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how does globalization impact society | globalization has had a large impact on societies around the world leading to massive migrations from rural to industrial or urban areas and to the rapid growth of cities and trade hubs while this has meant an overall increase in incomes and a higher standard of living in general it has also led to problems such as crime domestic violence homelessness and poverty concepts of national identity national or regional culture and consumption patterns also change as goods from around the world become increasingly available and at low prices the competitiveness of global capitalism may also lead to more individualistic ideals that contradict the cultural orientations of certain more collectivist societies | |
what is an example of globalization | a simple example of globalization would be a car manufactured in the u s that sources parts from china japan south korea sri lanka and south africa the car is then exported to europe where it is sold to a driver who fills the car s gas tank with gasoline refined from saudi oil the bottom lineglobalization refers to the ongoing trend of increased interconnectivity of nations across the globe as enabled by advancements in transportation and information technology among others globalization is facilitated economically by free trade agreements which permit barrier free imports and exports across borders while globalization brings many advantages including lower prices and higher standards of living to some it also has drawbacks including wealth concentration and cultural homogeneity | |
what is globex | globex is an electronic trading platform the first of its kind when it launched in 1992 used for derivatives like futures options and commodity contracts across a wide range of asset classes developed for the chicago mercantile exchange cme cme globex as it is officially known operates continuously unrestricted by geographic borders or time zones globex trades constitute 90 of cme group s total volume nine out of every 10 trades in other words the platform offers access from more than 150 countries and foreign territories understanding globexglobex is an open access marketplace operating nearly 24 hours a day from sunday evening through late friday afternoon which allows participants to directly trade and view orders prices and other data in real time to access globex customers must have a cme group clearing firm relationship and cme group certified trading application cme group is the parent company of the chicago mercantile exchange cme along with several other major commodity exchanges including commodity exchange inc comex the new york mercantile exchange nymex and the chicago board of trade cbot the start of the cme globex session which usually occurs in the afternoon or evening generally marks the beginning of the next trading day for example orders entered during monday s evening session are dated for and cleared on tuesday there are brief 30 to 60 minute breaks depending on the asset class in between the close and re opening of each of the five daily sessions more than 17 million contracts trade daily on globex on average 1the development of globexaccording to twenty years of cme globex a 2012 cme group report the idea for globex first arose in 1987 as a low impact means of providing after hours market coverage for futures and options trading 2 the platform finally launched on june 25 1992 running off of technology and network infrastructure used by the news and wire service reuters it began with three currency products and one treasury note product but quickly expanded into other assets and even invented some for example the e mini s p 500 futures contract debuted in 1997 an instrument intended to be traded exclusively on globex other special e mini contracts include the fortune e 50 index futures an e mini currency contract and an e mini nasdaq 100 contract cme group instituted an open access policy for globex in 2000 allowing customers to trade directly in the system without having to go through a broker as a result business soared in 2002 the globex average daily volume exceeded 1 million contracts for the first time and in 2004 globex volume exceeded physical pit volume for the first time globex is partnered with other global exchanges including the dubai mercantile exchange and the korea exchange notably 2007 marked the first year the system s volume exceeded 1 billion contracts by 2012 the platform s 20th anniversary 84 of the volume of the cme group s various markets was via electronic trading on globex 2globex is now also a site for trading in assets in the sectors of agriculture in 2008 the kansas city board of trade and minneapolis grain exchange moved their products to it energy stock indices foreign exchange interest rates metals real estate and even the weather some futures and options products are traded solely on globex while others are traded in the physical pits via open outcry as well | |
what is glocalization | glocalization is a combination of the words globalization and localization the term is used to describe a product or service that is developed and distributed globally but is also adjusted to accommodate the user or consumer in a local market a common example would be cars that are sold worldwide but adjusted to meet local criteria such as emissions standards or what side the steering wheel is located it could also focus on more cultural aspects such as a global fast food chain offering geographically specific menu items that cater to local tastes 1often glocalization campaigns involve culturally friendly media and ad campaigns to encourage the acceptance of foreign products among a local audience understanding glocalizationglocalization is the adaptation of global and international products into the local contexts they re used and sold in the term was coined in the harvard business review in 1980 by sociologist roland robertson who wrote that glocalization meant the simultaneity the co presence of both universalizing and particularizing tendencies in regards to a particular product or service this means the adaptation of globally marketed products and services into local markets a global product or service something everyone needs and can get use out of may be tailored to conform to local laws customs or consumer preferences products that are glocalized are by definition going to be of much greater interest to the end user the person who ends up using the product this is because while it s something that everyone can use and has use for as a global product its localization makes it more specific to an individual their context and their needs while glocalization helps customize an international corporation s products to a particular culture or geography companies must also pay attention to the risk of perceived cultural appropriation special considerationsglocalization works for companies with decentralized authority structures and for companies that exist and compete in multiple different cultural contexts the process can be expensive and resource intensive but it often pays off for companies that practice it as it allows for greater access to a larger more culturally varied target market it also makes those companies more effective competitors in those markets if globalization was charged with cultural homogenization glocalization and multicultural organizations are something of an answer to it glocalization can be thought of as the opposite or the inverse of americanization sometimes called mcdonaldization too which is the influence that american culture and business have on another country s culture | |
what is meant by glocalization | glocalization is when an international corporation modifies some of its offerings in order to accommodate local consumer tastes or preferences it is a portmanteau of the words globalization and localization | |
what are some examples of glocalization | glocalization comes in many forms for instance in the u k car producers must build vehicles with the steering wheel on the right side instead of the left food items are also changed in different countries to fit local tastes mcdonald s corporation mcd and other fast food chains will often serve up versions of local fare along with the core menu of hamburgers and chicken products 2 brand image and marketing campaigns are also carried out in local languages and with local customs and cultural cues in mind | |
what is the difference between globalization and glocalization | globalization is the spread of products ideas and capital across international borders by corporations one criticism of globalization is that it can result in the homogenization of cultures and consumers around the world glocalization pays attention to local practices customs and culture to have these products better fit regional wants and needs the bottom lineglocalization efforts have produced mixed results for the larger economy in making global companies more effective competitors against domestic players glocalization should increase the quality of competition and drive down prices making goods more accessible however since glocalization is generally the practice of large multinational corporations driving the price down and taking a big share of the market the process can hurt smaller local businesses which struggle to compete with these corporations low costs of production this can result in less competition with the result of driving prices up 3 | |
what is gmbh | gmbh is an abbreviation of the german phrase gesellschaft mit beschr nkter haftung which means company with limited liability it s a suffix used after a private limited company s name in germany vs ag for aktiengesellschaft which is used to indicate a public limited company 1 gmbh is the equivalent of llc limited liability company used in the united states or ltd limited used in the united kingdom and is the most common form of incorporation in germany understanding gmbha limited company is one where shareholder liability is limited to the amount of their original investment and the shareholders are not responsible for the company s debts thus protecting their personal assets if the company becomes insolvent the difference between a private limited company and a public limited company is that the shares in a private limited company are not offered to the general public and are not traded on a public stock exchange the most common corporate legal entity in germany and austria is the limited liability company or gmbh under german law the minimum capital requirement for starting a private limited company is 25 000 euros 25 000 half of which must be available before registering the firm in the unternehmensregister or company register the central platform for saving legally relevant company data 2 this way the country ensures that only solvent entrepreneurs are able to start new companies during the period between the creation and the registration of the company business activities may commence making participating individuals personally liable however the company only becomes effective once it has been registered which usually takes up to three weeks at which point shareholders are protected from any personal liability 3the minimum capital requirement for starting a private limited company is 25 000 euros 25 000 half of which must be available before registering the firm requirements for gmbh | |
when a newly formed gmbh applies to germany s company register for registration of the firm s incorporation it must also appoint its first director and include a list of its shareholders a supervisory board is required if the company has more than 500 employees otherwise the company is run only by the managing directors who have the unrestricted proxy for the company 4 | there is no central corporate registry in germany instead a company is registered in a local court where the company s registered office is located or where the gmbh has its legal seat in 2008 a mini gmbh called unternehmergesellschaft ug was introduced to assist and encourage entrepreneurs with only a limited amount of capital the minimum capital requirement for unternehmergesellschaft is 1 euro 1 5 each year a ug is required to put aside at least 25 of its yearly net profit until its reserve capital reaches the statutory minimum of 25 000 at which point it may change its legal form to gmbh other versions of gmbhbesides the lower capital mini gmbh germany also allows for a gmbh co kg kommanditgesellschaft or limited partner designation and a ggmbh | |
what does gmbh stand for | gmbh is an abbreviation of the german phrase gesellschaft mit beschr nkter haftung which means company with limited liability | |
is gmbh the same as llc | gmbh is considered an equivalent of llc limited liability company which is used in the united states or ltd limited which is used in the united kingdom and is the most common form of incorporation in germany | |
what countries use gmbh | there are a few other countries besides germany that use gmbh and some variations austria uses gesmbh as well as gmbh both with the same meaning 1 switzerland also uses the gmbh designation germany austria and switzerland all have their own legal provisions for the gmbh designation in their respective countries | |
what is a go go fund | go go fund is a slang name for a mutual fund that has an investment strategy focused on high risk securities in an attempt to capture above average returns a go go fund s aggressive approach usually involves holding large positions in growth stocks growth stocks offer higher risks but also higher potential returns understanding go go fundsgo go funds entice investors by promising large abnormal returns created from shifting portfolio weights around speculative information they came into prominence in the 1960s in that decade investors flocked to the stock market in unprecedented numbers over the course of ten years investments in mutual funds more than doubled 1 by the end of the decade 31 million americans owned some form of stock 2 mutual funds had only recently become available to investors and many people wanted to capture a piece of the new and exciting financial markets enthusiastic investment in wall street contributed to a thriving bull market investors were extremely confident their investments would continue to grow this sometimes misplaced confidence contributed to the appeal of so called go go funds these funds may have provided some investors with superior profits but they also came with a great deal of risk in order to achieve high rates of return these funds often made speculative investments that did not always pan out special considerationswhile go go funds were quite popular during the booming market atmosphere of the 1960s they lost much of their shine in the years that followed after reaching a peak of 985 in december 1968 the market plummeted to 631 by may 1970 a drop of about 36 percent 2the mutual fund crash was an expensive reminder that growth was not the only important metric in fund management the prioritization of growth over risk created a sizeable dent in equity funds which would not return to the same levels until the 1980s 1in his book the go go years the drama and crashing finale of wall street s bullish 60s financial journalist john brooks argues the collapse was comparable to the stock market crash that ushered in the great depression because the stocks that were hardest hit included many popular and high profile offerings as measured by the performance of the stocks in which the novice investor was most likely to make his first plunges the 1969 1970 crash was fully comparable to that of 1929 2consequences of go go fundsgo go funds grew less popular after the stock market crashes of the 1970s as investors grew warier of speculative investments and promises of elevated returns after some notable cases the securities and exchange commission clarified rules about fraud and stock valuation that made it more difficult for go go funds to promise inflated returns 1 furthermore the shaky stock market following the go go years also contributed to a growing interest in investment diversification | |
what is a go shop period | a go shop period is a provision that allows a public company to seek out competing offers even after it has already received a firm purchase offer the original offer then functions as a floor for possible better offers the duration of a go shop period is usually about one to two months | |
how a go shop period works | a go shop period is meant to help a board of directors fulfill its fiduciary duty to shareholders and find the best deal possible go shop agreements usually give the initial bidder the opportunity to match any better offer the target company receives they also pay the initial bidder a reduced breakup fee if the target company is purchased by another suitor in an active mergers and acquisitions m a environment it may be reasonable to believe that other bidders may come forward however critics say go shop periods are cosmetic designed to give the board of directors the appearance of acting in the best interests of shareholders critics note that go shop periods rarely result in additional offers because they don t give other potential buyers enough time to perform due diligence on the target company historical data suggests a very small fraction of initial bids are cast aside in favor of new bids during go shop periods 1 go shop vs no shopa go shop period allows the company being acquired to shop around for a better offer the no shop period affords the acquiree no such option in the case of a no shop provision the company being acquired would have to pay a hefty breakup fee if it decides to sell to another company after the offer is made in 2016 microsoft announced it would buy linkedin for 26 2 billion 2 the tentative agreement between the two had a no shop provision if linkedin found another buyer it would have to pay microsoft a 725 million breakup fee 3 no shop provisions mean the company can t actively shop the deal that is the company cannot offer information to potential buyers initiate conversations with buyers or solicit proposals among other things however companies can respond to unsolicited offers as part of their fiduciary duty the status quo in many m a deals is to have a no shop provision criticism of go shop periodsa go shop period generally appears when the selling company is private and the buyer is an investment firm such as private equity they are also becoming more popular with go private transactions where a public company will sell via a leveraged buyout lbo however a go shop period rarely leads to another buyer coming in | |
what is goal based investing | goal based investing is a relatively new approach to wealth management that emphasizes investing with the objective of attaining specific life goals goal based investing gbi involves a wealth manager or investment firm s clients measuring their progress towards specific life goals such as saving for children s education or building a retirement nest egg rather than focusing on generating the highest possible portfolio return or beating the market understanding goal based investinggoal based investing differs from traditional investing in that its yardstick for success is how well the investor is able to meet their personal life goals rather than how well their investments perform against the market average in a given period consider an investor who is looking forward to retirement within a year and who therefore cannot afford to lose even 10 of their portfolio if the stock market plunges 30 in a given year and the investor s portfolio is down only 20 the fact that the portfolio has outperformed the market by 10 percentage points would offer scant comfort that investor needs to focus more on maintaining rather than growing wealth in order to reach their personal goal of affording retirement within a year goal based investing re frames success based on clients needs and goals if a client s main goals are to save for imminent retirement and fund the college education of young grandchildren an investment strategy would be more conservative for the former and relatively aggressive for the latter as an example the asset allocation for the retirement assets might be 10 equities and 90 fixed income while the asset allocation for the education fund may be 50 equities and 50 fixed income individual needs and goals rather than risk tolerance are what drive investing decisions made under the goal based framework the advantages of goal based investing include goal based investing after the great recessiongoal based investing has grown in popularity in the years after the great recession of 2008 09 as investors realized the extent to which chasing high returns could negatively impact long term wealth accumulation millions of hapless investors witnessed their net worth plunge dramatically in correlation with declines across nearly all major markets and a steep correction in u s housing prices several teams have worked to develop more holistic investment approaches in recent years the startup ellevest for example focuses on goal based investing strategies tailored to women ellevest has developed algorithms for wealth management over time that take into account fluctuations in women s incomes as they progress through their careers as well as the wage gap between men and women instead of aiming to outperform benchmarks like the s p 500 or russell 2000 ellevest first asks its investors to explain their personalities and life goals from there the team works to develop specific investment portfolios for each goal 1 | |
