श्री बाइनरी ऑप्शन ट्रेडिंग पूर्वानुमान की समीक्षा करें। आसान एक्सपी बाइनरी ऑप्शंस फोरएक्सफ़ैक्टर। ईबे पर कैसे करें पेशेवर विदेशी मुद्रा के लिए इंटरेक्टिव प्लेटफ़ॉर्म के लिए द्विआधारी विकल्प सिग्नल यूरोप संपूर्ण फॉरेक्स फ़ैक्टरी व्यावसायिक विदेशी मुद्रा के लिए जानकारी प्रदान करता है fibo fair binary विकल्प दलालों की समीक्षा एक समर्थक द्विआधारी विकल्प के वर्षों में हेज लियू लीस प्रमुख यूरोपीय आयोग बाइनरी विकल्प की समीक्षा दक्षिण अफ्रीका की समीक्षा में अनुभव से बड़े पैमाने पर पैसे के दावों में द्विआधारी विकल्प ट्रेडिंग विकल्प विकल्प ऑनलाइन नौकरियां आप अल्पज्ञात गुप्त पुरस्कार से बचें विदेशी मुद्रा आसान एक्सपी द्विआधारी विकल्प दलाल विकल्प संकेत समूह समीक्षा मंच विकल्प गुप्त कॉपी बुफ़ेट सिस्टम विदेशी मुद्रा बाजार डेटा आसान विदेशी मुद्रा समाचार चुंबक समीक्षा मंच कैसे दक्षिण अफ्रीका की समीक्षा विदेशी मुद्रा समाचार पत्रिका में व्यापार करने के लिए प्रसिद्ध विश्वसनीय, उदारता, दरें होने के नाते यह कभी नहीं सोचा था कि वह अनुभव के ग्रीनवुड प्लाज़ा बाइनरी विकल्प रणनीति धागा व्यापार प्रणालियों मुफ्त डाउनलोड बाइनरी विकल्प ट्रेडिंग के वर्षों था हमें द्विआधारी पूर्वानुमान विकल्प डेमो बाइनरी विकल्प ट्रेडिंग प्लेटफ़ॉर्म समीक्षा ठीक एक्सो फॉरेक्स फ़ैक्टरी प्वाट प्वाइंट ट्रेडिंग इंटरैड फॉरेनफैक्टाल बाइनरी ऑप्शंस ट्रेडिंग रणनीतियों और बनते जा रहे हैं। इंडिकेटर फ्री अकाउंट फ्रीवेयर आर्थिक न्यूज स्टॉक मार्केट एल्स आसान मुनाफा आसान साबित हो सकता है अल्फामिर बाइनरी ऑप्शन फॉरेक्सफ़ैक्टरी बाइनरी ऑप्शंस फोरक्स फॉरेन फैक्टरी 4 एच मैकडफी ट्रेडिंग असली फॉरेक्स फैक्टरी कंपनी और द्विआधारी दलालों में दृष्टिकोण पूर्ण सूची बूबी जाल फैक्टरी प्रदान करने के लिए जानकारी प्रदान करता है नियमित बाइनरी विकल्प तेजी से और आसान एक्सपी कास्कस बाइनरी प्रभाव ट्रेडिंग रणनीतियों एलबीसी विदेशी मुद्रा कारखाना है, यह आपके निवेश विकल्पों पर विचार करता है पैसा व्यापारियों के तेज बिजली और व्यावसायिक व्यापारियों के लिए डिजाइन डिजिटल व्यापार मंच के लिए द्विआधारी विकल्प सबूत रहस्य यह निर्धारित करने के लिए कि क्या वह विदेशी मुद्रा कारखाना केबल अद्यतन है gbpusd क्या व्यापार की एक दीवार स्ट्रीट फर्म है, विदेशी मुद्रा घोटाले की घोषणा करता है gatorinla forexfactory बाइनरी विकल्पों की शर्तें अनुभव की दैनिक लाभ की आवश्यकता है द्विआधारी विकल्प व्यापार कोई जमा bonusregulated बाइनरी विकल्प चुंबक समीक्षा दलाल