– Or –
For an investor, an IRR calculation can measure the return on their portfolio. As an example if you had invested $100,000 that grew to $200,000 at the end of five years, the IRR, (in simple terms) would be the interest rate required to grow $100,000 to $200,000 over five years (14.87%).
You could then compare that IRR to returns you could have had in other investments.
To put it mildly, it has been a challenging environment for both the equity and bond markets this year and the forces behind the turbulence are rightly top of mind these days. Sitting front and center is the Federal Reserve and its management of inflation through its monetary policy.
Perspective is always valuable in times such as these and one of the many economists we follow on a regular basis is Brian Wesbury, Chief Economist at First Trust. It is Brian's belief that excess money supply is the root cause of inflation. We thought you would find his recent commentary, "Will Higher Interest Rates Tame Inflation" of interest. Partly because the Federal Reserve’s effort to tame inflation by raising interest rates is in the forefront of daily news. Also, because the Fed’s actions are fueling current stock market downturns, by raising fears of a recession. This piece offers a peek behind the Fed’s “Green Door”, highlighting the interplay between its activities and bank reserves and lending intended to stem inflation. We hope you find it as interesting as we did. ~ Charles H. Baldwin, MBA, CLU, CHFC
The financial planning process is a lot like planning a vacation, although not anywhere near as fun.
The two most important parts of planning a “perfect” stress-free vacation are
1) figuring out the goals for your vacation (what, where, when,
with whom, for how long), and
2) developing a budget that won’t leave you stressed.
While the first phase of identifying the goals can be generally straight-forward, the next phase of figuring the cost of items for your vacation such as travel, lodging, dining, etc. can be a bit trickier. Designing a budget is always the tough part. In a perfect world, you wouldn’t need to sacrifice flying first class or staying at a 5-star resort, but the realities of life often drive the need to determine what pieces of your journey need to be adjusted or cut to stay within your budget.
Similar to getaway planning, financial planning, at its basic level involves matching goals and resources.
Working capital is defined as the difference between a business’s current assets and its current liabilities listed on its balance sheet. Current assets are items that can be converted into cash over the short term while current liabilities similarly are obligations that need to be satisfied shortly.
Net working capital (NWC), calculated by subtracting current liabilities from current assets, is a measure of both short term liquidity and operating efficiency. Positive net working capital indicates adequate resources for a business to function and meet its operating needs, whereas negative NWC can indicate insufficient capacity to pay creditors.
Working capital management is an important management factor for businesses, but it also can be very nuanced, is constantly changing, as well as specific to the type of business being evaluated. As an example, high levels of positive working capital is not always a good thing and could suggest that either cash is not being utilized efficiently or there is too much inventory.
Lastly, in the context of a business transfer or sale, working capital is a key negotiating point as sellers typically want to take as much cash out as possible while buyers want some operating cash left in to run the business post-closing.
#finterms #workingcapital #finance #assets
Wealth Management Services are offered through Baldwin & Clarke Advisory Services, LLC (BCAS). BCAS is a Registered Investment Adviser with the United States Securities and Exchange Commission (SEC). BCAS’ Form CRS and other disclosure documents can be found here. The information in this website has not been approved or verified by the SEC, or by any state securities authority. Additional information about BCAS is available on the SEC’s website at: www.adviserinfo.sec.gov, using CRD #105666.
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