what is goal seeking | goal seeking is the process of finding the correct input value when only the output is known the function of goal seeking can be built into different kinds of computer software programs like microsoft excel understand goal seekinggoal seeking is a general term used to describe the process involved in figuring out your input value based on an already known output value the process involves using a specific operator in a formula which can be calculated using computer software goal seeking is one of the tools used in what if analysis on computer software programs a what if analysis is a process of changing values in microsoft excel cells to see how these changes will affect formula outcomes on the worksheet when you are goal seeking you are performing what if analysis on a given value or the output so in essence you would be creating a scenario by asking what if the output was x or basically a cause and effect situation for some of the more complex problems people will often use computer software a spreadsheet program like microsoft excel has a goal seeking tool built in it allows the user to determine the desired input value for a formula when the output value is already known this feature can help the user determine things like the interest rate a borrower needs to qualify for the input if she only knows how much she can afford to pay each month the output but there is one caveat to using goal seeking software it only works if there is one input value if you need to figure out two or more input values then it won t work if we take the example from above if you want to figure out the total amount of the loan and the monthly payment goal seeking software won t work you d probably need an add on in order to figure out multiple variables as mentioned above goal seeking software will only work if you already know the output value or the result but want to determine one input value here are some key steps you can follow if you want to use the goal seek feature in the program now you will have to determine the interest rate you can do this by using the goal seek function in excel and enter the values you already have example of goal seekinga goal seeking entrepreneur is someone who uses goal seeking to determine how they can reach their ultimate goals for example an entrepreneur may ask how much they will need to make per hour to gross 100 000 in a year they know their desired output value 100 000 and will therefore have to work back in order to figure out the optimum input that means they will have to determine how many hours they will be able to or is willing to work during the year and therefore how much they will earn for each hour to reach their goal | |
what is a godfather offer | a godfather offer is an irrefutable takeover bid made to a target company by an acquirer typically the offer is priced at an extremely generous premium compared with the target s prevailing share price making it difficult for the board of directors to reject the bid without angering shareholders and being accused of breaching their fiduciary duty a godfather offer is named after the francis ford coppola movie of the same title more specifically the name refers to the film s famous line i m gonna make him an offer he can t refuse this line has gone on to become one of the most celebrated quotations in cinema 1 | |
how a godfather offer works | in essence the idea of a godfather offer isn t so much an offer as a sly yet heavy handed demand do as i say or else of course the acquiring company isn t insinuating it will kill somebody if it doesn t get its way like marlon brando s character don corleone did in the movie however it is being aggressive and putting a targeted company that doesn t want to be purchased in an awkward vulnerable position | |
when a tender offer is made publicly inviting shareholders to sell their shares at a very favorable price the target s board of directors might have trouble voicing its resistance put it this way if the board doesn t want to sell and snubs the bid shareholders may initiate lawsuits or other forms of revolt against the target company for not performing its fiduciary duty of looking out for shareholders interests 2 | most godfather offers are heavy handed do as i say or else is cloaked in an offer a godfather offer is even harder for the target company s board to reject when its stock price has been flat or declining for an extended period of time in such scenarios it is even more likely that long time investors would jump at the opportunity to cash out at an elevated price example of a godfather offercompany a is a promising up and coming developer of new niche technologies its solutions could revolutionize how the world operates leading some larger companies to sniff around and inquire about taking it over company a s board of directors privately rebuffs all proposals claiming it has no interest in selling and handing over all its potential to another firm that strategy helps to keep the predators at bay for a few months until one of them turns hostile company c an industry juggernaut with significant financial resources eventually gets tired of company a s reluctance and responds by tabling a generous godfather offer directly to shareholders a bid of 70 per share is lodged representing a 75 premium on company a s current market price company a s board is livid and maintains it doesn t want to sell at any cost while the shareholders it is elected to represent voice support for the deal and refuse to take no for an answer suddenly things turn messy disgruntled shareholders engage in a proxy fight joining forces in an attempt to seize control and get the takeover approved they also threaten to sue the board for failing to act in their best interests | |
what is going concern | going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary this term also refers to a company s ability to make enough money to stay afloat or to avoid bankruptcy if a business is not a going concern it means it s gone bankrupt and its assets were liquidated as an example many dot coms are no longer going concern companies after the tech bust in the late 1990s investopedia eliana rodgersunderstanding going concernaccountants use going concern principles to decide what types of reporting should appear on financial statements companies that are a going concern may defer reporting long term assets at current value or liquidating value but rather at cost a company remains a going concern when the sale of assets does not impair its ability to continue operation such as the closure of a small branch office that reassigns the employees to other departments within the company accountants who view a company as a going concern generally believe a firm uses its assets wisely and does not have to liquidate anything accountants may also employ going concern principles to determine how a company should proceed with any sales of assets reduction of expenses or shifts to other products going concern is not officially included in the generally accepted accounting principles gaap but some instruction is included in the generally accepted auditing standards gaas 1going concern is an example of conservatism where entities must take a less aggressive approach to financial reporting red flags indicating a business is not a going concerncertain red flags may appear on financial statements of publicly traded companies that may indicate a business will not be a going concern in the future listing of long term assets normally does not appear in a company s quarterly statements or as a line item on balance sheets listing the value of long term assets may indicate a company plans to sell these assets a firm s inability to meet its obligations without substantial restructuring or selling of assets may also indicate it is not a going concern if a company acquires assets during a time of restructuring it may plan to resell them later sometimes one time events are enough to cause a company to go bankrupt consider how a single substantial lawsuit default on a loan or defective product can jeopardize the future of a company a company may not be a going concern based on the financial position on either its income statement or balance sheet for example a company s annual expenses may so vastly outweigh its revenue that it can t reasonably make a profit on the other hand a company may be operating at a profit buts its long term liabilities are coming due and not enough money is being made there are also a number of quantifiable measurable indicators that auditors use to measure going concern companies with low liquidity ratios high employee turnover or decreasing market share are more likely to not be a going concern companies can go bankrupt without ever having been a going concern issue going concern conditionsaccounting standards try to determine what a company should disclose on its financial statements if there are doubts about its ability to continue as a going concern in may 2014 the financial accounting standards board determined financial statements should reveal the conditions that support an entity s substantial doubt that it can continue as a going concern statements should also show management s interpretation of the conditions and management s future plans 2in general an auditor examines a company s financial statements to see if it can continue as a going concern for one year following the time of an audit conditions that lead to substantial doubt about a going concern include negative trends in operating results continuous losses from one period to the next loan defaults lawsuits against a company and denial of credit by suppliers 3in order for a company to be a going concern it usually needs to be able to operate with a significant debt restructuring or massive financing overhaul therefore it may be noted that companies that are not a going concern may need external financing restructuring asset liquidation or be acquired by a more profitable entity implications of going concernif a company receives a negative audit and may not be a going concern there are several implications first the company will now be seen as a declining investment opportunity companies that are not a going concern represent a significantly higher level of risk compared to other companies if a company is not a going concern the company may be revalued at the request of investors shareholders or the board this revaluation may be used to price the company for acquisition or to seek out a private investor there are often certain accounting measures that must be taken to write down the value of the company on the business s financial reports one of larger repercussions of not being a going concern are potential credit challenges if a company is not able to meet debt covenants its debt may be callable new lenders will likely be reluctant to issue new credit or any new credit issued will be prohibitively expensive this credit crunch may trickle down to suppliers who may be unwilling to sell raw materials or inventory goods on credit | |
is a going concern good or bad | a going concern is often good as it means a company is more likely than not to survive for the next year when a company does not meet the going concern criteria it means that a company may not have the resources needed to operate over the next 12 months | |
why is going concern so important | going concern is important because it is a signal of trust about the longevity and future of a company without it business would not offer nearly as much credit sales as suppliers vendors and other companies may not pay the company if there is little belief these companies will survive | |
what happens if a company is not a going concern | if a company is not a going concern that means there is risk the company may not survive the next 12 months management is required to disclose this fact and must provide the reasons why they may not be a going concern management must also identify the basis in which the financial statements are prepared and often disclose these financial reports with an audit report with a going concern opinion 4the bottom linegoing concern is an accounting term used to identify whether a company is likely to survive the next year companies that are not a going concern may not have enough money to survive and this fact must be publicly disclosed when an auditor audits their financial statements a company may not be a going concern for a number of reasons and management must disclose the reason why | |
what is going concern value | going concern value is a value that assumes the company will remain in business indefinitely and continue to be profitable going concern value is also known as total value this differs from the value that would be realized if its assets were liquidated the liquidation value because an ongoing operation has the ability to continue to earn a profit which contributes to its value a company should always be considered a going concern unless there is a good reason to believe that it will be going out of business | |
how going concern value works | the difference between the going concern value of a company and its liquidation value is known as goodwill goodwill consists of intangible assets such as company brand names trademarks patents and customer loyalty typically the going concern value will be greater than the liquidation value when a company is acquired the purchase price is typically based on its going concern value this means that a company being acquired can charge a pricing premium that is higher than the value of its assets and takes into account the value of its future profitability intangible assets and goodwill going concern value vs liquidation valuethe going concern value of a company is typically much higher than its liquidation value because it includes intangible assets and customer loyalty as well as any potential for future returns the liquidation value of a company will even be lower than the value of the company s tangible assets because the company may have to sell off its tangible assets at a discount often a deep discount in order to liquidate them before ceasing operations examples of tangible assets that might be sold at a loss include equipment unsold inventory real estate vehicles patents and other intellectual property ip furniture and fixtures liquidating a going concern company can result in a bad reputation for the investors usually liquidation value is applied when investors feel a company no longer has value as a going concern and they want to know how much they can get by selling off the company s tangible assets and such of its intangible assets as can be sold such as ip a company or investor that is acquiring a company may compare that company s going concern value to its liquidation value in order to decide whether it s financially worthwhile to continue operating the company or whether it is more profitable to liquidate it however liquidating a company means laying off all of its employees and if the company is viable this can have negative ramifications not only for the laid off workers but also for the investor who made the decision to liquidate a healthy company liquidating a going concern can give an investor a bad reputation among potential future takeover targets example of going concern valuefor example suppose that the liquidation value of widget corp is 10 million this sum represents the current value of inventory buildings and other tangible assets that can be sold assuming that the company is completely liquidated however widget corp s going concern value could very well be 60 million as the company s reputation of being the world s leading widget producer and its ownership of patents and associated rights for widget production mean that the company should have a large and steady stream of future cash flows | |
what is going private | the term going private refers to a transaction or series of transactions that convert a publicly traded company into a private entity once a company goes private its shareholders are no longer able to trade their shares in the open market there are several types of going private transactions including private equity buyouts management buyouts and tender offers | |
how going private works | a company typically goes private when its shareholders decide that there are no longer significant benefits to being a public company one way for this transition to occur is for the company to be acquired through a private equity buyout in this transaction a private equity firm will buy a controlling share in the company often leveraging significant amounts of debt in doing so the private equity firm secures these debts against the assets of the company being acquired the interest and principal payments on the debt are then paid for using the cashflows from the business another common method is the management buyout transaction in which the company is taken private by its own management team the structure of a management buyout is similar to that of a private equity buyout in that both rely on large amounts of debt however unlike a private equity buyout a management buyout is undertaken by insiders who are already intimately familiar with the business in some cases going private transactions will also involve seller financing in which the owners of the company in this case the shareholders of the publicly traded corporation help the new buyers finance the purchase in practice this generally consists of allowing the buyer to delay payment of a portion of the purchase price for some period of time such as five years many going private transactions involve significant amounts of debt in these situations the assets of the acquired company are used as collateral for the loans and its cashflows are used to pay for debt servicing another common example of going private transactions is a tender offer this occurs when a company or individual makes a public offer to buy most or all of a company s shares at times tender offers are made and accepted even when the current management team of the target company does not want the company to be sold in this situation the tender offer is referred to as a hostile takeover because the entity putting forward the tender offer can be a public corporation tender offers are often financed using a mixture of cash and shares for example company a might make a tender offer to company b in which the shareholders of company b would receive 80 of the offer in cash and 20 in shares of company a real world example of a going private transactionin december 2015 the private equity group jab holding company announced its plans to acquire keurig green mountain unlike many private equity buyouts this was an all cash offer 1the offer priced the shares at 92 a nearly 80 premium over their market value prior to the announcement 1 unsurprisingly share prices rose dramatically following the announcement and the company accepted the offer shortly thereafter the transaction was completed in march of the following year accordingly the company s shares ceased trading on the stock market and keurig green mountain became a private company | |
what is going public | going public is the process of selling shares that were formerly held privately and are now available to new investors for the first time otherwise known as an initial public offering ipo | |