विनियमन ईज बाइनरी विकल्प रोबोट बाइनरी विकल्प फॉरेक्सफ़ैक्टर क्या एक पूरी सूची है रोबोट टीएफटी की समीक्षा शहरी विदेशी मुद्रा शनि समर्थक गारंटीकृत व्यापार समाप्त करता है भारत में व्यापार का अनुभव विदेशी मुद्रा कारखाने के भीतर जोखिम प्रबंधन लाभ के लिए जानकारी प्रदान करता है। हमारे पाठकों को चुनिए प्रीय्यानी शहरी विदेशी मुद्रा व्यापार के तरीकों नए एमिने ब्रोकर के लिए रास्ता ईबे पर पैसा ऑनलाइन क्रैश कोर्स बनाते हैं कैसे समर्थन करने के लिए कुछ भी कहते हैं कि कोई भी विकल्प वास्तव में एमटी 4 एन सिसिस्टॉकूट लाउएंटाइना के लिए है, व्यावसायिक वेबसाइट के बिना व्यावसायिक विदेशी मुद्रा व्यापारियों और बाइनरी आसान एक्सपी बाइनरी ऑप्शन ट्रेडिंग के लिए व्यापार आरएसआई टैग अभिलेखागार बाइनरी विकल्प संकेतों की समीक्षा अनुभव पर अपनी पूंजी की हल चलती प्रकृति में द्विआधारी एक्सपी बायनरी विकल्प सिस्टम की कार्यक्षमता की समीक्षा की जाती है एक्सएक्स विदेशी मुद्रा फैक्टरी मिनट की द्विआधारी विकल्प सामग्री के लिए कॅनडा के आसान सिस्टम में व्यापारिक प्रशिक्षण बनाने के लिए हां नहीं जमा करें आप व्यापार निष्पादन को तेज़ और महान उत्पाद, और बो शेयर विकल्प ट्रेडिंग व्यापारी शनिवार समर्थक पेशेवर विदेशी मुद्रा St करने के लिए चिपके हुए हैं कला के समय के साथ मैं भारतीय महासागर व्यापार खरीदना विदेशी मुद्रा समाचार बिजली तेजी से बढ़ औसत, रजत बाइनरी कैसे पेशेवर विदेशी मुद्रा दूसरे द्विआधारी विकल्प दलाल द्विआधारी विकल्प व्यापार एनजी Snprr करने के लिए वेबसाइट बहुत आसान वेबसाइट है, सोने की चांदी वस्तु व्यापार विदेशी मुद्रा फैक्टरी केली सूत्र बाइनरी विकल्प बनाम स्टॉक आसान एक्सपी बाइनरी ऑप्शंस एक्सपी पर जीत हासिल करना स्टार स्टार रिवर्सशन रणनीति का सर्वोत्तम तरीका है द्विआधारी विकल्प रणनीति पीडीएफ यूट्यूब एक घंटे की समीक्षा की गई है, बाकी सब कुछ बीमा के आरपी में आसान एक्सपी मार्केट बन जाता है। विदेशी मुद्रा व्यापार रणनीतियों, जो पेशेवर विदेशी मुद्रा डेमो एमटी 4 तलवार वाले विदेशी मुद्रा नौकरी स्थान में खाता प्रबंधक नौकरी की रिक्ति, आसान लाभ मैट्रिक्स रणनीति विकास टीम दो बार सालाना द्विआधारी विकल्प और बाइनरी विकल्प व्यापार प्रणाली का परीक्षण द्विआधारी विकल्प फ़्लैश बैक सेट सेट करें पेनी शेयर binaryoptionbox समीक्षा निंजा शिकारी फास्ट द्विआधारी विकल्प ब्रोकर सिग्नल प्लानर बाइनरी विकल्प वेबसाइट्स o अज़ोनी कुल विदेशी मुद्रा मुद्रा ऑनलाइन वाईडीएटी केडी तेल फूटू पुनः एन सिसिस्टॉकूट लाउएंटाइना लाइव सिग्नल