In the last 20 years there were two periods, when US companies substituted equity by debt, especially by issuing corporate bonds. Consequently, between 1984 and 1990 and in the second half of the 1990s leverage rose dramatically. It also stands out that there were various periods when banks’ lending standards were extremely restrictive and one period, namely since 2000, when activity in the commercial paper market slowed down. Both events spurred corporate bond issuance in the past. If the usual pattern of the credit cycle holds, equity buybacks remain subdued until the economic expansion gains ground. As long as companies are willing to repair their balance sheets, net corporate bond issuance is also expected to be low. The analysis of the maturity structure of outstanding US and Euro corporate bonds shows a massive amount of redemptions for 2004 and 2005. On the other hand, while supply should remain weak during this period, demand for US financial assets by foreign residents is expected to remain strong. It is primarily driven by European investors and Asian central banks that pour huge amounts of money into the US capital market. A potential shift in the balance of supply and demand, however, is an important technical factor for the outlook for corporate bond spreads.
Category Archives: financial crisis
Substituted equity by debt
Nothing wrong with investment bigamy
This is a long-term process and you will be asked to repeat the steps outlined in Chapter 9 at least annually as your financial circumstances change over the years. However, if you have thoroughly worked the program outlined in this book and continue to be unhappy with your investments, do not be discouraged. The program in this book will teach you who you are in relation to investments, how to accept yourself as that person, and what investments work for that person. If nothing works for the person you discover yourself to be or if you cannot discover yourself in this process, then it is necessary to change yourself. Sometimes your investments are not wrong; instead, you need a new way to look at your investments and you need to give yourself the gift of getting those new glasses.
A Guide to Tracking Receivables: The three indicators – part 1
The three indicators based on balance—balance in excess of the credit limit, longest-running balance, and highest balance—represent elective risk based on sales decisions the company has made regarding specific customers. If the risk grows too great, a change in policy and procedure may be in order. The credit manager may be too lax in his or her
standards. (It may be good to stretch a little to meet new account needs, but too much stretch and the relationship will break.) The people responsible for collections may need to be more diligent in their efforts. Regular tracking in these four areas will help better control extremes in ACCOUNTS RECEIVABLE.
A Guide to Tracking Receivables: Reports maximizing the company’s financial potential – part 2
Receivables aging. This sort of report has two basic purposes. First, it allows managers to understand how old the receivables are; the older a receivable, the less likely it will be collected. Second, the report helps accountants calculate the amount of money to allow for uncollectible accounts.
Customer balance tracking. In preserving the asset value of the ACCOUNTS RECEIVABLE, keep a close eye on customer-related accounts. Pay special attention to accounts that have aged excessively, accounts for which the balance exceeds the credit limit, accounts with the longest-running balance, and accounts with the highest balance.
A Guide to Tracking Receivables: Reports maximizing the company’s financial potential – part 1
The ACCOUNTS RECEIVABLE system can be used to generate a lot of reports. All have value, some more than others, but all take time and resources to complete. The following reports help maximize the company’s financial potential:
Receivables turnover. The faster receivables turn over and amounts owed are converted into cash, the better. ACCOUNTS RECEIVABLE turnover rate is calculated by dividing net credit sales by the average of accounts receivables. If the turnover rates of both accounts receivable and accounts payable match, so much the better. If the ACCOUNTS RECEIVABLE turnover rate exceeds that of payables, fantastic! That means money is coming in faster than it’s going out. And it doesn’t get any better than that.
Liquidity. The relative liquidity of an ACCOUNTS RECEIVABLE portfolio determines the quality of that portfolio as collateral for loans. The higher the liquidity, the greater the value of that portfolio. Measure liquidity by the number of sales days tied up in ACCOUNTS RECEIVABLE: days of sales in ACCOUNTS RECEIVABLE = 365 / ACCOUNTS RECEIVABLE turnover rate (The ACCOUNTS RECEIVABLE turnover rate is the net credit sales divided by the average of accounts receivable, as calculated above.)
Set realistic goals
Perhaps the only thing worse than dragging your feet on getting started is setting completely unrealistic goals. We’ve all known those people. They’re the ones you see a few days after New Year’s Day, and they inform you that in their quest to get in shape, they’ve signed up for a triathlon. Now, you know this person. You know that they haven’t run a lap since high school. You know they don’t know how to ride a bike. Worst of all, you know they’re afraid of water. It doesn’t take a lot of guesswork to figure out that this person will probably give up on their goal after a few weeks.
The same holds true with your debt reduction plan. You’ve got to learn to crawl before you can walk, and learn to take control of your spending piece by piece, before you can start paying down large amounts. As you embark on your quest to get rid of debt, here are some tips on setting realistic goals:
If you’ve got more than a couple thousands of dollars in debt, you shouldn’t expect to eliminate it in less than a year. A more realistic goal is 12 to 24 months for your short-term debts, and 10 to 20 years for your long-term debts.
I’d love to see you cut your expenses in half if you can, but most people won’t be able to do that. A more reasonable goal is to cut your expenses by 10% to 15% until you get out of debt.
Suddenly increasing your debt repayments is kind of like stepping on the gas real hard when your car is standing still on a gravel road. The wheels are going to spin for a bit before you finally get some traction. As you begin to make increased payments, it may not feel like you’re getting anywhere for a few months. Keep your foot on the gas, and you’ll get some traction before long.
Start investing today
Did you know that there is one day of the week that is statistically proven to be the worst for starting a successful diet? Any guesses? The worst day to start a diet is … tomorrow!
The longer you wait to put your plan into action, the less likely it is to have a permanent effect. If you truly want to resolve yourself to getting rid of debt, you need to take the first step today. I don’t care if you’re reading this book on a lounge chair in the Bahamas on your vacation, you can begin making immediate changes. Just say no to that souvenir.
Exploiting Position
The importance of position in framing plans (and creating value) is evident in the more complex strategies employed by the entertainment industry.
An entertainment industry myth is that owning a hit television show or movie is the key to a winning strategy. “Content is king” is an old catchphrase of the media and the entertainment world. At the extreme, it is true—but it is more a truism, no more a guide to strategy than is advice to only buy stocks that are about to rise. The largest value is derived not from ownership of any one media property, but from aggregating them (or, in the argot of the industry, “packaging” them). The package and the supporting infrastructure create the strategic position from which individual options (or plans) can be framed.
Owning rights to one future Disney movie or one Steven Spielberg movie is itself no guarantee of economic wealth. In fact, most of Disney’s animated movies and most of Spielberg’s movies have lost money when costs were measured narrowly against box office receipts.3 Why, then, have these films been creators of great corporate and personal wealth?
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Recent Posts
- Credit informational asymmetries
- Adverse selection in a loan model
- Conditional credit expectation rule
- A credit discriminatory pricing rule
- Types of bank capital represent its own credit risk class
- Different degrees of loans subordination
- General fluctuations of credit spreads
- Investors require a premium for taking on credit risk
- Lagging indicators of credit quality
- Selection of your credit spread class
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