when a company goes public it is the first time the general public has the ability to buy shares the process of going public presents unique challenges and is best accomplished with a knowledgeable and experienced team at the helm an important member of said team is an experienced securities lawyer however every member of the team has important responsibilities in guiding the company through the ipo process | the mandatory sec s 1 filing does not necessarily include all previous financial information which is why it is imperative to do additional research prior to investing in an ipo 3requirements for going publicgoing public starts with a proposal to the company s board of directors by the management of the company the proposal includes details and discussion on the company s past performance objectives business plan and financial projections management then recommends entrance into the public market after careful consideration the board of directors decides whether to move forward upon approval management starts assembling the ipo team which usually starts with a securities lawyer and an accounting firm after approval the company s financial statements for the preceding five years are carefully reviewed and if necessary restated to comply with generally accepted accounting principles gaap certain transactions that are okay for private companies such as some sale leaseback arrangements are then eliminated and financial statements are adjusted accordingly the accounting firm takes the lead in this review and adjustment step 4now the company selects an investment bank and issues a letter of intent to formalize the relationship and outline the investment bank s fees offering size price ranges and other parameters 5with a signed letter of intent the securities lawyers and accountants prepare the prospectus a prospectus is written to present to investors as both a selling document and as a legal disclosure document a prospectus requires 67the company s investment bank and accountants will examine the company s management operations financial condition competitive position performance and business objectives and plan they also review the company s labor force suppliers customers and industry often the results of the due diligence investigation will necessitate changes to the prospectus 8a preliminary prospectus must be presented to the sec and the relevant stock market regulators state securities commissions may also be required to sign off the sec usually comments on the prospectus normally in the form of requirements for additional disclosure or explanation 9106after the preliminary prospectus has been filed with the sec the investment bank should assemble a syndicate of other investment banks which will attempt to sell portions of the offering to investors assembly of the syndicate often generates useful information that helps to narrow the share price range 1company management and investment bankers often perform a series of meetings with potential investors and analysts this roadshow is a formal presentation by management on the company s financial condition operations performance markets and products or services the potential investors and analysts then ask questions about the company 2the prospectus must be revised in accordance with the comments of the sec when the sec declares the registration effective the company can go to print with the prospectus 11the day before registration becomes effective and sales begin the offering is priced the investment banker will recommend a price for the company s approval taking into account company performance pricing of competitive offerings roadshow outcomes and general market and industry conditions the investment banker will also make recommendations on the size of the offering in consideration of capital required investor demand and control over the corporation 126an experienced financial printer which has sufficient printing capacity and is familiar with the sec s regulations regarding the use of graphics receives the final prospectus for expedited printing 13 | |
what is a gold bug | the term gold bug is an expression used to refer to investors who are bullish on gold gold bugs promote investment in gold and commonly believe that the purchasing power of fiat currencies will decline due to inflation expansionary monetary policy and the rising national debt understanding gold bugsmost gold bugs believe the price of gold will rise if the value of fiat currencies such as the u s dollar usd falls investors bearish on the long term prospects of the usd may choose gold the term gold bug does not hold a positive or negative connotation it refers to an investor convinced that gold will rise in value gold bug strategygold bugs see a decline in fiscal health as a sign that the u s government will respond to the rising debt burden by effectively devaluing the usd if the government defaults on the national debt by failing to raise the debt ceiling the value of the usd may decline in international currency exchange markets the price of imported goods will rise for u s consumers alternatively expansionary monetary policy may cause inflation to rise this strategy may negatively affect the wealth and purchasing power of investors and citizens whose savings consist of usd denominated assets for gold bugs investing in gold can be an attractive way to hedge against these risks and profit from potential usd devaluation the year that the united states abandoned the gold standard to curb inflation and prevent foreign nations from overburdening the system by redeeming their dollars for gold example of a gold buggold bugs argue that the fiat currency system allows governments to engage in fiscally reckless behaviors such as relying on chronic government borrowing to finance persistent budget deficits in 2022 the united states had a budget deficit of 1 38 trillion the u s has experienced a fiscal year end budget surplus where revenue exceeds spending only five times in the last 50 years 1 the national debt exploded from roughly 40 of gross domestic product gdp in 1966 to over 100 of gdp in 2022 2the price of gold subsequently increased in the latter part of 2022 3 gold pricing changes based on supply demand and investor behavior when investors choose gold and hedge against inflation they drive up the price of gold in addition to the value of the usd and market volatility factors that influence the price of gold include gold production jewelry demand and gold reserves | |
what is a silverite | the silverites were members of a u s movement in the late 19th century that advocated that silver should continue to be a monetary standard along with gold 4 | |
why do gold bugs invest in gold | gold bugs argue that fiat money or government issued currency not backed by a commodity such as gold allows governments to engage in fiscally reckless behaviors such as relying on chronic government borrowing to finance persistent budget deficits | |
how do gold bugs buy gold | gold bugs buy gold in minted coins bullion or bars gold stocks jewelry mutual funds and exchange traded funds etfs gold investors buy gold online and can even use a 401 k to purchase gold the bottom linea gold bug is an investor who believes the price of gold will perpetually increase as fear of a recession becomes widespread gold bugs typically look to invest in gold to hedge against inflation and currency devaluation the term gold bug refers to the most adamant and outspoken among these investors | |
what is a gold certificate | a gold certificate issued as u s currency equivalents until 1934 proves ownership of a specific amount of gold understanding gold certificate | |
when the u s dollar was tied to the gold standard gold certificates were worth their face value in u s dollars and could be used as legal tender gold certificates are still issued to investors as proof of ownership of gold stored by a bank | the u s abandoned the gold standard in 1933 gold certificates issued by the u s mint are now collectors items a gold certificate can be purchased on ebay for about 10 200 or more depending on its age rarity and condition gold certificates represent ownership of a quantity of gold similar to the way that stock certificates represent an ownership share in a company in the u s from about 1879 until they were phased out the certificates were identical in value to the same denomination in u s currency gold bullion is difficult to carry around or exchange for goods or services gold certificates made it practical to own and use gold today gold certificates continue to be issued to investors as receipts that prove ownership of the stated amount of gold u s gold certificates resemble paper banknotes made in the same period with some distinguishing features the designs varied over the years but most had bright orange colored backs and a gold colored u s seal on the front a 1 000 gold certificate printed in 1907 for example has the denomination in all four corners on the face but is inscribed in gold coin below a portrait of alexander hamilton it also has a gold seal and a gold serial number on the front and the distinctive orange back gold certificates were in general circulation in the u s until president franklin d roosevelt removed the dollar from the gold standard in 1933 since the value of the dollar itself was tied to the value of gold between 1879 and the time they were phased out the certificates were essentially a parallel currency and were technically exchangeable as such although they were not often used in routine transactions a gold certificate proves ownership of a quantity of gold just like a stock certificate proves ownership of a share in a company gold certificates todaysome banks and investment companies in the u s and abroad still issue gold certificates these generally specify an amount in ounces their dollar value fluctuates with the market that makes them an investment in precious metals rather than an investment in currency it is worth noting that this modern trade in gold certificates can be risky if the company that issues the certificate goes under the certificate is as worthless as a stock certificate for a bankrupt company | |
what is a gold option | a gold option is an options contract that utilizes either physical gold or gold futures as its underlying asset a gold call option would give the holder the right but not the obligation to buy bullion at a future date at a set price while a put option would grant the holder the right to sell it at a predetermined price level the option agreement terms will list details such as the delivery date quantity and strike price which are all predetermined understanding gold optionsa gold option is a derivative that has physical gold or futures on physical gold as the underlying asset the gold options contract is an agreement between two parties to facilitate a potential transaction on a quantity of gold the contract lists a preset price known as the strike price and an expiration date there are two primary types of options contracts put options and call options however there are four types of participants as both the call and put can be either bought or sold types of gold optionsif the holders of call or put options do not exercise their rights the contract will expire as worthless gold options vs gold future contractsa gold option is similar in some ways to a gold futures contract in that the price the expiration date and the dollar amount are preset for both however with a futures contract there is an obligation to uphold the agreement and either buy or sell the agreed upon quantity of gold at the agreed upon price conversely an investor who holds a gold option has the right but not the obligation to claim the relevant position which will depend on if they hold the call option or the put option gold options contract specificationsgold options contracts trade on various derivatives exchanges around the world in the u s investors can find gold options listed on the comex exchange 2comex is the primary futures and options market for trading metals such as gold silver copper and aluminum formerly known as the commodity exchange inc comex merged with the new york mercantile exchange nymex in 1994 and became the division responsible for metals trading 3 today comex and the nymex more broadly operates as a division of the chicago mercantile exchange cme 4comex gold options actually use gold futures rather than physical gold directly and so are cash settled these gold futures have a contract size of 100 troy ounces each and require physical delivery if not closed out 1it is possible to experience significant losses with gold options the condition for exercising gold optionsas with other types of options an investor would only want to exercise their gold option rights if the market conditions make it beneficial if at the time the buyer can use or exercise their call option gold is trading at a price significantly higher than the strike price the investor would benefit by exercising their option the investor could then turn around and quickly sell that gold on the open market for a quick profit | |
how can i buy options on gold | gold options are available the u s through the chicago mercantile exchange cme these options contracts use gold futures as their underlying asset to trade gold options you will need a margin brokerage account with access to options markets you could contact your current broker to see if they offer options trading or shop around for an options trading account | |
what are the types of gold options | call options on gold give the contract holder the right but not the obligation to buy the metal at a preset price before the contract expires a call option increases in value when the price of gold increases as it locks in a lower buying price meanwhile put options give the contract holder the right to sell gold at a predetermined level before the expiration date as gold prices decline a put option becomes more valuable as it locks in a higher selling price | |
what are the pros and cons of gold options | gold options allow traders to take out a position on gold using less up front capital than they would by trading the physical metal or gold futures contracts however if gold prices move in an unfavorable direction options can result in significant losses the bottom linegold options give the holder the right but not the obligation to buy or sell gold at a specific price up until the contract expires with a call option the contract holder reserves the right to buy gold at a specific price while a put option holder reserves the right to sell at a predetermined level to trade gold options it is necessary to have a margin brokerage account offering access to options markets | |
what is the gold standard | the gold standard is a fixed monetary regime under which the government s currency is fixed and may be freely converted into gold it can also refer to a freely competitive monetary system in which gold or bank receipts for gold act as the principal medium of exchange or to a standard of international trade wherein some or all countries fix their exchange rate based on the relative gold parity values between individual currencies | |
how the gold standard works | the gold standard is a monetary system where a country s currency or paper money has a value directly linked to gold with the gold standard countries agreed to convert paper money into a fixed amount of gold a country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price that fixed price is used to determine the value of the currency for example if the u s sets the price of gold at 500 an ounce the value of the dollar would be 1 500th of an ounce of gold the gold standard developed a nebulous definition over time but is generally used to describe any commodity based monetary regime that does not rely on un backed fiat money or money that is only valuable because the government forces people to use it beyond that however there are major differences some gold standards only rely on the actual circulation of physical gold coins and bars or bullion but others allow other commodities or paper currencies recent historical systems only granted the ability to convert the national currency into gold thereby limiting the inflationary and deflationary ability of banks or governments | |
why gold | most commodity money advocates choose gold as a medium of exchange because of its intrinsic properties gold has non monetary uses especially in jewelry electronics and dentistry so it should always retain a minimum level of real demand it is perfectly and evenly divisible without losing value unlike diamonds and does not spoil over time it is impossible to counterfeit perfectly and has a fixed stock there is only so much gold on earth and inflation is limited to the speed of mining advantages and disadvantages of the gold standardthere are many advantages to using the gold standard including price stability this is a long term advantage that makes it harder for governments to inflate prices by expanding the money supply inflation is rare and hyperinflation doesn t happen because the money supply can only grow if the supply of gold reserves increases similarly the gold standard can provide fixed international rates between countries that participate and can also reduce the uncertainty in international trade but it may cause an imbalance between countries that participate in the gold standard gold producing nations may be at an advantage over those that don t produce the precious metal thereby increasing their reserves the gold standard may also according to some economists prevent the mitigation of economic recessions because it hinders the ability of a government to increase its money supply a tool many central banks have to help boost economic growth history of the gold standardaround 650 b c gold was made into coins for the first time enhancing its usability as a monetary unit before this gold had to be weighed and checked for purity when settling trades 1gold coins were not a perfect solution since a common practice for centuries to come was to clip these slightly irregular coins to accumulate enough gold that could be melted down into bullion in 1696 the great recoinage in england introduced a technology that automated the production of coins and put an end to clipping 2the u s constitution in 1789 gave congress the sole right to coin money and the power to regulate its value creating a united national currency enabled the standardization of a monetary system that had up until then consisted of circulating foreign coins mostly silver 3with silver in greater abundance relative to gold a bimetallic standard was adopted in 1792 while the officially adopted silver to gold parity ratio of 15 1 accurately reflected the market ratio at the time after 1793 the value of silver steadily declined pushing gold out of circulation according to gresham s law 4the gold standard is not currently used by any government britain stopped using the gold standard in 1931 and the u s followed suit in 1933 and abandoned the remnants of the system in 1973 56the so called classical gold standard era began in england in 1819 and spread to france germany switzerland belgium and the united states each government pegged its national currency to a fixed weight in gold for example by 1834 u s dollars were convertible to gold at a rate of 20 67 per ounce these parity rates were used to price international transactions other countries later joined to gain access to western trade markets 78there were many interruptions in the gold standard especially during wartime and many countries experimented with bimetallic gold and silver standards governments frequently spent more than their gold reserves could back and suspensions of national gold standards were extremely common moreover governments struggled to correctly peg the relationship between their national currencies and gold without creating distortions as long as governments or central banks retained monopoly privileges over the supply of national currencies the gold standard proved an ineffective or inconsistent restraint on fiscal policy the gold standard slowly eroded during the 20th century this began in the united states in 1933 when franklin delano roosevelt signed an executive order criminalizing the private possession of monetary gold 9after wwii the bretton woods agreement forced allied countries to accept the u s dollar as a reserve rather than gold and the u s government pledged to keep enough gold to back its dollars in 1971 the nixon administration terminated the convertibility of u s dollars to gold creating a fiat currency regime 1011the gold standard vs fiat moneyas its name suggests the term gold standard refers to a monetary system in which the value of a currency is based on gold a fiat system by contrast is a monetary system in which the value of a currency is not based on any physical commodity but is instead allowed to fluctuate dynamically against other currencies on the foreign exchange markets the term fiat is derived from the latin fieri meaning an arbitrary act or decree in keeping with this etymology the value of fiat currencies is ultimately based on the fact that they are defined as legal tender by government decree in the decades prior to the first world war international trade was conducted on the basis of what has come to be known as the classical gold standard in this system trade between nations was settled using physical gold nations with trade surpluses accumulated gold as payment for their exports conversely nations with trade deficits saw their gold reserves decline as gold flowed out of those nations as payment for their imports | |