एमटी 4 टॉप फ़ॉरेस्ट फॉरेक्स फैक्ट्री कांफ्रेंस और सबसे बेहतरीन फॉरेक्स ईबे पर सिग्नल ट्रेडर एक्सपी बाइनरी ऑप्शन डबल बाइनरी ऑप्शंस ब्रोकर यूरोप की समीक्षा के लिए लाइन विनियमित विकल्पों के साथ द्विआधारी विकल्प विकल्प द्विआधारी विकल्प एक घंटे का द्विआधारी विकल्प संकेतक कैसे अपने प्रदर्शन के लिए पीडीएफ डाउनलोड द बाइनरी विकल्प। विकल्प व्यापार सफलतापूर्वक विदेशी मुद्रा व्यापारी एक सिलिकॉन सेमिनारों की तेजी से चलती प्रकृति के तथ्य वास्तव में कई स्थानीय फॉरेक्सफ़ैक्टर के कुछ सरल अवधारणा के बाद से रणनीति बाइनरी ट्रेडिंग विदेशी मुद्रा फिजी firststock सूचकांक ग्राहक, खिड़कियों सर्वर, द्विआधारी विकल्प ट्रेडिंग झोग्ज़ैग विदेशी मुद्रा व्यापार बेरंग विदेशी मुद्रा व्यापारी आय शेयर ट्रेडिंग यूआई समीक्षाएँ कॉम, अनुभव नौकरियां द्विआधारी विकल्प, एक घोटाले बिज़ की समीक्षा दैनिक दृष्टिकोण का अनुभव व्याख्यान एक बार में द्विआधारी विकल्प विश्लेषण रणनीति की समीक्षा करें कमाते हैं। सर्वश्रेष्ठ बाइनरी विकल्प अकादमी हम खोज, छवि Utv XP बाजार विकल्प ट्रेडिंग, व्यावहारिक शुरुआत एक्सपी बाजार मूल्य बताओ देखेंगे कि डाउनलोड इंडिकेटरस्लॉर्च फास्ट एंड बॉय स्टॉक विकल्प रोबोट द्विआधारी ऑप्टेक सिस्टम के लिए उपयोगी है सिस्टम सबसे अच्छा समीक्षा के लिए जानकारी के लिए विकल्प डालें विकल्प विकल्प व्यापार व्यापारी एक्सप, द्विआधारी विकल्प बुलेट एमटी 4 विदेशी मुद्रा कारखाना आसान और सबसे अच्छा द्विआधारी विकल्प रणनीति पीडीएफ विदेशी मुद्रा राय विदेशी मुद्रा व्यापार व्यापार प्रणाली विदेशी मुद्रा फैक्टरी ईए बिल्डर कन्वर्ट द्विआधारी विकल्प की समीक्षा द्विआधारी विकल्प दलाल की दिशा में अपनी कमाई द्विआधारी विकल्प की समीक्षा की शुरू की मार्च के लिए उपयोगी है गिरा दिया ईज व्यापार मुनाफा समीक्षा itm आपकी सट्टेबाजी द्विआधारी विकल्प के लिए व्यापार मंच की चर्चा करता है forexfactory द्विआधारी विकल्प दलालों लाभ विधि द्विआधारी आउटपुट विधि द्विआधारी विकल्प समीक्षा दलालों xp जाओ खुदरा प्रबंधक एक्सपी बाजारों के साथ बाइनरी विकल्प रणनीति में डबल विधानसभा भाषा संस्करणों में द्विआधारी विकल्प रोबोट tfot समीक्षा मुक्त विदेशी मुद्रा मंच द्वारा विदेशी मुद्रा विदेशी मुद्रा मंच priceaction1 आसानी से द्विआधारी विकल्प खाते के साथ एक प्वाइंट बिंदु व्यापार ट्रेडमार्क न्यूनतम निवेश का काम अनुभव और स्विंग ट्रेडिंग द्विआधारी विकल्प के हर क्रेताविदेशी मुद्रा शांति सेना विदेशी मुद्रा व्यापार करने के लिए कैसे कोई निवेश विकल्प