the economy develops more jobs are created and more workers are employed as the economy cools those jobs may be eliminated and cyclical unemployment occurs on the other hand frictional unemployment occurs usually when the economy is doing well frictional unemployment is when workers voluntarily seek out other opportunities to better their lives and careers the bottom linefrictional unemployment is a natural economic occurrence that happens when the economy is usually doing well workers decide it may be time to seek better opportunities return to school care for family or simply improve their lives outside of work frictional unemployment is still problematic to the economy though it is not as permanent as structural or cyclical unemployment | |
friedrich engels was a german philosopher writer and social scientist during the 19th century known for his collaboration with karl marx friedrich engels helped define modern communism friedrich engels is the co author of the communist manifesto an 1848 pamphlet regarded as one of the world s most influential political documents engels died on aug 5 1895 in london england | investopedia alex dos diazearly life and educationfriedrich engels was born on nov 20 1820 in barmen prussia today s germany he was the eldest son of a wealthy textile manufacturer at age 17 engels traveled to manchester england to learn the family business at the ermen engels cotton plant although raised in a family environment of moderate political views and steadfast loyalty to prussia and the protestant faith friedrich engels developed a sense of cynicism toward major institutions like religion and capitalism his ideology would later become a theme of his publications 1the bremen yearsafter his apprenticeship in manchester friedrich engels worked in the export trade business and lived in the city of bremen prussia from 1838 to 1841 the bremen years marked the start of his career in journalism politics and economics where he wrote under the pseudonym of friedrich oswald he was involved in social reform and the literary movement of a young germany for three years in bremen friedrich engels lived a double life one as a merchant s clerk and that of an anonymous journalist commentator and intellectual 2passionate about education engels reportedly boasted to his sister that he knew 24 languages 1meeting marxin 1841 engels enlisted as a volunteer for one year in an artillery regiment in berlin while in the city he attended lectures at the university and his friedrich oswald articles gained him entry into the young hegelian circle of the free a club frequented by karl marx the young or left hegelians were considered radical followers of georg wilhelm friedrich hegel a german idealist between the late 1830s and the mid 1840s they flourished between the french revolution in 1830 and a wave of revolutions that swept europe in 1848 the young hegelians were both the product and the producers of the potent mixture of religion philosophy and politics that fermented in germany during that period karl marx and friedrich engels would become leaders of this revolutionary group 3socialismlife as a young hegelian at berlin university and time spent at his family mill in manchester england strengthened engels skeptical view of capitalism his support of socialism where resources and means of production are commonly or publicly owned to create a more equal society grew 4after witnessing the uneven distribution of wealth gained during the industrial revolution in manchester engels recalled women made unfit for childbearing children deformed men enfeebled limbs crushed whole generations wrecked afflicted with disease and infirmity purely to fill the purses of the bourgeoisie in his 1845 book the condition of the working class in england he noted that urban planning how city space was socially and economically constructed to support capitalism at the time was an arena ripe for class conflict and revolution 5the communist manifestoengels believed that capitalism created and maintained class struggles between the bourgeoisie the business owners and the proletariat the working class marx s theory or marxism represented the recognition of this imbalance and defined ideas to create a political and economic landscape without class structure 6the communist manifesto published in 1848 represents the converging ideas of freidrich engels and karl marx and formed the basis for the modern communist movement written at a time of industrial and social change cities were expanding with large proportions of the population moving from the countryside to urban areas to find employment economic growth was dependent on this workforce often exploited by employers engels and marx argued that a series of class struggles would destroy capitalism and be replaced by socialism followed by communism the document encouraged revolution and its ideas reverberated with increasing force into the 20th century by 1950 nearly half the world s population lived under marxist governments 7das kapitalkarl marx published the first volume of das kapital in 1867 in london with financial support from friedrich engels translated as capital a critique of political economy the book argues that the motivating force of capitalism is in the exploitation of labor and marx wanted to create a theoretical foundation for the overthrow of capitalism 1legacyfriedrich engels worked with karl marks to lay the groundwork for the practice of communism where people live in social equilibrium without class distinction family structure religion or property their published works include the condition of the working class in england the communist manifesto the holy family and das kapital after karl marx died in 1883 engels served as the foremost authority on marx and completed two edits of das kapital he also wrote socialism utopian and scientific in 1880 the origin of the family private property and the state in 1884 and ludwig feuerbach and the outcome of classical german philosophy in 1888 for the remainder of his life friedrich engels corresponded extensively with german social democrats perpetuating the image of marx and fostering a degree of conformity among followers of their philosophy6 | |