when did the u s abandon the gold standard | the u s officially stopped using the gold standard in 1971 under president nixon at the time inflation was growing and there was a gold run on the horizon nixon s administration ended the dollar convertibility to gold which ended the bretton woods system 11 | |
what replaced the gold standard | the gold standard in the u s and many other nations was replaced by fiat money fiat money is the currency of a government which is not backed by a commodity but has value because the government has determined that it does and that it must be accepted as a form of payment fiat money includes paper bills and metal coins | |
are any countries still on the gold standard | currently no country uses the gold standard countries have abandoned the gold standard for fiat money countries however do still maintain gold reserves the bottom linethe gold standard is a fixed currency system in which a government s currency is fixed to the value of gold this stands in contrast to currency systems that use fiat money money issued by a government that is not tied to a commodity the gold standard was used much throughout history in ancient civilizations as well as in modern nations the united states used the gold standard but eventually stopped in the 1970s and is now a fiat money based monetary system | |
what is a golden cross | a golden cross is a chart pattern in which a relatively short term moving average crosses above a long term moving average the golden cross is a bullish breakout pattern formed from a crossover involving a security s short term moving average such as the 50 day moving average crossing above its long term moving average such as the 200 day moving average or resistance level as long term indicators carry more weight the golden cross indicates the possibility of a long term bull market emerging high trading volumes generally reinforce the indicator investopedia julie bang | |
how does a golden cross form | the golden cross is a momentum indicator which means that prices are continuously increasing gaining momentum traders and investors have changed their outlooks to bullish rather than bearish the indicator generally has three stages the first stage requires that a downtrend eventually bottoms out as buyers overpower sellers in the second stage the shorter moving average crosses over the larger moving average to trigger a breakout and confirms a downward trend reversal support is a low price level that the market does not allow resistance is a high price level that the market resists a breakout occurs when the price crosses one of these levels the last stage is a continuing uptrend after the crossover the moving averages act as support levels on pullbacks until they cross back down the most commonly used moving averages in the golden cross are the 50 day and 200 day moving averages generally larger periods tend to form stronger lasting breakouts for example the 50 day moving average crossover up through the 200 day moving average on an index like the s p 500 is one of the most popular bullish market signals day traders commonly use smaller periods like the 5 day and 15 day moving averages to trade intra day golden cross breakouts some traders might use different periodic increments like weeks or months depending on their trading preferences and what they believe works for them but when choosing different periods it s important to understand that the larger the chart time frame the stronger and more lasting the golden cross breakout tends to be example of a golden crossthe image below uses a 50 day and a 200 day moving average the 50 day moving average trended down over several trading periods finally reaching a price level the market couldn t support the 200 day moving average flattened out after slightly trending downward prices gradually increased over time creating an upward trend in the moving 50 day average the trend continued pushing the shorter period moving average higher than the longer period moving average a golden cross formed confirming a reversal from a downward trend to an upward one notice that the price range of the candlesticks made a significant jump when the downward trend bottomed out and turned into an uptrend something likely occurred that changed investor and trader market sentiments at this time the candle bodies were large the difference between open and close prices and more days closed with prices much higher than opening during the first uptick after the 50 day moving average bottomed tradingviewthe difference between a golden cross and a death crossa golden cross and a death cross are opposing indicators the golden cross confirms a long term bull market going forward while a death cross signals a long term bear market either crossover is considered more significant when accompanied by high trading volume a possible long term bull market is approachingthe short term moving average crosses from below the long term moving averagethe long term moving average becomes supporta possible long term bear market is approachingthe short term moving average crosses from above the long term moving averagethe long term moving average becomes resistanceonce the crossover occurs the long term moving average is considered a major support level in the case of the golden cross or resistance level in the instance of the death cross for the market from that point forward either cross may appear and signal a trend change but they more frequently occur when a trend change has already occurred limitations of the golden crossall indicators are lagging which means the data used to form the charts has already occurred this means that no indicator can truly predict the future many times an observed golden cross produces a false signal despite its apparent predictive power in forecasting prior large bull markets golden crosses also regularly fail to manifest therefore other signals and indicators should always be used to confirm a golden cross | |
how do i identify a golden cross on a chart | the golden cross occurs when a short term moving average crosses over a major long term moving average to the upside and is interpreted by analysts and traders as signaling a definitive upward turn in a market some analysts define it as a crossover of the 100 day moving average by the 50 day moving average others use the 200 day and 50 day moving average the short term average trends up faster than the long term average until they cross | |
what does a golden cross indicate | a golden cross suggests a long term bull market going forward it is the opposite of a death cross which is a bearing indicator when a long term moving average crosses under a short term one | |
are golden crosses reliable indicators | as a lagging indicator a golden cross is identified only after the market has risen which makes it seem reliable however as a result of the lag it is also difficult to know when the signal is false until after the fact traders often use a golden cross to confirm a trend or signal in combination with other indicators the bottom linea golden cross is believed to confirm the reversal of a downward trend the key to using the golden cross correctly with additional filters and indicators is to use profit targets stop loss and other risk management tools remember to maintain a favorable risk to reward ratio and to time your trade rather than just following the cross mindlessly | |
what are golden handcuffs | golden handcuffs are a collection of financial incentives that are intended to encourage employees to remain with a company for a stipulated period of time golden handcuffs are offered by employers to existing key employees as a means of holding onto them as well as to increase employee retention rates golden handcuffs are common in industries where highly compensated employees are likely to move from one company to another understanding golden handcuffsemployers invest significant resources in the hiring training and retaining of key employees golden handcuffs are intended to help employers hold onto employees that they ve invested in but also to ensure that their best employees and top performers do not leave the firm sometimes golden handcuffs have a negative connotation as they are often associated with individuals staying at a job they are not happy in but not willing to leave because the financial loss would be significant types of golden handcuffsgolden handcuffs can be offered on a graduated basis when employees meet certain milestones or they can be offered all at once with certain stipulations golden handcuffs can take many different forms some examples include stock options supplemental executive retirement plans serps large bonuses vacation homes a company car insurance policies and so forth | |
when these incentives are offered they come with certain terms usually they state that bonuses or other forms of compensation are only paid out if the employee stays for a defined period of time or if they are paid out first then they must be returned to the company if the employee leaves before a certain date | other forms of golden handcuffs include contractual obligations that specify an action that an employee may or may not perform such as a contract prohibiting a network television host from appearing on a competing channel example of golden handcuffscharles has been working for company xyz for five years in those five years the company has spent a significant amount of time and money in training and developing charle s skill set within that same time frame charles has demonstrated his exceptional talent and ability to perform well for the company not only has the cost in training charles been returned to the company many times over due to his work ethic but he will be a remarkable asset to the firm for many years to come because charles is such an exceptional employee xyz is worried they may lose him to a competitor that may offer more money or other incentives to prevent this from happening xyz offers charles a significant financial incentive through employee stock options however the stock options do not vest for five years ensuring charles will stay with the company for those five years and not miss out on a significant cash windfall | |
what is a golden handshake | the term golden handshake refers to a clause in an executive s contract that provides them with a significant severance package if the employee loses their job due to firing restructuring negligence or retirement golden handshakes are normally provided to top executives in the event that they lose employment the amount paid out is commonly negotiated before the contract is signed payment of a golden handshake can be made in a variety of ways including cash and stock options golden handshakes and other similar perks have come under scrutiny because they don t necessarily motivate the employee | |
how golden handshakes work | executive compensation often comes in a variety of forms which can be negotiated before the individual joins the company compensation for these employees often includes their salaries stock options cash and bonuses but in order to attract the right people companies may often include other benefits and incentives some of these other perks may include compensation that isn t directly related to their job performance such as the golden handshake a golden handshake is usually negotiated before the employee is onboarded it refers to a payment made to the employee if they lose their job because of firing layoff restructuring negligence and even retirement as noted above this type of benefit is commonly used as a tactic to hire specific individuals especially those who aren t already employed with the hiring company these golden handshakes can reach in the millions of dollars range which makes them a very important issue for investors to consider for example in 1989 r j reynolds nabisco paid f ross johnson over 52 million as part of a golden handshake clause 1a golden handshake can also be referred to as a golden parachute special considerationscertain non executives may also receive a golden handshake as a bonus in some cases it is usually drastically different than the compensation that chief executive officers ceos and top executives get so one might call it a silver handshake nevertheless it is better than leaving with nothing an example of this is automotive companies that buy out union workers contracts this can then free up that capital to hire new workers at a more advantageous labor cost another example is people who are forced into early retirement often times companies want to bring in new talent so these people are paid severance packages criticism of golden handshakesgolden handshakes can be very controversial for a number of reasons as noted earlier these benefits aren t necessarily related to the employee s job performance this means that the executive is still compensated even if they cannot deliver results even more baffling to critics is that some executives may still be paid a golden handshake if they re let go because of negligence this kind of benefit can damage a company s public image because large executive payoffs are viewed as a reward for failure and these individuals are often paid higher salaries than employees who aren t on the executive team examples of golden handshakesgolden handshakes often make headlines notably when executives don t meet targets or goals or even in cases where the company experiences a bad public relations pr incident the following are just two examples of famous golden handshakes oil company british petroleum bp had an oil spill in 2010 that occurred in the gulf of mexico as a result of an explosion of the deepwater horizon oil rig 2 the rig was leased to bp for exploration of the macondo prospect an oil field off the coast of louisiana after the accident which resulted in costs to the company of more than 69 billion bp s ceo tony hayward was pushed out 3 however he received a golden handshake payout of a year s salary worth 1 5 million in addition to keeping his approximately 17 million pension fund 4other famous golden handshake controversies occurred during the 2007 2008 financial crisis after many banks struggled financially many top executives were forced to depart but before they left their large pay packages were left intact some big banks allowed top level staff to cash out of incentive programs by accelerating the vesting of their stock awards bank shareholders who were left with worthless stock and bond investments were upset by these agreements since then some companies have given investors a say on executive pay packages at shareholder meetings these shareholder votes are usually non binding but they do provide a strong signal to management about investors attitude toward excessive executive payouts | |
what is a golden parachute | a golden parachute consists of substantial benefits given to top executives if the company is taken over by another firm and the executives are terminated as a result of the merger or takeover golden parachutes are contracts with key executives and can be used as a type of anti takeover measure often collectively referred to as poison pills taken by a firm to discourage an unwanted takeover attempt benefits may include stock options cash bonuses and generous severance pay golden parachutes are thus named as such because they are intended to provide a soft landing for employees of certain levels who lose their jobs | |
how golden parachutes work | golden parachute clauses can be used to define the lucrative benefits that an employee would receive if they are terminated the term often relates to the terminations of top executives that result from a takeover or merger golden parachutes may include severance pay in the form of cash a special bonus stock options or vesting of previously awarded compensation the employment contract contains explicit language detailing the conditions under which the silver parachute clause will become valid in addition to monetary awards other examples of opulent parachute benefits include instances of these and other exclusive advantages have drawn criticism from shareholders and the public as a result the post financial crisis era has seen many companies review their executive level compensation policies and devise new ways to link executive performance to corporate success in many cases their goal has been to determine whether such packages were in the best interests of the firm and its investors controversy surrounding golden parachutesthe use of golden parachutes is controversial supporters believe that golden parachutes make it easier to hire and retain top executives particularly in merger prone industries in addition proponents believe that these lucrative benefit packages allow executives to remain objective if the company is involved in a takeover or merger and that they can discourage takeovers because of the costs that are associated with the golden parachute contracts opponents of golden parachutes argue that executives are already well compensated and should not be rewarded for being terminated opponents may further argue that executives have an inherent fiduciary responsibility to act in the best interest of the company and should not need an additional financial incentive to remain objective and act in the manner that best benefits the company in addition many people who disagree with golden parachutes argue that the associated costs are minuscule compared to the takeover costs and as a result can have little to no impact on the outcome of the takeover attempt then there is the golden handshake it is similar to a golden parachute in that it offers a severance package to an executive when they become unemployed while both terms describe severance packages given to such an executive upon the termination of duties a golden handshake goes further to include the severance packages granted to executives upon retirement too examples of golden parachutessome examples of golden parachutes that have been reported in the press include | |