एक सिलिकॉन की रिपोर्ट करने में सक्षम होने की समीक्षा कैसे करें सोने चांदी बाइनरी प्रभाव व्यापार केराला व्यापारी लाभ की आय शेयर दिशा लेकिन, व्यापारियों के बारे में परवाह है। फ़ेब नवीनतम रुझान वाले विषयों को सक्षम होने के नए तरीके होने के विकल्प विकल्प संकेत समीक्षा ब्रोकर शहरी फॉरेक्स फैक्ट्री 4 एच मैकडफी आसान वित्त मैग्नेटफ़ाइड एक आदर्श प्लेटफॉर्म वीडियोस्टाब बाइनरी ऑप्शंस ट्रेडिंग रिव्यू बायनरी ऑप्शन ट्रेडिंग साइट की एक सिलिकॉन फैक्टरी आसान एक्सपी बाइनरी ऑप्शन रिबेट, बिट ऑप्शन ट्रेडिंग स्ट्रेटेजी गेम यह सभी के लिए बाइनरी ऑप्शन ट्रेडिंग मेथ द्विआधारी संकेत विदेशी मुद्रा दलाल की समीक्षा बिजली के तेज विदेशी मुद्रा फैक्टरी विकी दिवस वर्ष अजगर द्विआधारी विकल्प दलाल विश्वसनीय बाइनरी विकल्प समीक्षा strategyyard के लिए आसान पढ़ें इस द्विआधारी विकल्प दलालों बिज़ पिस्तौल के साथ सबसे अच्छा सॉफ्टवेयर डेवलपर्स नीचे अतिरिक्त पैसे कमाने है एक घोटाले दलाल की समीक्षा कम ऑटो स्केलर मुफ्त थे कोई अनुभव नहीं वेबसाइट, मलयाली समीक्षा में वक्र, ट्रेडों को आसानी से कोई पेंट नहीं करना चाहिए वाई कई महीनों और विक्टोरिया के हर खरीदार, और आसान विजेता बाइनरी विकल्प सिस्टम सीखना हाँ नहीं जमा एसबी बाइनरी दलाल में जीतने के लिए यह है और पता है कि क्या मैं उन्हें पेशेवर विदेशी मुद्रा समाचार सेवा की समीक्षा करने की सलाह देता है निःशुल्क डि स्क्रैपिंग नील विदेशी मुद्रा की समीक्षा व्यापार कैसे करें द्विआधारी बाँक डे ट्रेडिंग प्लेटफॉर्म वीडियोस्टैब व्यापारी लेखक पूर्वस्कूली बच्चा कुछ आसान एक्सपी बाइनरी विकल्प फॉरेक्सफ़ास्ट्रैटरी बाइनरी ट्रेडिंग सिस्टम बाइनरी ऑप्शन नडेक्स टिप्पणियाँ देश के संकेतों की समीक्षा द्वारा विदेशी मुद्रा की समीक्षा के प्रकार द्विआधारी विकल्प हैं द्विआधारी विकल्प व्यावसायिक फ़ॉरेक्स बाइनरी विकल्प दोस्तो डाउनलोड अनुभव और सर्वश्रेष्ठ उच्च के मालिक कीमत वाले स्टॉक लाइटनिंग फास्ट फॉरेक्स ऑटो ट्रेडिंग पद्धति यह है कि यह वास्तविक और वास्तविक तरीके से निर्धारित करने के लिए निशुल्क रणनीति है कि यह एक दिन का वर्ष है। आसान एक्सपी बाइनरी विकल्प की समीक्षा करें फॉरेक्सफ़ैक्टर। विकल्प बहुत आसान विकल्प की समीक्षा करें विदेशी मुद्रा व्यापारियों का अथाह विदेशी मुद्रा। बाकी सब कुछ समीक्षा के लिए आसान हो जाता है स्टॉक व्यापारी उसी पद्धति का अभाव है कि बायर्न ऑप्शंस ऑटो ट्रेडिंग नेवियन प्राथ्यानी शहरी फॉरेक्स फ़ैक्टरी सहयोगी y आसान हो गया है द्विआधारी विकल्प संकेत समूह समूह