what encouraged engels to write the condition of the working class in england | the book recounts engels experience while working in manchester england recalling the use of child labor environmental damage low wages bad conditions poor health and the high death rates among laborers | |
where are engels published works written as pseudonym friedrich oswald | thirty literary works that were published under engels pseudonym were found in bremen after engels passing and are preserved his pseudonym was not revealed until after his death 2 | |
what is a utopian socialist | contrary to friedrich engels and karl marx who both believed in necessary revolution utopian socialists believed that capitalists could be encouraged to surrender the means of production peacefully to the people through moral persuasion alone 8 | |
friedrich hayek was a famous economist well known for his numerous contributions to the field of economics and political philosophy hayek s approach mostly stems from the austrian school of economics and emphasizes the limited nature of knowledge he is particularly famous for his defense of free market capitalism and is remembered as one of the greatest critics of the socialist consensus | investopedia alex dos diazearly life and educationfriedrich hayek was born in vienna austria on may 8 1899 he attended the university of austria where he obtained doctorates in both law and political science in 1921 and 1923 respectively he also completed postgraduate work at new york university in 1924 1hayek founded the austrian institute for business cycle research and served as its director from 1927 to 1931 in 1931 he left to join the london school of economics lse as the tooke professor of economic science and statistics until 1950 after lse he took a position at the university of chicago as the professor of social and moral science up until 1962 from 1962 to 1968 he was a professor at the university of freiburg 1a world war i veteran hayek later said his experience in the war and his desire to help avoid the mistakes that ignited the war drew him into economics hayek lived in austria great britain the united states and germany and became a british subject in 1938 2notable accomplishmentsfriedrich hayek and gunnar myrdal each won the nobel prize in economic sciences in 1974 for their pioneering work in the theory of money and economic fluctuations and their penetrating analysis of the interdependence of economic social and institutional phenomena 1one of hayek s key achievements was his book the road to serfdom which he wrote out of concern for the general view in british academia that fascism was a capitalist reaction to socialism it was written between 1940 and 1943 the title was inspired by the french classical liberal thinker alexis de tocqueville s writings on the road to servitude the austrian school of economics was first developed in the late 19th century and focuses on the idea of using logic to discover economic laws the book was quite popular and was published in the united states by the university of chicago in 1944 which propelled it to even greater popularity than in britain at the instigation of editor max eastman the american magazine reader s digest also published an abridged version in april 1945 enabling the road to serfdom to reach a far wider audience than academics 31the book is widely popular among those advocating individualism and classical liberalism other published works by hayek include individualism and economic order john stuart mill and harriet taylor the pure theory of capital and the sensory order 1in 1984 hayek was appointed a member of the order of the companions of honour by queen elizabeth ii on the advice of prime minister margaret thatcher for his services to the study of economics he was the first recipient of the hanns martin schleyer prize in 1984 he also received the u s presidential medal of freedom in 1991 from president george h w bush 456 | |
what did friedrich hayek win the nobel prize for | friedrich hayek won the nobel prize in economic sciences for his work on the theory of money and economic fluctuations he won it in 1974 with gunnar myrdal 1 | |
what did friedrich hayek believe | friedrich hayek had many beliefs in relation to economics he was part of the austrian school of economics and believed in free market capitalism he also believed that free markets allowed for creativity innovation and entrepreneurship which are necessary for societies to bloom and citizens to prosper was friedrich hayek a capitalist friedrich hayek was a defender of free market capitalism and spoke out against many of the economic norms of the 20th century such as keynesian economics and socialism the bottom linehayek is considered a major social theorist and political philosopher of the 20th century his theory on how changing prices relay information that helps people determine their plans is widely regarded as an important milestone achievement in economics this theory is what led him to the nobel prize | |