what is the golden rule of government spending | the golden rule of government spending is a fiscal policy that a government should borrow only to invest not to fund current spending in other words the government should borrow money only to make investments that will produce long term benefits for the future current spending or spending on short term needs should be funded by tax revenues understanding the golden rulesupporters of the golden rule of government spending which limits borrowing to funding investments generally seek to protect future generations from being overburdened by debt attributable to borrowing for current expenditures some economists emphasize that other policies also affect future generations debt burden they contend that the golden rule is not the optimal way to achieve intergenerational fairness 1 others support the golden rule to realize a different goal limiting the size of government 2the golden rule in fiscal policy has been implemented in a number of countries while its application varies from country to country the basic premise of spending less than the government takes in is always at its foundation most countries that have adopted the rule the united states is not one of them have had to make changes in their constitution or statutes some countries have experienced a reduction in deficits as a share of gross domestic product gdp as a result 3 governments may also need more flexible fiscal policies during economic downturns and emergencies the golden rule in government spending is different than the ethical golden rule do unto others as you would have them do unto you which can be found in the places like talmud the new testament and the koran international applications of the golden ruleover the last 30 years a number of countries particularly nations with advanced economies have adopted fiscal policies incorporating some form of the golden rule whether effected as law or as the policy of a governing party these policies generally provided exceptions for economic emergencies at various times golden rule policies have helped canada new zealand sweden switzerland andgermany reduce spending growth and debt levels 2 the united kingdom adopted a golden rule policy in 1998 by 2007 economic problems and shortfalls in tax revenues undercut compliance even before the international financial crisis in 2008 the economy s need for government support and stimulus led the uk to abandon the policy 4the european union s experience with the golden rule indicates that because of economic unpredictability the policy operates better as a guideline than as an absolute requirement in 1997 the european union adopted a stability and growth pact sgp to monitor and stabilize the economic and monetary union and to coordinate fiscal policy among eu members eu member states were to implement fiscal policies designed to achieve deficits no higher than 3 of gdp and maintain a debt level below 60 of gdp in 2005 the rules were revised to allow greater flexibility additional rules and oversight policies were adopted following the 2008 financial crisis 5as a result of the covid 19 pandemic in 2020 the eu suspended the sgp borrowing limits until 2023 6 some members are seeking further amendments to provide more flexibility in the future and in may 2022 the eu announced that it was proposing a further suspension of the limits through 2023 7no golden rule for the united statesthe united states federal government has not adopted a fiscal policy reflecting the golden rule although some commentators on u s fiscal policy urge the adoption of a golden rule others recommend a more flexible multi faceted approach 89 from time to time policymakers have proposed legislation even a constitutional amendment that would require a balanced budget currently the federal government is subject to a legislated budget ceiling when the government s borrowing authority nears its limit the debt ceiling is increased by congressional action often generating political debate in 1985 congress passed the gramm rudmann hollings bill whichspecified annual deficit targets that if missed would trigger an automatic sequestration process the following year the supreme court ruled that the law was unconstitutional 10on jan 13 2023 treasury secretary janet yellen warned that the u s was expected to reach the 31 38 trillion borrowing ceiling congress approved in december 2021 on jan 19 on that day she announced that treasury can take extraordinary measures to forestall a shutdown until early june 11 after that point congress will need to take action to avert a government shutdown and a default on the federal government s debt obligations | |
why is not borrowing for current expenses called the golden rule of government spending | supporters believe that limiting government borrowing to funding only projects that will pay off in the future protects future generations this is because they won t be burdened by debt from borrowing for expenditures that benefited people in the past but not them it is called the golden rule to compare it to the ethical golden rule and show that its supporters believe it is equally fundamental 1 | |
is the european union following the golden rule of government spending now | in may 2022 the european commission announced that it was proposing to extend its suspension of borrowing limits through 2023 key goals were funding the transition to a digitized green economy not dependent on russian gas and recovering from the pandemic 7 | |
what is the us debt limit | the debt limit is the total amount of money the u s is authorized to borrow to meet obligations such as social security and medicare benefits military salaries interest on the national debt and tax refunds to date the u s government has never defaulted on its debts 12the bottom linethe golden rule that goes deep into ancient history has a more modern incarnation the golden rule of government spending this concept believes that future generations shouldn t be burdened with debt incurred by governments for current day expenditures that long predate them instead it decrees governments should only take on debt to pay for investments that will produce long term benefits for the future a number of countries have experimented with fiscal policy that seeks to adhere to this rule though not the united states it has periodically needed to be suspended in times of financial emergency in fact in the eu borrowing limits are still on a hiatus that began in 2020 | |
what is a golden share | a golden share is a type of share that gives its shareholder veto power over changes to the company s charter it holds special voting rights giving its holder the ability to block another shareholder from taking more than a ratio of ordinary shares ordinary shares are equal to other ordinary shares in profits and voting rights these shares also have the ability to block a takeover or acquisition by another company understanding golden sharesgolden shares can be issued by public companies or governments one of these shares controls at least 51 of voting rights in the case of a company it can only issue golden shares after passing special resolutions and changing its memorandum and articles of association this document governs or dictates a company s relationship with outside businesses golden shares were most popular during the 1980s when the british government began privatizing companies and wished to retain control over them governments in other parts of europe and the soviet union also followed suit golden shares have been predominantly used in the united kingdom other countries including brazil use golden shares to keep control over state run entities the european union on the other hand has mostly banned the use of golden shares by companies and governments while the eu permits governments to protect vital services it does not allow golden shares calling them unjustified and disproportionate to the interests of the company and economy pros and cons of golden sharesthe british government believed there was a good rationale behind using a golden share strategy with its newly privatized companies golden shares would protect companies from hostile takeovers especially from international bidders this strategy is also true for public companies allowing them to retain control of their interests in the face of competitors golden shares were also important for companies that played a key role in a nation s economy and had an effect on public policy as well as national security however there are also pitfalls to golden shares critics argue that golden shares give the holder far too much control especially if that control goes above and beyond the wishes of other shareholders examples of golden sharesthe brazilian company embraer s a erj is an example of a company with a golden share the company provides aeronautical services and makes commercial military and agricultural aircraft embraer was a private and state run company from its inception and in 2000 began to make public offerings or issued shares of stock however the brazilian government has veto power since it holds a golden share in the company in 2019 the government agreed to the sale of the company s commercial aircraft division to boeing corporation ba however in april 2020 the talks failed and boeing pulled out of the 4 2 billion deal according to msn brazilian president jair bolsonaro mentioned the golden share when he commented on the failed merger there is a golden share perhaps a new negotiation will begin with another company 1another golden share example is the british airports authority baa which owned heathrow and gatwick airports the british government retained a golden share in the company which was privatized in 1987 in 2003 a european union court ruled the government s share in the airport authority broke laws 2 | |
what is a goldilocks economy | a goldilocks economy is not too hot nor too cold but just right to steal a line from the popular children s story goldilocks and the three bears the term describes an ideal state for an economic system there s full employment economic stability and stable growth in this perfect state the economy isn t expanding or contracting by a large margin a goldilocks economy is warm enough with steady economic growth to prevent a recession but growth isn t so hot as to push it into an inflationary status understanding a goldilocks economythere s some debate among economists as to the exact characteristics of a goldilocks economy but it s safe to say that there should be a balance between growth employment and inflation the ideal conditions are typically characterized by the economy can dip into a recession or an economic downturn if gdp growth is too low economists say that the country is experiencing a recession when an economy registers two consecutive quarters or six months of negative gdp growth but it can lead to a surge in prices in an economy or inflation if gdp growth is too fast maintaining a goldilocks economyfiscal spending by congress is one way to help create and manage a goldilocks economy governments can boost their spending through infrastructure projects such as the creation of roads and bridges as well as by writing government contracts with private companies the use of taxes is also a tool employed to manage an economy the reduction of taxes on businesses encourages business investment consumer tax cuts encourage consumer spending but fiscal spending and tax cuts can have mixed results they re rarely a long term solution to maintaining the goldilocks economy a goldilocks economy is transitional because economic activity is a process of expansion and contraction that occurs repeatedly the boom and bust cycle is a key characteristic of capitalist economies the u s economy typically goes through five phases as part of the business cycle these stages are growth or expansion peak recession or contraction trough and recovery a goldilocks economy might happen during the recovery and growth phases it should be considered a temporary state because of the existence of the business cycles goldilocks and the central bankcentral banks are responsible for regulating money supply and the banking sector the banking authority uses monetary policy tools to bring on and maintain a goldilocks economy the federal reserve fed is the u s central bank the fed can cut interest rates spurring lending in the economy as consumers and businesses increase borrowing to take advantage of lower rates it can increase interest rates if it feels that the economy is growing too hot and inflation is rising at a faster rate than the fed s inflation target 3rising prices can hurt an economy because they tend to lead consumers to cut back on spending companies get hurt by inflation if their raw materials become too expensive because the added costs eat into their profits businesses can cut investment as a result central banks such as the fed react by increasing interest rates to slow the growth in an economy which ultimately slows or prevents inflationary pressures but their actions can trigger an economic slowdown if they raise interest rates too soon or by too much economic conditions abroad and the response from foreign governments and other national central banks can also influence whether an economy can reach a goldilocks state the goldilocks economy and investinga goldilocks economy is ideal for investing stocks perform well as companies grow and generate positive earnings growth the investor gains through share price appreciation and dividends in some cases as the business returns profits to its shareholders fixed income investments such as bonds will hold their value in the absence of inflation but the economy can overheat if gdp grows too quickly and inflation creeps up too rapidly asset prices can become overvalued in this atmosphere the fed may raise interest rates to try to cool down the economy rising interest rates break one of the key pillars of the goldilocks economy and are usually a precursor to its end real world exampleseconomist david shulman is widely considered to have coined the phrase goldilocks economy in an article published in 1992 the goldilocks economy keeping the bears at bay the u s economy of the middle to the late 1990s was considered a goldilocks economy because it was not too hot not too cold but just right a phrase that has been used to describe the ideal economy for investors the term has also been used to describe the u s economy as it recovered from the bursting of the dot com bubble between 2004 and 2005 the economy grew at 4 3 in 2005 putting the dow jones industrial average djia near multi year highs for that time 4market participants considered it to be a goldilocks economy in 2017 with the economy growing at nearly 4 employment between 3 and 4 and no real inflation in sight 56 the fed hiked interest rates later that year to keep inflation and growth at moderate levels the global economy was averaging over 3 gdp growth at the time 7 | |
what s the difference between a recession and a depression | there s no cited statistical difference between a recession and a depression but the degree of severity is the differentiating factor a recession is marked by a drop in economic activity over at least a few months a depression occurs when the drop is significantly more severe 8 | |
what was the highest unemployment rate in the u s | the most severe unemployment in the u s is said to have occurred in 1933 during the great depression the rate hit 24 9 in that year 9compare that to 3 9 in april 2024 10 | |
what s the difference between inflation and deflation | inflation occurs with an increase in prices for goods and services that s sustained over time deflation occurs when the inflation rate drops below zero to a negative percentage this must also be sustained over time the process of the fall in prices from point a to point b is referred to as disinflation 11the bottom lineit can be challenging for central bankers and governments to engineer a goldilocks economy because many factors must come together for this economic state to exist the unemployment rate the inflation rate market interest rates inflation rate and gross domestic product gdp must all be in ideal healthy condition it can t just be a flash in the pan but should be a steady economic environment a goldilocks economy can provide an ideal time for investing but be cautious and keep an eye on the contributing data | |
what is good credit | good credit is a classification for an individual s credit history indicating the borrower has a relatively high credit score and is a safe credit risk credit scores are provided through credit reporting agencies lenders check credit scores for the purpose of providing credit underwriting decisions and background check details understanding good creditcredit rating agencies assign borrowers a score based on their credit history which is tracked in a credit report credit scoring varies according to the methods used in their calculation the most commonly used credit score is the fico score a borrower s credit score can range from 300 to 850 credit scoring classifications are broken into five tiers exceptional very good good fair and very poor borrowers with a good credit score fall into any of the top three tiers according to experian borrowers with exceptional credit have a score of 800 and higher borrowers with very good credit have a score ranging from 740 to 799 while those with good credit have scores ranging from 670 to 739 1 therefore borrowers with a credit score of approximately 670 or higher are considered to have a good credit score and the best chance of receiving credit approval from a lender the last two tiers are fair and poor borrowers in these two categories have more difficulty getting credit and are often charged higher rates of interest in the form of subprime loans borrowers with fair credit have a score of 580 to 669 while those with poor credit have a score of 579 or less 1 borrower considerationsthere are a number of steps a borrower can take to improve their credit score payment history accounts for 35 of a borrower s score 2 any delinquent payments will negatively impact a credit score and remain on a credit report for seven years 3 thus borrowers should make payments on time and avoid delinquencies to improve their scores another way to quickly improve a credit score is to reduce the overall amount owed total credit utilization accounts for 30 of a borrower s credit score a borrower can quickly improve their credit score by significantly paying down existing debt balances 2 while paying down debt is generally the best way to improve your credit score another option is to request an increase to your credit limit with your credit card company this strategy effectively decreases your credit utilization which may improve your score however depending on your credit risk profile your credit card company may not agree to an increase if an increase is approved it is important to ensure that the additional credit is used responsibly and does defeat the purpose by worsening your credit score other factors impacting credit scores include length of credit history types of credit used new credit lines issued and recent credit inquiries borrowers should be cautious about the new credit lines they take on and the number of credit accounts they apply for a high number of hard inquiries in a short amount of time can negatively affect a borrower s credit score and increase their perceived risk of default to lenders 1 lender considerationsa borrower s credit score is a significant factor influencing the type of credit for which they will be eligible traditional lenders generally focus on borrowers with good credit this means they will usually consider only borrowers with a credit score of 670 or higher these borrowers are more likely to receive loan approvals overall they are also more likely to receive more favorable loan terms compared with borrowers with poor credit scores | |
what is good delivery | good delivery refers to the unhindered transfer of ownership of a security from a seller to a buyer with all necessary requirements having been met this used to be a rather complex process although nowadays thanks to electronic exchanges that facilitate the digital transfer and clearing of many securities good delivery has become automated and generally much more straightforward understanding good deliverygood delivery occurs when a security s transfer is unimpeded by restrictions or other issues that would prevent its physical or virtual delivery to the buyer nowadays good delivery is usually determined by computers however in the past securities were inspected by a transfer agent to ensure that individual paper certificates were authenticated and registration requirements were met in order for the buyer to take the delivery to qualify for good delivery stock certificates must be in good physical condition be endorsed by the seller or seller s agent and be delivered in the correct denomination that matches the exact number of shares to transfer historically good delivery of securities from a seller to a buyer had been an issue in financial markets the buyer needed to know for sure that they would receive the correct stock certificates that the certificates were indeed authentic and that they would actually get physical delivery after paying the seller for them regulated stock exchanges and clearing houses sprang up as trusted third parties to facilitate trading and standardize the requirements for making good delivery today with electronic exchanges computerized settlement and clearing facilities these issues are largely a thing of the past however the presence of share transfer restrictions can still hurt the possibility of a stock s good delivery for example insider stock such as that issued directly to a company s executives may have certain restrictions that disallow sale outside the company without first having offered the shares for sale to existing shareholders rule 144 can allow for the sale of some restricted securities if they meet certain conditions 1good delivery criteriathe criteria for what constitutes good delivery varies from market to market or from security to security but it is a prerequisite to settling a transaction many stock markets today allow for easy trading in odd lots or even fractional shares but for stock markets that enforce round lots there may be restrictions on how to deliver those lots because the most commonly traded unit of stock has traditionally been 100 shares a round lot stock certificates should be denominated in one of the following for bond markets good delivery should be made using multiples of 1 000 or sometimes 5 000 par value sometimes with a maximum par value of 100 000 for an unregistered bearer bond to be in good delivery form it must be delivered with all unpaid coupons still attached for commodities markets good delivery criteria are spelled out by the exchange and incorporated explicitly into futures contracts specifications for example the london bullion market association lbma specified good delivery in physical gold as | |