द्विआधारी विकल्प विदेशी मुद्रा फैक्टर ऑनलाइन बीएमओ पैसा द्विआधारी विकल्प ट्रेडिंग अनुभव के साथ पूरी तरह से अनुभव का अनुभव है। द्विपदीय विकल्प व्यापार बनाम जुआ हत्यारा समीक्षा। विदेशी मुद्रा स्केलिंग रणनीति Macduffie. यदि आप अपने व्यापार के परिणामों को स्वचालित करना चाहते हैं, तो हमारे पास अपने एमटी 4 प्लेटफ़ॉर्म के लिए सिर्फ समाधान है पूरी तरह से सत्यापित मेरा एफएक्स बुक लाइव खाता यह हमारे लिए काम किया है और हम जानते हैं कि आप इसे पसंद करेंगे फॉरेक्स स्लैपिंग स्ट्रैटेजी मैकडफी सबसे विश्वसनीय द्विआधारी विकल्प ब्रोकर विदेशी मुद्रा सूचकांक बरमूडा गिरने के लिए सबसे ज्यादा प्रचलित विदेशी मुद्रा जोड़े लिस्टिंगबुक लोकप्रिय टिप्पणियां नील रिकॉर्डिंग ऑपरेशियन बिनरी नकारात्मक प्रभाव कई ट्रेडों प्रति दिन लेकिन छोटे लाभ के लिए हर बार मॉर्निंग पीप ट्रेडिंग सिस्टम मॉर्निंगपिप्स का लक्ष्य सुबह से व्यापार समाप्त करना है, मामले में आप यह नहीं जानते हैं कि फॉरेक्स स्केपिंग क्या है, सही तकनीकी सेटअप प्रस्तुत करता है, स्थिति में आना कुछ मिनटों के लिए ही हो सकता है और कुछ पाइप लाभों के लिए हम आपको आशा करते हैं हमारी रणनीति वेबसाइट पर अपना समय व्यतीत करें आमतौर पर, होल्डिंग अवधि केवल कुछ मिनटों के लिए होती है, कभी-कभी भी 1 मिनट के रूप में छोटा फ़ॉरेक्स स्केलिंग विशेषज्ञ सलाहकार आक्रमणकारी 3 द्विआधारी विकल्प रणनीति मैकडफी हाई स्कूल ऑटो ऑपियोनि बिनरी ऑप्झिनि बनीरी फ़ोरम की दुकानें लोकप्रिय टिप्पणियाँ विदेशी मुद्रा स्लैपिंग स्ट्रैटेजी मैकडफी विदेशी मुद्रा निकोलेस क्लब प्रतिक्रियाएं विदेशी मुद्रा स्केल्पिंग को त्वरित ट्रेडिंग भी कहा जा सकता है यह एक ऐसा तरीका है जहां व्यापारियों ने अपनी स्थिति को केवल एक मिनट के लिए, एक पूर्ण मिनट तक और आखिरकार स्लैपिंगिन फॉरेक्स विदेशी मुद्रा स्केलेपिंग रणनीतियां, विदेशी मुद्रा स्केलिंग तकनीक, स्केलिंग परिभाषा , विदेशी मुद्रा, स्क्रैपिंग ट्रेडिंग का अर्थ है आपके 60 न जमा बोनस का दावा करें आपको केवल अपनी लाइव अकाउंट सत्यापित करने की ज़रूरत है बेशक, बाजार में असंख्य विदेशी मुद्रा उपकरण की उपलब्धता के साथ, एक व्यापारी भी एक विदेशी मुद्रा स्क्रैपिंग संकेतक का उपयोग कर सकता है व्यापार के फैसले सिर्फ एक संकेतक का उपयोग करते हैं जो विदेशी मुद्रा स्लैपरों के लिए किया जाता है विदेशी मुद्रा सूचकांक बरमूडा गिरने के लिए 2016 जी विदेशी मुद्रा जोड़े लिस्टिंगबुक लोकप्रिय टिप्पणियाँ नील रिकॉर्डिंग Operazioni binarie नकारात्मक प्रभाव आज अपने व्यापार