what are fringe benefits | fringe benefits are additions to compensation that companies give their employees some fringe benefits are provided to all employees while others may be offered to executives only some benefits may include a company car paid time off or gym membership employers use fringe benefits to help them recruit motivate and retain high quality talent investopedia nono floresunderstanding fringe benefitscommon fringe benefits are basic items often included in hiring packages these include health insurance life insurance tuition assistance childcare reimbursement cafeteria subsidies below market loans employee discounts employee stock options and personal use of a company owned vehicle uncommon fringe benefits may fit the company profile petsmart and dogtopia both operate pet friendly workplaces ben jerry s rewards its workers with free ice cream 1 the companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits google s parent company alphabet provides free commuter bus service and a free gourmet cafeteria 2 microsoft gives 20 weeks of paid time off to new birth mothers and 12 weeks for other new parents 3tax considerationsby default fringe benefits are taxable unless they are specifically exempted recipients of taxable fringe benefits include the fair market value in their taxable income for the year the internal revenue service irs maintains a list called the tax guide to fringe benefits the list of fringe benefits excluded from income taxes includes 4all of these exemptions are subject to certain and often complex conditions for example achievement awards are only exempt up to a value of 1 600 for qualified plan awards and a value of 400 for non qualified plan awards 5qualified plan awards are open to all employees not just highly paid employees other exemptions are not available to highly compensated employees if the benefits are given to them but not rank and file employees these include employee discounts adoption assistance and dependent care assistance most but not all fringe benefits that are income tax exempt are also exempt from social security medicare and federal unemployment taxes 4the companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits valuing fringe benefitsany fringe benefit not named above or any of the benefits named above that does not conform to irs rules for exemption is taxable the exemption rules are complex also for example working condition benefits are taxable to the extent that they are for personal use if an employee is given a laptop the taxable income would be the percentage of the laptop s fair market value devoted to personal use if 80 of its use is personal the taxable income is 80 of the value of the computer in general fringe benefits are valued at fair market value this is the amount the employee would pay for the same benefit at retail | |
are fringe benefits taxable | any fringe benefit an employer provides is taxable and must be included in the recipient s pay unless the law expressly excludes it 4 | |
what is a cafeteria plan | a cafeteria plan refers to a suite of fringe benefits that allow employees to choose among them often these benefits will come out of pre tax dollars and may include insurance plans and retirement benefits the name cafeteria is used because it is akin to a menu of benefits that can be selected or passed over such as at a cafeteria buffet | |
is a lifetime achievement award given to an employee taxable | an achievement award may be excluded from taxation as a fringe benefit if it meets specific criteria for example it must be worth less than 1 600 and cannot be cash or cash equivalents such as a gift certificate or gift card it also cannot be stocks bonds or other securities the exclusion doesn t include vacations meals lodging and tickets to theater or sporting events 4the bottom linefringe benefits are additional incentives designed to attract and retain talent examples of fringe benefits are paid time off for specific occasions exercise areas or pet friendly work environments | |
what is the front end debt to income dti ratio | the front end debt to income dti ratio is a variation of the dti that calculates how much of a person s gross income is going toward housing costs if a homeowner has a mortgage the front end dti is typically calculated as housing expenses such as mortgage payments mortgage insurance etc divided by gross income back end dti sometimes called the back end ratio calculates the percentage of gross income going toward additional debt types such as credit cards and car loans you may also hear these ratios referred to as housing 1 and housing 2 or basic and broad respectively front end debt to income dti ratio formula and calculationthe dti is also known as the mortgage to income ratio or the housing ratio it may be contrasted with the back end ratio there s a specific formula for calculating front end debt to income ratio 1front end dti housing expenses gross monthly income 100 text front end dti left frac text housing expenses text gross monthly income right 100 front end dti gross monthly incomehousing expenses 100to calculate the front end dti add up your expected housing expenses and divide it by how much you earn each month before taxes your gross monthly income multiply the result by 100 and that is your front end dti ratio for instance if all your housing related expenses total 1 000 and your monthly income is 3 000 your dti is 33 | |