what is a good faith estimate gfe | a good faith estimate gfe is a document that outlines the estimated costs and terms of a reverse mortgage loan offer enabling borrowers to comparison shop among different lenders and choose the deal that best fits their needs under the real estate settlement procedures act respa lenders were required to provide consumers with gfes within three days of a regular mortgage application then in october 2015 gfes were only made applicable to people seeking reverse mortgages with loan estimate forms being introduced for other types of home loans | |
how a good faith estimate gfe works | a gfe makes it possible to compare offers from various lenders and brokers once the document is received borrowers can examine the breakdowns and contract terms and then indicate if they wish to proceed with the mortgage loan from that particular financial institution the form is written in clear language to help consumers better understand the terms of the mortgage for which they are applying and borrowers may shop around and acquire multiple estimates before choosing a loan or a lender since october 2015 gfes now only apply to reverse mortgages loans that enable seniors aged 62 and older to convert their home equity into lump sum amounts fixed payments or lines of credit locs the bank or financial institution must provide the homeowner seeking a reverse mortgage with a gfe within three business days of receiving their application this form includes a breakdown of all the costs associated with the loan such as taxes title charges closing costs and administrative fees as well as any other terms and conditions of the loan including policies regarding payback consumers should beware of unscrupulous lenders who may add their fees or charge excessive fees for administrative items such as wire transfers the official standardized estimate forms provide information about the approximated costs of taxes and insurance and how the interest rate and payments may change in the future borrowers may be charged a credit report fee before receiving a gfe but cannot be charged any additional fees to acquire the document limitations of a good faith estimate gfe the costs noted on the form are only estimates and merely provide a rough idea of how much borrowers may be expected to spend in order to get the loan and what s expected of them before and after the loan comes due the actual costs might ultimately be higher or lower when everything is finalized there are legitimate reasons for discrepancies between the gfe and the actual closing costs the lender may not know all the costs of closing services provided by third parties which may be considered the hidden costs of owning a home good faith estimates gfe vs loan estimate formsas noted above gfes now only apply to reverse mortgages they were replaced with loan estimate forms after october 2015 for anyone seeking other types of mortgages loan estimates like gfes are an industry standard they must be provided to mortgage applicants within three business days of their applications and provide a breakdown of costs terms and conditions and just like the gfe the document allows borrowers to compare costs between lenders special considerationsborrowers applying for a home equity line of credit heloc a manufactured housing loan that is not secured by real estate or a loan through certain types of homebuyer assistance programs are not provided with gfes or loan estimates instead they receive truth in lending disclosures | |
what is good faith money | good faith money is a deposit of money into an account by a buyer to show that they have the intention of completing a deal good faith money is often later applied to the purchase but may be non refundable if the deal does not go through understanding good faith moneygood faith money can also be known as earnest money and acts similar to a security deposit on a rental property where a security deposit for a rental home vehicle or equipment may be taken as insurance against damages good faith money is usually taken as insurance against a lost opportunity should the buyer not go through with completing a purchase in most cases the deposit amount will be a percentage of the total amount owed a small percentage for something large like a house or lease contract and a larger percentage for smaller purchases of consumable items a common example of good faith money is the so called earnest money escrow deposit required by most home sellers to enter into a sales contract with a buyer good faith money amountsthe amount of good faith money used to initiate a contract with a seller will vary considerably depending on the asset the local market and the credibility of the buyer for example when the housing market in a given locale is very hot and multiple buyers make offers on the same properties the expected earnest money deposit in some areas can rise higher than the standard 1 to 3 of the potential purchase price of the home 1 in expensive neighborhoods this can be such a substantial amount that the buyer has much more incentive to merely make the purchase rather than delay while working out financing those buyers who do not have financing available already are thus weeded out in favor of buyers with stronger financial footing good faith money as motivationthis phenomenon reflects the fact that although the money is ostensibly for the seller to offset the opportunity cost of doing business with a different buyer the higher demand allows the seller to command more earnest money pushing the buyer to quickly make a decision right away this also creates a sunk cost bias in the buyers that may help them get past their buyer s remorse if they bid up the property too high either way a large earnest money requirement works in favor of the seller and should be a bit of a warning sign that they are about to pay an extra premium for the property for someone who is looking to make a shrewd purchase this would be a warning sign to let the property go most good faith money deposits are part of an agreement that spells out the conditions under which a buyer may lose their deposit if they are unable or unwilling to complete the contract the written agreement is important for the buyer to ensure that the deposit will actually go towards the purchase the potential buyer can sometimes get their good faith money back depending on the terms of the agreement for example if the home fails a home inspection by a professional it is usually a fair and justifiable reason to get the good faith money back a good faith deposit may seem a little like a call option because the buyer has the right to complete the ultimate purchase however unlike an option good faith money is usually applied to the final purchase price while a call option premium is not | |
what is good this week gtw | good this week gtw is a type of order that remains active until the end of the week in which it is issued if the order is not executed prior to the end of the week it will be automatically canceled understanding good this week gtw a gtw contingency is typically added to a limit or stop order gtw orders are not commonly found on discount brokerage platforms instead they are typically offered by full service brokers which allow greater customization of their clients trades gtw offers a middle ground between orders that last for the current trading day versus those lasting indefinitely however investors who use gtw orders must be mindful to ensure that their order is not out of sync with important events that might affect the price of the security they are trading for example suppose it is wednesday and the investor believes that a monday news release will cause a given stock to rise if the investor wishes to buy the stock before the news is released they may place a gtw order the order would then be valid until the end of friday but would become invalid if it is not executed before the end of that day if the investor fails to realize that the order was not executed they may miss out on their anticipated gain the following week most traders are unlikely to have used gtw orders before since they are not commonly offered by brokers instead most brokers offer market orders limit orders and good til canceled gtc orders gtc orders are similar to gtw orders except that they will remain active indefinitely unless they either execute or are canceled by the investor in our above example a gtc order may have been beneficial for the investor because the order could have been executed on monday prior to the news being released gtw examplesuppose you are a stock market investor who buys individual securities using a full service brokerage account as a full service client you have access to several order types including market orders limit orders gtw orders and gtc orders you are convinced that shares in xyz corporation are likely to rise in the near future based on an anticipated product announcement you have decided to purchase shares in xyz in anticipation of this news but are unsure of the best way to proceed considering your options you note that a market order would involve specifying how many xyz shares you wish to purchase and then purchasing the shares at the best available price however in the unlikely event that market sentiment suddenly changes around the time that you place your order you could end up paying significantly more than you expected limit orders on the other hand would allow you to specify a maximum price you are willing to pay for the security on the other hand that restriction makes it less likely that the order will necessarily be executed lastly you consider gtw and gtc orders you remember that gtw orders would act as market orders but would last until the end of the week you place the trade gtc orders could potentially last even longer because they have no set expiration date at all taking all these facts into account you decide to place a gtw order and make a note in your calendar to double check whether the trade has been executed on the last day of this week | |
what is good this week gtw | good this week gtw is a type of order that remains active until the end of the week in which it is issued if the order is not executed prior to the end of the week it will be automatically canceled understanding good this week gtw a gtw contingency is typically added to a limit or stop order gtw orders are not commonly found on discount brokerage platforms instead they are typically offered by full service brokers which allow greater customization of their clients trades gtw offers a middle ground between orders that last for the current trading day versus those lasting indefinitely however investors who use gtw orders must be mindful to ensure that their order is not out of sync with important events that might affect the price of the security they are trading for example suppose it is wednesday and the investor believes that a monday news release will cause a given stock to rise if the investor wishes to buy the stock before the news is released they may place a gtw order the order would then be valid until the end of friday but would become invalid if it is not executed before the end of that day if the investor fails to realize that the order was not executed they may miss out on their anticipated gain the following week most traders are unlikely to have used gtw orders before since they are not commonly offered by brokers instead most brokers offer market orders limit orders and good til canceled gtc orders gtc orders are similar to gtw orders except that they will remain active indefinitely unless they either execute or are canceled by the investor in our above example a gtc order may have been beneficial for the investor because the order could have been executed on monday prior to the news being released gtw examplesuppose you are a stock market investor who buys individual securities using a full service brokerage account as a full service client you have access to several order types including market orders limit orders gtw orders and gtc orders you are convinced that shares in xyz corporation are likely to rise in the near future based on an anticipated product announcement you have decided to purchase shares in xyz in anticipation of this news but are unsure of the best way to proceed considering your options you note that a market order would involve specifying how many xyz shares you wish to purchase and then purchasing the shares at the best available price however in the unlikely event that market sentiment suddenly changes around the time that you place your order you could end up paying significantly more than you expected limit orders on the other hand would allow you to specify a maximum price you are willing to pay for the security on the other hand that restriction makes it less likely that the order will necessarily be executed lastly you consider gtw and gtc orders you remember that gtw orders would act as market orders but would last until the end of the week you place the trade gtc orders could potentially last even longer because they have no set expiration date at all taking all these facts into account you decide to place a gtw order and make a note in your calendar to double check whether the trade has been executed on the last day of this week | |
what is goodness of fit | the term goodness of fit refers to a statistical test that determines how well sample data fits a distribution from a population with a normal distribution put simply it hypothesizes whether a sample is skewed or represents the data you would expect to find in the actual population goodness of fit establishes the discrepancy between the observed values and those expected of the model in a normal distribution case there are multiple methods to determine goodness of fit including the chi square understanding goodness of fitgoodness of fit tests are statistical methods that make inferences about observed values for instance you can determine whether a sample group is truly representative of the entire population as such they determine how actual values are related to the predicted values in a model when used in decision making goodness of fit tests make it easier to predict trends and patterns in the future as noted above there are several types of goodness of fit tests they include the chi square test which is the most common as well as the kolmogorov smirnov test and the shapiro wilk test the tests are normally conducted using computer software but statisticians can do these tests using formulas that are tailored to the specific type of test to conduct the test you need a certain variable along with an assumption of how it is distributed you also need a data set with clear and explicit values such as goodness of fit tests are commonly used to test for the normality of residuals or to determine whether two samples are gathered from identical distributions establishing an alpha levelin order to interpret a goodness of fit test it s important for statisticians to establish an alpha level such as the p value for the chi square test the p value refers to the probability of getting results close to extremes of the observed results this assumes that the null hypothesis is correct a null hypothesis asserts there is no relationship that exists between variables and the alternative hypothesis assumes that a relationship exists instead the frequency of the observed values is measured and subsequently used with the expected values and the degrees of freedom to calculate chi square if the result is lower than alpha the null hypothesis is invalid indicating a relationship exists between the variables types of goodness of fit tests 2 i 1 k o i e i 2 e i chi 2 sum limits k i 1 o i e i 2 e i 2 i 1 k oi ei 2 ei the chi square test which is also known as the chi square test for independence is an inferential statistics method that tests the validity of a claim made about a population based on a random sample used exclusively for data that is separated into classes bins it requires a sufficient sample size to produce accurate results but it doesn t indicate the type or intensity of the relationship for instance it does not conclude whether the relationship is positive or negative to calculate a chi square goodness of fit set the desired alpha level of significance so if your confidence level is 95 or 0 95 then the alpha is 0 05 next identify the categorical variables to test then define hypothesis statements about the relationships between them 1variables must be mutually exclusive in order to qualify for the chi square test for independence and the chi goodness of fit test should not be used for data that is continuous named after russian mathematicians andrey kolmogorov and nikolai smirnov the kolmogorov smirnov k s test is a statistical method that determines whether a sample is from a specific distribution within a population this test which is recommended for large samples e g over 2000 is non parametric that means it does not rely on any distribution to be valid the goal is to prove the null hypothesis which is the sample of the normal distribution like chi square it uses a null and alternative hypothesis and an alpha level of significance null indicates that the data follow a specific distribution within the population and alternative indicates that the data did not follow a specific distribution within the population the alpha is used to determine the critical value used in the test but unlike the chi square test the kolmogorov smirnov test applies to continuous distributions the calculated test statistic is often denoted as d it determines whether the null hypothesis is accepted or rejected if d is greater than the critical value at alpha the null hypothesis is rejected if d is less than the critical value the null hypothesis is accepted 2s i 1 n 2 i 1 n ln f y i ln 1 f y n 1 i s sum i 1 n frac 2i 1 n ln f y i ln 1 f y n 1 i s i 1n n 2i 1 lnf yi ln 1 f yn 1 i the anderson darling a d test is a variation on the k s test but gives more weight to the tails of the distribution the k s test is more sensitive to differences that may occur closer to the center of the distribution while the a d test is more sensitive to variations observed in the tails 3 because tail risk and the idea of fatty tails is prevalent in financial markets the a d test can give more power in financial analyses like the k s test the a d test produces a statistic denoted as a2 which can be compared against the null hypothesis the shapiro wilk s w test determines if a sample follows a normal distribution the test only checks for normality when using a sample with one variable of continuous data and is recommended for small sample sizes up to 2000 the shapiro wilk test uses a probability plot called the qq plot which displays two sets of quantiles on the y axis that are arranged from smallest to largest if each quantile came from the same distribution the series of plots are linear the qq plot is used to estimate the variance using qq plot variance along with the estimated variance of the population one can determine if the sample belongs to a normal distribution if the quotient of both variances equals or is close to 1 the null hypothesis can be accepted if considerably lower than 1 it can be rejected just like the tests mentioned above this one uses alpha and forms two hypotheses null and alternative the null hypothesis states that the sample comes from the normal distribution whereas the alternative hypothesis states that the sample does not come from the normal distribution 4other goodness of fit testsaside from the more common types of tests mentioned above there are numerous other goodness of fit tests an analyst can use a very general rule of thumb is to require that every group within a goodness of fit test have at least