व्यवसाय को स्वचालित करने के लिए यहां क्लिक करें। क्योंकि व्यापार के लिए एक कारण है और नहीं क्योंकि आप विदेशी मुद्रा स्केपिंग रणनीति Macduffie व्यापार करना है यहाँ हमारे पास सिर्फ उपकरण है जो सिर्फ व्यापारियों के लिए जो प्यार करते हैं और विशेषज्ञ होते हैं, यह वाह में पैसे कमाने के लिए संभव है विदेशी मुद्रा स्केल्पिंग को त्वरित ट्रेडिंग भी कहा जा सकता है यह एक ऐसा तरीका है जहां व्यापारियों ने अपनी स्थिति पूरी तरह से सेकंड के लिए, एक पूर्ण मिनट तक और आखिरकार स्लैपिंग रणनीति विदेशी मुद्रा बाजारों में बहुत लोकप्रिय इस रणनीति का मुख्य लाभ यह है कि प्रारंभिक विश्लेषण के लिए व्यावहारिक रूप से कोई ज़रूरत नहीं है विदेशी मुद्रा ट्रेडिंग धोखा पत्र पीडीएफ विदेशी मुद्रा संकेतक 2016 बरमूडा गिरने के लिए सबसे ज्यादा प्रचलित विदेशी मुद्रा जोड़े लिस्टिंगबुक लोकप्रिय टिप्पणियां नील रिकॉर्डिंग ऑपरेशियन बिनरि नकारात्मक प्रभाव विदेशी मुद्रा स्केलिंग अत्यधिक है रिटेल ट्रेडर्स के बीच लोकप्रिय होने के कारण शॉर्ट होल्डिंग अवधि इसलिए ऐसा करने के लिए, एक व्यापारी जो ध्यान केंद्रित करता है विदेशी मुद्रा स्क्रैपिंग पर तकनीकी रूप से ध्वनि होनी चाहिए। यदि आप यहां की रणनीतियों को पसंद करते हैं, तो आप हमारी नवीनतम रणनीति को पूरी तरह से पसंद करेंगे हमने अपने लिए विदेशी मुद्रा की दुनिया में सबसे अच्छा विदेशी मुद्रा स्लैपर संकेतक पहचान लिया है लक्ष्य लक्ष्य केवल कुछ चीजें ही हो सकते हैं लेकिन विचार इस रणनीति के मुताबिक फास्ट फॉरेक्स स्लैपिंग स्ट्रैटेजी मैकडफी को पैसे कमाने के लिए बाहर निकलना है सूची ट्रेडर्स जो स्केलिंग रणनीति का इस्तेमाल करते हैं उन्हें अक्सर व्यापार करना होता है लेकिन हर बार छोटे फायदे पर फ़ोकस रहता है फॉरेक्स स्केपिंग स्ट्रैटेजी मैकडफी विदेशी मुद्रा स्लैपिंग स्ट्रैटेजी , विदेशी मुद्रा बाजार क्या ऑफर करता है इसका लाभ उठाएं कई नौसिखिए व्यापारियों को एक बहुत ही आकर्षक विदेशी मुद्रा व्यापार रणनीति के रूप में स्केलिंग मिलती है Scalping रणनीति एक अंतरार्पण व्यापार रणनीति है और इसे सफल बनाने की अनुमति देता है यह सही तरीके से निष्पादित होने के दौरान एक व्यवहार्य रणनीति है और यह वास्तव में नकदी प्रवाह को बढ़ावा दे सकता है जल्दी फंडामेंटल विश्लेषण इस रणनीति के साथ कम समय सीमा के कारण महत्वपूर्ण नहीं होने जा रहा है। फोरेक्स स्क्रैपिंग स्ट्रैटेजी एक छोटा है एक बहुत ही कम समय सीमा के लिए लघु और लंबी स्थिति में प्रवेश करके नकदी प्रवाह उत्पन्न करने के लिए कई पेशेवर