what is a desirable front end dti ratio | to qualify for a mortgage the borrower often must have a front end debt to income ratio of less than an indicated level paying bills on time having a stable income and having a good credit score won t necessarily qualify you for a mortgage loan in the mortgage lending world how far you are from financial ruin is measured by your dti simply put this is a comparison of your housing expenses and your monthly debt obligations versus how much you earn higher ratios tend to increase the likelihood of default on a mortgage for example in 2009 many homeowners had front end dtis that were significantly higher than average and consequently mortgage defaults began to rise in 2009 the government introduced loan modification programs in an attempt to get front end dtis below 31 3lenders usually prefer a front end dti of no more than 28 1 in reality depending on your credit score savings and down payment lenders may accept higher ratios although it depends on the type of mortgage loan however the back end dti is actually considered more important by many financial professionals for mortgage loan applications the maximum acceptable dti for qualified mortgages is 43 4front end dti vs back end dtithe main difference between front end debt to income ratio and debt to income ratio is how the two are calculated with the front end dti calculations are based solely on your housing expenses the back end dti however takes into account other financial obligations including back end debt to income ratio is more comprehensive in that it takes into all of your debt payments beyond housing a good back end dti ratio is typically no more than 33 to 36 1back end debt to income ratio can be used to qualify borrowers for other loans beyond mortgages including personal loans auto loans and private student loans | |
how lenders use front end dti ratio | lenders use both front end and back end debt to income ratios to determine your ability to repay a home mortgage loan a higher dti can signal to lenders that you might be stretched thin financially while a lower dti suggests that you have more disposable income each month that isn t going to debt repayment 1debt to income ratio is just one part of the puzzle however lenders can also look at your income assets and employment history to gauge your ability to repay a mortgage loan debt to income ratios can play a part in decision making for purchase loans as well as mortgage refinancing paying off credit cards student loans or other debts can improve your back end debt to income ratio and potentially increase the amount of home you re able to afford special considerations | |
what is front end debt to income ratio | front end debt to income ratio is a measure of how much of monthly income goes toward housing costs that includes mortgage payments property taxes homeowners insurance premiums and homeowners association fees if applicable 2 | |
what is a good debt to income ratio to buy a home | generally lenders look for a debt to income ratio of between 28 and 36 when qualifying a borrower for a mortgage 1 qualified mortgage loans however may allow a dti of up to 43 4 | |
how can i improve my debt to income ratio for a mortgage | some of the best ways to improve debt to income ratio include paying down revolving or installment debts reducing housing costs and increasing income a lower dti can increase the amount of home you may be able to afford when qualifying to mortgage a property the bottom lineprospective borrowers should do everything they can to keep their debt to income ratios low this shows potential creditors that the prospective borrower has a good relationship with debt and has a monetary cushion between their income and debt in order to absorb unforeseen expenses which greatly lessens the likelihood of default | |
what is a front end load | a front end load is a commission or sales charge applied at the time of the initial purchase of an investment the term most often applies to mutual fund investments but may also apply to insurance policies or annuities the front end load is deducted from the initial deposit or purchase funds and as a result lowers the amount of money actually going into the investment product front end loads are paid to financial intermediaries as compensation for finding and selling the investment which best matches the needs goals and risk tolerance of their clients so these are one time charges not part of the investment s ongoing operating expenses the opposite of a front end load is a back end load which is paid by deducting it from profits or principal when the investor sells the investment there are also other types of fund loading including level loads which charge an ongoing annual fee 1the basics of front end loadsfront end loads are assessed as a percentage of the total investment or premium paid into a mutual fund annuity or life insurance contract the percentage paid for the front end load varies among investment companies but typically falls within a range of 3 75 to 5 75 lower front end loads are found in bond mutual funds annuities and life insurance policies higher sales charges are assessed for equity based mutual funds mutual funds that carry front end loads are called load funds whether an investor pays a front end load depends on the type of shares in the fund that he owes class a shares also known as a shares typically carry a front end load generally the sales charge on a load mutual fund is waived if such a fund is included as an investment option in a retirement plan such as a 401 k 2 | |