five data points this ensures that sufficient information is fed into the test to determine the distribution importance of goodness of fit testsgoodness of fit tests are important in statistics for many reasons first they provide a way to assess how well a statistical model fits a set of observed data the main importance of running a goodness of fit test is to determine whether the observed data are consistent with the assumed statistical model by extension a goodness of fit test may be useful in choosing between different models which may better fit the data goodness of fit tests can also help to identify outliers or market abnormalities that may be affecting the fit of the model outliers can have a large impact on the model fit and may need to be removed or dealt with separately sometimes outliers are not easily identifiable until they have been integrated into an analytical model goodness of fit tests can also provide information about the variability of the data and the estimated parameters of the model this information can be useful for making predictions and understanding the behavior of the system being modeled based on the data being fed into the model it may be necessary to refine the model specific to the dataset being tested the residuals being calculated and the p value for potentially extreme data goodness of fit test vs independence testgoodness of fit test and independence test are both statistical tests used to assess the relationship between variables therefore it may be easy to confuse the two however each are designed to answer different questions a goodness of fit test is used to evaluate how well a set of observed data fits a particular probability distribution on the other hand an independence test is used to assess the relationship between two variables it is used to test whether there is any association between two variables the primary purpose of an independence test is to see whether a change in one variable is related to a change in another variable an independence test is typically used when the research question is focused on understanding the relationship between two variables and whether they are related or independent in many cases an independence test is pointed towards two specific variables i e does smoking cause lung cancer on the other hand a goodness of fit test is used on an entire set of observed data to evaluate the appropriateness of a specific model goodness of fit examplehere s a hypothetical example to show how the goodness of fit test works suppose a small community gym operates under the assumption that the highest attendance is on mondays tuesdays and saturdays average attendance on wednesdays and thursdays and lowest attendance on fridays and sundays based on these assumptions the gym employs a certain number of staff members each day to check in members clean facilities offer training services and teach classes but the gym isn t performing well financially and the owner wants to know if these attendance assumptions and staffing levels are correct the owner decides to count the number of gym attendees each day for six weeks they can then compare the gym s assumed attendance with its observed attendance using a chi square goodness of fit test for example now that they have the new data they can determine how to best manage the gym and improve profitability | |
what does goodness of fit mean | goodness of fit is a statistical hypothesis test used to see how closely observed data mirrors expected data goodness of fit tests can help determine if a sample follows a normal distribution if categorical variables are related or if random samples are from the same distribution | |
why is goodness of fit important | goodness of fit tests help determine if observed data aligns with what is expected decisions can be made based on the outcome of the hypothesis test conducted for example a retailer wants to know what product offering appeals to young people the retailer surveys a random sample of old and young people to identify which product is preferred using chi square they identify that with 95 confidence a relationship exists between product a and young people based on these results it could be determined that this sample represents the population of young adults retail marketers can use this to reform their campaigns | |
what is goodness of fit in the chi square test | the chi square test whether relationships exist between categorical variables and whether the sample represents the whole it estimates how closely the observed data mirrors the expected data or how well they fit | |
how do you do the goodness of fit test | the goodness of fit test consists of different testing methods the goal of the test will help determine which method to use for example if the goal is to test normality on a relatively small sample the shapiro wilk test may be suitable if wanting to determine whether a sample came from a specific distribution within a population the kolmogorov smirnov test will be used each test uses its own unique formula however they have commonalities such as a null hypothesis and level of significance the bottom linegoodness of fit tests determine how well sample data fit what is expected of a population from the sample data an observed value is gathered and compared to the calculated expected value using a discrepancy measure there are different goodness of fit hypothesis tests available depending on what outcome you re seeking choosing the right goodness of fit test largely depends on what you want to know about a sample and how large the sample is for example if wanting to know if observed values for categorical data match the expected values for categorical data use chi square if wanting to know if a small sample follows a normal distribution the shapiro wilk test might be advantageous there are many tests available to determine goodness of fit | |
what is the goods and services tax gst | the goods and services tax gst is a value added tax vat levied on most goods and services sold for domestic consumption the gst is paid by consumers but it is remitted to the government by the businesses selling the goods and services critics point out however that the gst may disproportionately burden people whose self reported income are in the lowest and middle income brackets making it a regressive tax these critics argue that gst can therefore exacerbate income inequality and contribute to social and economic disparities in order to address these concerns some countries have introduced gst exemptions or reduced gst rates on essential goods and services such as food and healthcare others have implemented gst credits or rebates to help offset the impact of gst on lower income households goods and services tax should not be confused with the generation skipping trust also abbreviated gst and its related taxation gstt understanding the goods and services tax gst the goods and services tax gst is an indirect federal sales tax that is applied to the cost of certain goods and services the business adds the gst to the price of the product and a customer who buys the product pays the sales price inclusive of the gst the gst portion is collected by the business or seller and forwarded to the government it is also referred to as value added tax vat in some countries most countries with a gst have a single unified gst system which means that a single tax rate is applied throughout the country a country with a unified gst platform merges central taxes e g sales tax excise duty tax and service tax with state level taxes e g entertainment tax entry tax transfer tax sin tax and luxury tax and collects them as one single tax these countries tax virtually everything at a single rate france was the first country to implement the gst in 1954 since then an estimated 140 countries have adopted this tax system in some form or another some of the countries with a gst include canada vietnam australia singapore united kingdom spain italy nigeria brazil and india dual goods and services tax structuresonly a handful of countries such as canada and brazil have a dual gst structure compared to a unified gst economy where tax is collected by the federal government and then distributed to the states in a dual system the federal gst is applied in addition to a local sales tax in canada for example the federal government levies a 5 tax and some provinces also levy a provincial sales tax pst which varies from 8 to 10 in this case a consumer s receipt will clearly have the gst and pst rate that was applied to their purchase value more recently the gst and pst have been combined in some provinces into a single tax known as the harmonized sales tax hst prince edward island was the first to adopt the hst in 2013 combining its federal and provincial sales taxes into a single tax since then several other provinces have followed suit including new brunswick newfoundland and labrador nova scotia and ontario critiques of the gstgst is generally considered to be a regressive tax meaning that it takes a relatively larger percentage of income from lower income households compared to higher income households this is because gst is levied uniformly on the consumption of goods and services rather than on income or wealth lower income households tend to spend a larger proportion of their income on consumables such as food and household goods which are subject to gst as a result gst can disproportionately burden lower income households because of this some countries with gst have considered possible adjustments that could make the tax more progressive by taking a larger percentage from higher income earners example india s adoption of the gstindia established a dual gst structure in 2017 which was the biggest reform in the country s tax structure in decades the main objective of incorporating the gst was to eliminate tax on tax or double taxation which cascades from the manufacturing level to the consumption level for example a manufacturer that makes notebooks obtains the raw materials for say rs 10 which includes a 10 tax this means that they pay rs 1 in tax for rs 9 worth of materials in the process of manufacturing the notebook the manufacturer adds value to the original materials of rs 5 for a total value of rs 10 rs 5 rs 15 the 10 tax due on the finished good will be rs 1 50 under a gst system the previous tax paid can be applied against this additional tax to bring the effective tax rate to rs 1 50 rs 1 00 rs 0 50 in turn the wholesaler purchases the notebook for rs 15 and sells it to the retailer at a rs 2 50 markup value for rs 17 50 the 10 tax on the gross value of the good will be rs 1 75 which the wholesaler can apply against the tax on the original cost price from the manufacturer i e rs 15 the wholesaler s effective tax rate will thus be rs 1 75 rs 1 50 rs 0 25 similarly if the retailer s margin is rs 1 50 his effective tax rate will be 10 x rs 19 rs 1 75 rs 0 15 total tax that cascades from manufacturer to retailer will be rs 1 rs 0 50 rs 0 25 rs 0 15 rs 1 90 india has since launching the gst on july 1 2017 implemented the following tax rates the previous system with no gst implied that tax was paid on the value of goods and margin at every stage of the production process this would translate to a higher amount of total taxes paid which was then carried down to the end consumer in the form of higher costs for goods and services the implementation of the gst system in india was therefore a measure that was used to reduce inflation in the long run goods and services tax vs generation skipping transfer taxgst should not be confused with the generation skipping transfer tax gstt and they are not at all related to one another the former is a sort of vat tax added to the purchase of goods or serves meanwhile gstt is a flat 40 federal tax on the transfer of inheritances from one s estate to a beneficiary who is at least 37 years younger than the donor the gst tax prevents wealthy individuals from avoiding estate taxes through naming younger beneficiaries such as grandchildren who has to pay gst in general goods and services tax gst is paid by the consumers or buyers of goods or services some products such as from the agricultural or healthcare sectors may be exempt from gst depending on the jurisdiction | |
how is gst calculated | the goods and services tax gst is computed by simply multiplying the price of a good or service by the gst tax rate for instance if the gst is 5 a 1 00 candy bar would cost 1 05 | |
what are the benefits of the gst | the gst can be beneficial as it simplifies taxation reducing several different taxes into one straightforward system it also is thought to cut down on tax avoidance among businesses and reduces corruption | |
are vat and gst the same | value added tax vat and goods and services tax gst are similar taxes that are levied on the sale of goods and services both vat and gst are also indirect taxes which means that they are collected by businesses and then passed on to the government as part of the price of the goods or services however there are some key differences between the two vat is primarily used in european countries and is collected at each stage of the production and distribution process while gst is used in countries around the world and is collected only at the final point of sale to the consumer vat is generally applied to a wider range of goods and services than gst and the rates of vat and gst can vary depending on the type of goods or services being sold and the country in which they are sold the bottom linethe goods and services tax gst is a type of tax levied on most goods and services sold for domestic consumption in many countries it is paid by consumers and remitted to the government by the businesses selling the goods and services some countries have introduced gst exemptions or reduced gst rates on essential goods and services or have implemented gst credits or rebates to help offset the impact of gst on lower income households the gst is often a single rate tax applied throughout a country and is preferred by governments because it simplifies the taxation system and reduces tax avoidance in dual gst systems such as those in canada and brazil the federal gst is applied in addition to a local sales tax the gst has been identified by critics as regressive and can potentially place a relatively higher burden on lower income households | |
what is goodwill | in business goodwill is an intangible asset that is recorded when one company is purchased by another it is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process this difference is due to things like the value of a company s name brand reputation loyal customer base solid customer service good employee relations and proprietary technology goodwill represents a value that can give the acquiring company a competitive advantage it is one of the reasons that one company may pay a premium for another investopedia lara antalunderstanding goodwillthe value of goodwill typically matters when one company acquires another a company s tangible value is the fair value of its net assets however the purchasing company may pay above this price for the target company this difference is usually due to the value of the target s goodwill if the acquiring company pays less than the target s book value it gains negative goodwill also known as badwill this means that it purchased the company at a bargain in a distress sale goodwill is recorded as an intangible asset on the acquiring company s balance sheet under the long term assets account goodwill is considered an intangible or non current asset because it is not a physical asset like buildings or equipment under generally accepted accounting principles gaap and the international financial reporting standards ifrs companies are required to evaluate the value of goodwill on their financial statements at least once a year and record any impairments 1goodwill is not the same as other intangible assets goodwill is the premium paid over fair value during a transaction and cannot be bought or sold independently other intangible assets like licenses or patents can be goodwill has an indefinite life while other intangibles have a finite useful life goodwill impairmentsaccounting goodwill involves impairments impairment of an asset occurs when the market value of the asset drops below historical cost this can occur as the result of an adverse event such as if a company assesses that acquired net assets fall below the book value or if the amount of goodwill was overstated then the company must impair or do a write down on the value of the asset on the balance sheet the impairment expense is calculated as the difference between the current market value and the purchase price of the intangible asset the impairment results in a decrease in the goodwill account on the balance sheet the expense is also recognized as a loss on the income statement which directly reduces net income for the year in turn earnings per share eps and the company s stock price are also negatively affected companies assess whether an impairment exists by performing an impairment test on an intangible asset the two commonly used methods for testing impairments are the income approach and the market approach calculating goodwillthe process for calculating goodwill is fairly straightforward in principle but can be complex in practice to determine goodwill with a simple formula take the purchase price of a company and subtract the net fair market value of identifiable assets and liabilities goodwill p a l where p purchase price of the target companya fair market value of assetsl fair market value of liabilities begin aligned text goodwill text p text a text l textbf where text p text purchase price of the target company text a text fair market value of assets text l text fair market value of liabilities end aligned goodwill p a l where p purchase price of the target companya fair market value of assetsl fair market value of liabilities there are competing approaches among accountants to calculating goodwill one reason for this is that goodwill involves factoring in estimates of future cash flows and other considerations that are not known at the time of the acquisition while normally this may not be a major issue it can become significant when accountants look for ways to compare reported assets or net income between different companies some of these may have acquired other firms and some may not have the financial accounting standards board fasb which sets standards for gaap rules at one time was considering a change to how goodwill impairment is calculated because of the subjectivity of goodwill impairment and the cost of testing it fasb was considering reverting to an older method called goodwill amortization this method would have reduced the value of goodwill annually over a number of years however in 2022 this project was set aside and the older method was retained 2limitations of goodwillgoodwill is difficult to price and negative goodwill can occur when an acquirer purchases a company for less than its fair market value this usually occurs when the target company cannot or will not negotiate a fair price for its acquisition negative goodwill is usually seen in distressed sales and is recorded as income on the acquirer s income statement there is also the risk that a previously successful company could face insolvency at the point of insolvency the goodwill the company previously enjoyed has no resale value when this happens investors deduct goodwill from their determinations of residual equity example of goodwillif the fair value of company abc s assets minus liabilities is 12 billion and a company purchases company abc for 15 billion the premium paid for the acquisition is 3 billion 15 billion 12 billion this 3 billion will be included on the acquirer s balance sheet as goodwill for an actual example consider the t mobile and sprint merger announced in early 2018 3 the deal was valued at 35 85 billion as of march 31 2018 per an s 4 filing 4 the fair value of the assets was 78 34 billion and the fair value of the liabilities was 45 56 billion the difference between the assets and liabilities is 32 78 billion thus goodwill for the deal would be recognized as 3 07 billion 35 85 billion 32 78 billion the amount over the difference between the fair value of the assets and liabilities 5 | |