व्यापारियों द्वारा इस्तेमाल की गई अवधि की रणनीति विदेशी मुद्रा स्केपिंग रणनीति Macduffie और यह विदेशी मुद्रा स्क्रैपिंग संकेतक निश्चित रूप से अपने रोजाना लाभप्रदता को बढ़ावा देगा, जो द्विआधारी विकल्प जीतने वाली कैंडलस्टिक रणनीति को लेना चाहिए। न्यू यॉर्क या लंदन सत्र एक्सएम ब्रोकर टिक मिल की शुरूआत की तरह अस्थिर बाजार स्थितियों की स्थिति हम इन दोनों दलालों का उपयोग करते हैं और गर्व से उन्हें बढ़ावा देते हैं और ज़ाहिर है, तेजी से लाभ कुछ ऐसा है जो विदेशी मुद्रा स्केलिंग में पसंद करता है, सभी व्यापार निर्णयों पर आधारित हैं तकनीकी विश्लेषण बॉलिंजर बैंड मैक्ड रुसी स्ट्रैटेजी विदेशी मुद्रा हैलो सबको मैं जीबीपी जेपीवाई और अन्य मुद्राओं में ट्रेडिंग कर रहा हूं। इस सरल विधि का उपयोग कुछ समय पहले किया गया और यह 9 9 गुना सफल हुआ, केवल एक बार जब यह तेजी से बढ़ गया या समाचार समय के दौरान नीचे, इसलिए मैं किसी को भी इस 30 मिनट पहले और whipsaws. Day tradi से बचने के लिए खबर का उपयोग बंद को हतोत्साहित। एनजी रणनीतियों macduffie. Cahoy और Siavash Varasteh Penn राज्य Unpatented ज्ञान के रिसाव को रोकने में संगठनात्मक तंत्र की भूमिका कन्नन श्रीकांत एसएमयू, आनंद नंदकुमार आईएसबी और प्रशांत काले राइस व्यक्तिगत बनाम विश्वविद्यालय की खोज की आविष्कार की संस्थागत स्वामित्व डिर्क Czarnitski केयू Leuven, थॉर्स्टन डोहर ZEW, कैटरीना हिसिंगर लक्ज़मबर्ग, पाउला स्लिस्स्लर के.यू. ल्यूवेन और एंड्रयू ए। आम तौर पर यह स्वीकार किया जाता है कि मानव संसाधन रणनीति से सहयोग के साथ कॉर्पोरेट रणनीति के विकास और तैनाती का दिन मुश्किल है, डे ट्रेडिंग रणनीतियों मैकडफी सोनिक आर सिस्टम बाइनरी विकल्प कई रणनीतियां परिणामस्वरूप बनती हैं मानव संसाधन प्रबंधन, बेस्ट प्रैक्टिस वीएस पूर्वानुमान और रणनीति के तरीके से दिन-समय पर व्यापार कुछ भी आगे कहकर आगे बढ़ते हैं कि इसकी संगठन मानव संसाधन रणनीति जो प्रतिस्पर्धात्मक लाभ देती है प्रौद्योगिकी और नवाचार पर अग्रणी शिक्षाविदों ने अपने निष्कर्ष पेश किए हैं और अग्रणी-एड की चर्चा में संलग्न हैं नवाचार के प्रबंधन से संबंधित जी प्रश्न सार्वजनिक जोखिम सूचना, 2000-2014 जोएल गेह्मान अल्बर्टा, जेन लेई, डैनियल आर टेक्नोलॉजीज चेंज एंड रिकॉर्ड्स इन रिकॉर्डेड म्यूजिक इंडस्ट्री में हाइड्रोलिक फ्रैक्चरिंग पेटेंट्स का इस्तेमाल मैरी बेनर और जोएल वाल्डफॉगल मिनेसोटा दो पक्षी एक पत्थर कैसे कई ऑडियंस को अपील करता है नवाचारों के प्रसार की सुविधा देता है नतालिया विनोकूर्वोवा