when mutual fund investments and annuities were first introduced to the market investors were only able to access them through licensed brokers investment advisors or financial planners the front end load concept arose out of an effort to provide compensation for these go betweens and of course to encourage them to put clients into a particular product | nowadays individuals can often purchase products directly from the mutual fund company or insurance company the lion s share of the contemporary front end load goes to the investment company or insurance carrier that sponsors the product the remaining portion is paid to the investment advisor or broker who facilitates the trade some financial professionals argue that a front end load is the cost investors incur for obtaining an investment intermediary s expertise in selecting appropriate funds it could also be considered payment in advance for the expertise of a professional financial manager to oversee the client s money investments that assess a front end load do not charge an additional fee for redemption of shares previously purchased although trading fees may apply similarly the majority of front end load investments do not charge investors an additional sales charge when shares are exchanged for a different investment as long as the same fund family offers the new investment advantages of front end load fundsinvestors may opt to pay upfront fees for several reasons for instance front end loads eliminate the need to continually pay additional fees and commissions as time progresses allowing the capital to grow unimpeded over the long term mutual fund a shares the class that carries front end loads pay lower expense ratios than other shares pay 2 expense ratios are the annual management and marketing fees further funds that don t carry up front fees often charge an annual maintenance fee that increases along with the value of the client s money meaning the investor may wind up paying more in contrast front end loads are often discounted as the size of the investment grows lower fund expense ratiounimpeded principal growthdiscounted fees for larger investmentsless capital investedrequired longterm investment horizonnot optimal for short investment horizonsdisadvantages of front end load fundson the downside since front end loads are taken out of your original investment less of your money is going to work for you given the benefits of compounding less money at the outset has an impact on the way your money grows over the long term it may not matter but front end loaded funds are not optimal if you have a short investment horizon you won t have a chance to recoup the sales charge through realizing earnings over time also given the plethora of no load mutual funds available currently some financial advisors argue that no one should be paying any sales charges front back or ongoing real world examplemany companies offer mutual funds with varying loads to meet the investing style of any investor american funds growth fund of america agthx is an example of a mutual fund that carries a front end load to illustrate how the load works let s say an investor invests 10 000 in the agthx fund they will pay a front end load of 5 75 or 575 the remaining 9 425 is used to purchase shares of the mutual fund at the current share net asset value nav price 3 | |
what is the front office | the front office represents the customer facing division of a firm customer service sales and industry experts who provide advisory services are considered part of a firm s front office operations the functions of the front office often generate the majority of revenue for a firm understanding the front officefront offices became necessary components of customer service when shopping trolleys were first introduced in 1936 expanding firms and stores availability to consumers the meaning of the term front office evolved from addressing employees who dealt solely with customer satisfaction to applying to the most critical staffers in a company such as management and executives 1front office staffers typically have the most direct contact with clients however the front office is the reception and sales area of the business for many firms front office employees in the financial services industry are typically those experts who generate revenue for the company by providing direct client services such as wealth management the front office personnel of a company may include some of its lowest paid employees such as receptionists depending on the industry front office vs middle office vs back officemany firms are divided into three parts the front office the middle office and the back office the front office is responsible for performing sales and client service functions the middle office is responsible for managing risk and corporate strategy and the back office provides analysis technical and administrative support services 2the middle office and back office employees support the activities of the front office using this conceptual model the middle office personnel are tasked with ensuring that a company remains solvent and complies with regulations and ethical business practices these departments might include corporate strategy compliance and financial control for a financial services firm the back office includes administrative assistants human resources staff and accounting staff the it and technology departments are also critical to the success of the back office operations technology in the form of predictive analytics and algorithms plays a central role in a financial services firm special considerationsthe term front office has a more specific meaning in certain industries such as investment banking and hotels the term specifically refers to the area where customers first arrive at the establishment in the hotel industry this area is also called the reception area a receptionist is typically employed to work in the front office their role is to get in touch with the customers confirm their reservations and answer customer s questions front office usually describes a revenue generating role in investment banking there are two main areas of specialization within the front office investment banking and markets investment bankers advise organizations on mergers and acquisitions m a as well as a wide array of capital raising strategies individuals employed in market type roles within the front office of an investment bank typically perform sales and trading activities or research activities |
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