how is goodwill different from other assets | goodwill is an intangible asset that is created when one company acquires another company for a price greater than its net asset value like other assets it is shown on the company s balance sheet unlike other assets that have a discernible useful life goodwill is not amortized or depreciated but is instead periodically tested for goodwill impairment if the goodwill is thought to be impaired the value of goodwill must be written off reducing the company s earnings | |
how is goodwill used in investing | evaluating goodwill is a challenging but critical skill for many investors it can be difficult to tell whether the goodwill claimed on a balance sheet is justified when analyzing a company s balance sheet investors should scrutinize what is behind its stated goodwill to determine whether that goodwill may need to be written off in the future in some cases the opposite can also occur with investors believing that the true value of a company s goodwill is greater than that stated on its balance sheet | |
what is an example of goodwill in an acquisition | in 2017 amazon com inc amzn bought whole foods market inc for 13 7 billion at that time the current share price of whole foods was 35 amazon ended up paying 42 per share 6 in total amazon paid 9 billion more than the value of whole foods net assets that amount was recorded as the intangible asset goodwill on amazon s books the bottom linegoodwill is an intangible asset that can relate to the value of the purchased company s brand reputation customer service employee relationships and intellectual property it represents a value and potential competitive advantage that may be obtained by one company when it purchases another it is the amount of the purchase price over and above the amount of the fair market value of the target company s assets minus its liabilities while goodwill officially has an indefinite life impairment tests can be run to determine if its value has changed due to an adverse financial event if there is a change in value that amount decreases the goodwill account on the balance sheet and is recognized as a loss on the income statement | |
what is goodwill impairment | goodwill impairment is an accounting charge that companies record when goodwill s carrying value on financial statements exceeds its fair value in accounting goodwill is recorded after a company acquires assets and liabilities and pays a price in excess of their identifiable net value goodwill impairment arises when there is a deterioration in the capabilities of acquired assets to generate cash flows and the fair value of the goodwill dips below its book value michela buttignol investopedia | |
how goodwill impairment works | goodwill impairment is an earnings charge that companies record on their income statements after they identify that there is persuasive evidence that the asset associated with the goodwill can no longer demonstrate financial results that were expected from it at the time of its purchase goodwill is an intangible asset commonly associated with the purchase of one company by another specifically goodwill is recorded in a situation in which the purchase price is higher than the net of the fair value of all identifiable tangible and intangible assets and liabilities assumed in the process of an acquisition the value of a company s brand name solid customer base good customer relations good employee relations and any patents or proprietary technology represent some examples of goodwill because many companies acquire other firms and pay a price that exceeds the fair value of identifiable assets and liabilities that the acquired firm possesses the difference between the purchase price and the fair value of acquired assets is recorded as goodwill however if unforeseen circumstances arise that decrease expected cash flows from acquired assets the goodwill recorded can have a current fair value that is lower than what was originally booked and the company must record a goodwill impairment special considerationsgoodwill impairment became an issue during the accounting scandals of 2000 2001 many firms artificially inflated their balance sheets by reporting excessive values of goodwill which was allowed at that time to be amortized over its estimated useful life amortizing an intangible asset over its useful life decreases the amount of expense booked related to that asset in any single year while bull markets previously overlooked goodwill and similar manipulations the accounting scandals and change in rules forced companies to report goodwill at realistic levels current accounting standards require public companies to perform annual tests on goodwill impairment and goodwill is no longer amortized 23u s generally accepted accounting principles gaap require companies to review their goodwill for impairment at least annually at a reporting unit level 1 events that may trigger goodwill impairment include deterioration in economic conditions increased competition loss of key personnel and regulatory action the definition of a reporting unit plays a crucial role during the test it is defined as the business unit that a company s management reviews and evaluates as a separate segment reporting units typically represent distinct business lines geographic units or subsidiaries the basic procedure governing goodwill impairment tests is set out by the financial accounting standards board fasb in accounting standards update no 2017 04 intangibles goodwill and other topic 350 simplifying the test for goodwill impairment 1example of goodwill impairmentperhaps the most famous goodwill impairment charge was the 54 2 billion reported in 2002 for the aol time warner inc merger 4 this was at the time the largest goodwill impairment loss ever reported by a company 5 | |
how do companies report goodwill impairment | companies record goodwill impairment as an earnings charge on their income statements this happens after they identify persuasive evidence that the asset associated with the goodwill can no longer demonstrate financial results expected from it at the time of its purchase | |
what is goodwill | goodwill is an intangible asset that is recorded when one company is purchased by another it is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process | |
how often must companies test for goodwill impairment in the united states | in the u s generally accepted accounting principles gaap require companies to review their goodwill for impairment at least once a year at a reporting unit level catalysts for goodwill impairment include increased competition economic deterioration loss of key personnel and regulatory action the bottom linegoodwill impairment is an accounting charge incurred when the fair value of goodwill drops below the previously recorded value from the time of an acquisition goodwill in accounting is recorded after a company acquires assets and liabilities and pays a price in excess of their identifiable net value | |
what is a google tax | a google tax also known as a diverted profits tax refers to anti tax avoidance provisions that have been introduced in some countries several jurisdictions implemented the provision to stop companies from diverting profits or royalties to other jurisdictions that have lower or even zero tax rates for example internet giant alphabet inc s googl google paid a negligible amount in taxes in the united kingdom by completing its transactions in the low tax city of dublin ireland even though it earned 6 5 billion in revenue in the u k understanding the google taxthough the term includes the name of the company google that became the poster boy for the practice diverting profits is rampant across various industry sectors technology giants from the u s like meta formerly facebook meta apple inc aapl and amazon inc amzn as well as other multinational corporations like starbucks inc sbux and diageo plc deo have all used such practices to lower their tax bills for instance a mobile app like meta s whatsapp messenger or a game like clash of clans may not have a single employee in a particular country but it can still derive a lot of profit from its local user base through online ads and in app purchases companies enjoyed the freedom to account for such revenues and earnings at a destination of their choice and they often diverted it to low cost jurisdictions as a result the u s securities and exchange commission sec mandates that american businesses publicly report details on where and how much revenue they generate across the globe allowing the authorities of other countries such as the united kingdom and australia to obtain more concrete data on any possible tax avoidance measures those businesses may be using in the u k and australia tax laws were modified to prevent companies from following such practices amid rising public anger the u k introduced a diverted profits tax in 2015 which it set at 25 1 her majesty s revenue and customs hmrc the u k s tax collection agency secured 6 5 billion around 8 33 billion in additional taxes by challenging the transfer pricing arrangements of multinationals between 2012 2018 its own figures show that it took in an extra 853 million around 1 09 billion in 2015 16 1 62 billion around 2 08 billion in 2016 17 and 1 68 billion around 2 15 billion in 2017 18 2australia began implementing measures in 2015 that led to the introduction of its own diverted profits tax from july 2017 onward it imposed a 40 tax on such tax avoidance practices 3responding to these developments global enterprises are now voluntarily paying up past dues and entering into settlements with the tax authorities to avoid being shamed by a google tax diageo the london based beverage giant behind johnnie walker scotch tanqueray gin and other major brands struck an agreement with the hmrc to pay an extra 190 million around 244 million in corporation tax to avoid the potential damage to its brand reputation emerging from the google tax 4 google also agreed in 2016 to pay about 185 million in back taxes to the u k 5facing similar charges in france google paid french authorities nearly 1 billion euros about 1 1 billion in fines and additional taxes in 2019 the company said at the time we remain convinced that a coordinated reform of the international tax system is the best way to provide a clear framework for companies operating worldwide 6 | |
what is a digital services tax | a digital services tax dst is a tax imposed by certain countries on the revenues of large multinational companies offering goods or services online as of october 2023 38 countries around the world had either enacted or were considering dsts they include austria with a 5 tax france 3 tax italy 3 tax spain 3 tax and the u k 2 tax 7 at the same time the organisation for economic co operation and development oecd has been working on an international agreement that would provide for taxing these companies and distributing the proceeds among the various nations eliminating the need for separate unilateral dsts 8 | |
what is the double irish dutch sandwich strategy | the double irish dutch sandwich strategy was a tax avoidance scheme practiced at one time by google and other companies it involved funneling profits to an irish subsidiary then a dutch subsidiary and finally to a second irish subsidiary based in a tax haven such as bermuda the result was to eliminate or indefinitely postpone any taxes due to the united states or other countries where the profits actually originated the loopholes that made this possible were effectively closed as of 2020 9 | |
what is tax avoidance vs tax evasion | tax avoidance involves various tactics to reduce a company s or an individual s tax obligations often by taking advantage of loopholes in the law tax avoidance is perfectly legal but sometimes sneaky seeming tax evasion on the other hand occurs when a company or an individual attempts to reduce their tax bill by illegal means such as concealing income 10the bottom linea google tax is one that s imposed on companies that divert their profits from a country where the money was earned to another country with lower or no taxes while some of the most egregious tax avoidance practices have been curtailed in recent years individual countries and global bodies continue to work on ways to tax multinational companies particularly digital ones in a fair manner | |
who is gordon gekko | gordon gekko is a fictional character who appears as the villain in the popular 1987 oliver stone movie wall street and its 2010 sequel wall street money never sleeps the character a ruthless and wildly wealthy investor and corporate raider has become a cultural symbol for greed as epitomized by the famous wall street quote greed is good investopedia alison czinkotaunderstanding gordon gekkoin wall street the protagonist a young stockbroker named bud fox is desperate to work with gordon gekko who is a legend in the world of finance predatory amoral gekko is only impressed when fox is willing to compromise his ethics and provide gekko with inside information about his father s company gekko makes fox wealthy but eventually fox regrets what he has done and turns state s evidence against gekko who is sent to prison for securities fraud and insider trading for his portrayal of gordon gekko in the original film michael douglas won an academy award influences for the character of gordon gekkothe character of gordon gekko was not based on any one person but rather on a composite of real life financiers stanley weiser who co wrote the screenplay with oliver stone claimed that gekko was partially based on corporate raider carl icahn disgraced stock trader ivan boesky and investor michael ovitz the famous gekko quote greed is good echoes a speech boesky gave in 1985 at the university of california berkeley school of business administration when he said i think greed is healthy you can be greedy and still feel good about yourself gekko s penthouse office and elegant suits were modeled after those of art collector asher edelman weiser adds that some of gekko s blunt workaholic dialogue is lifted from the phone calls and work sessions of the film s director and co writer oliver stone the film s producer ed pressman stated that one of the inspirations for gordon gekko was michael milken in the 1980s milken gained a reputation as the junk bond king but he was arrested in 1989 and convicted of multiple counts of fraud and racketeering oliver stone looks to his father as the inspiration for the overall film of wall street as his father was a broker and frequently lamented the lack of good movies on business emulation of gordon gekkodespite the fact that gordon gekko was clearly a villain in wall street many aspiring financiers saw him as a mythical antihero they adopted the character as a role model of how to survive in the cutthroat culture of investment finances to counter this image michael douglas worked with the federal bureau of investigation in 2012 to create a documentary exposing inside trading 1 the actor who played gordon gekko was concerned that people see the character as a criminal and not a role model | |
what is the gordon growth model ggm | the gordon growth model ggm is a formula used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate it is a popular and straightforward variant of the dividend discount model ddm the ggm assumes that dividends grow at a constant rate in perpetuity and solves for the present value of the infinite series of future dividends because the model assumes a constant growth rate it is generally only used for companies with stable growth rates in dividends per share investopedia xiaojie liugordon growth model formulathe gordon growth model formula is based on the mathematical properties of an infinite series of numbers growing at a constant rate the three key inputs in the model are dividends per share dps the growth rate in dividends per share and the required rate of return ror p d 1 r g where p current stock price g constant growth rate expected for dividends in perpetuity r constant cost of equity capital for the company or rate of return d 1 value of next year s dividends begin aligned p frac d 1 r g textbf where p text current stock price g text constant growth rate expected for text dividends in perpetuity r text constant cost of equity capital for the text company or rate of return d 1 text value of next year s dividends end aligned p r gd1 where p current stock priceg constant growth rate expected fordividends in perpetuityr constant cost of equity capital for thecompany or rate of return d1 value of next year s dividends source stern school of business new york university 1importance of the gordon growth modelthe ggm attempts to calculate the fair value of a stock irrespective of the prevailing market conditions and takes into consideration the dividend payout factors and the market s expected returns if the value obtained from the model is higher than the current trading price of shares then the stock is considered to be undervalued and qualifies for a buy and vice versa dividends per share represent the annual payments a company makes to its common equity shareholders while the growth rate in dividends per share is how much the rate of dividends per share increases from one year to another the required rate of return is the minimum rate of return investors are willing to accept when buying a company s stock and there are multiple models investors use to estimate this rate assumptions of the gordon growth modelthe gordon growth model values a company s stock using an assumption of constant growth in dividend payments that a company makes to its common equity shareholders the ggm assumes that a company exists forever and pays dividends per share that increase at a constant rate to estimate the intrinsic value of a stock the model takes the infinite series of dividends per share and discounts them back to the present using the required rate of return 2limitations of the gordon growth modelthe main limitation of the gordon growth model lies in its assumption of constant growth in dividends per share it is very rare for companies to show constant growth in their dividends due to business cycles and unexpected financial difficulties or successes the model is thus limited to firms showing stable growth rates the second issue occurs with the relationship between the discount factor and the growth rate used in the model if the required rate of return is less than the growth rate of dividends per share the result is a negative value rendering the model worthless also if the required rate of return is the same as the growth rate the value per share approaches infinity 1the gordon growth model can only be used to value companies that regularly issue dividends it may be less reliable for growth stocks since these companies tend to reinvest their profits rather than distributing them to shareholders example of the gordon growth modelas a hypothetical example consider a company whose stock is trading at 110 per share this company requires an 8 minimum rate of return r and will pay a 3 dividend per share next year d1 which is expected to increase by 5 annually g the intrinsic value p of the stock is calculated as follows p 3 08 05 100 begin aligned text p frac 3 08 05 100 end aligned p 08 05 3 100 according to the gordon growth model the shares are currently 10 overvalued in the market advantages and disadvantages of the gordon growth modelggm is a simple and straightforward way to establish the intrinsic value of a stock allows comparison between companies of different sizes and industries | |
does not account for non dividend factors that can also contribute to a company s value | assumes stable continuous growth in dividends can only be used for companies that issue dividends | |
what does the gordon growth model tell you | the gordon growth model attempts to calculate the fair value of a stock irrespective of the prevailing market conditions and takes into consideration the dividend payout factors and the market s expected returns 1 if the ggm value is higher than the stock s current market price then the stock is considered to be undervalued and should be bought conversely if the value is lower than the stock s current market price then the stock is considered to be overvalued and should be sold | |
what are the inputs for the gordon growth model | the three inputs in the ggm are dividends per share dps the growth rate in dividends per share and the required rate of return ror dps is the annual payments a company makes to its common equity shareholders while the dps growth rate is the yearly rate of increase in dividends the required rate of return is the minimum rate of return at which investors will buy a company s stock 1 |
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