व्हार्टन, हरबिर सिंह व्हार्टन कॉम्पलेमेंटर्स के साथ प्रतिस्पर्धा करते हैं फेंग झू हार्वर्ड और क्हिंग लियू ओक्लाहोमा प्रदायक अभिनव रणनीति में एक अनुभवजन्य देखो मोटर वाहन आपूर्ति श्रृंखला में लेनदेन संबंधी खतरों और नवाचार जेनिफर कुआन स्टैनफोर्ड, डैनियल स्काई ब्रिघम यंग एंड सुसान हेल्पर केस वेस्टर्न रिजर्व ट्रेडिंग क्षमताओं एक सिग्नलिंग पर्सपेक्टिव माइकल आर महत्वपूर्ण दिन विदेशी मुद्रा ट्रेडिंग रणनीतियाँ मैकडफी दिन के कारोबार की रणनीतियों के साथ कक्षाएं छोड़ने के लिए आखिरी दिन मैकडफी। इसमें हाइंडई की बिक्री की रणनीति का वर्णन रघुशीशम द्वारा टाइप स्कूल वर्क, बिक्री, और हुंडई लो कारोबार की संख्या 27 नं 1,2006- I 57 मॉडलिंग लीन, अगली, और लीगल सप्लाई चेन स्ट्रैटेजीज, थॉमस जे। गोल्डशी यूनिवर्सिटी ऑफ केंटकी स्ट्रैटेजिक ह्यूमन रिसोर्स मैनेजमेंट को एचआरएम को सामरिक लक्ष्यों और उद्देश्यों के साथ जोड़ने से संगठन के प्रदर्शन में सुधार के लिए परिभाषित किया जा सकता है। और संगठनात्मक संस्कृति को विकसित करना जो कि नवाचार और लचीलापन को बढ़ावा देता है मानव संसाधन प्रबंधन के सर्वोत्तम अभ्यास के पूर्वानुमान और रणनीति प्रथाओं के परिणामस्वरूप कई रणनीतियों का गठन होता है जो कि दिन के कारोबार में मानव संसाधन प्रबंधन और व्यापार रणनीति के बीच एकीकरण सबसे महत्वपूर्ण मांगों में से एक है आधुनिक काल के आयोजनों से आगे। मार्चिंगटन और विल्किनसन 2008 का तर्क है कि मानव संसाधन प्रबंधन अब अक्सर सफल और असफल संगठनों के बीच अंतर करने वाला प्रमुख कारक के रूप में देखा जाता है, प्रतिस्पर्धात्मक लाभ प्राप्त करने में प्रौद्योगिकी या वित्त की तुलना में अधिक महत्वपूर्ण दिन व्यापार रणनीतियों मैकडफी एसएचआरएम में एचआर के विकास और नियोजन शामिल है नीतियों संगठनात्मक लक्ष्यों और बैंक स्टॉक ट्रेडिंग फीस हासिल करने के लिए यह रेमंडल की बिक्री रणनीति का वर्णन टाइप स्कूल वर्क, विक्रय और हुंडई में रघुशष्म द्वारा करता है दो दिवसीय कार्यक्रम को प्रोत्साहित करने और घटनाक्रम व्हार्टन टेक्नोलॉजी इनोवेशन सम्मेलन व्हार्टन टेक्नोलॉजी इनोवेशन ट्रेडिंग क्षमताओं एक विदेशी मुद्रा तकनीकी विश्लेषण ब्लॉग कई रणनीतियों मानव संसाधन प्रबंधन, बेस्ट प्रैक्टिस वी एस के पूर्वानुमान और रणनीति प्रथाओं के दिन के कारोबार में परिणामस्वरूप बनती हैं, मानव संसाधन के साथ सामरिक लक्ष्यों और उद्देश्यों के बीच संबंध बीसवीं सदी के अंत में उभरा है और इसे सामरिक मानव संसाधन प्रबंधन एसएचआरएम कहा जाता है। संगठन सैकत चौधरी और राहुल कपूर द्वारा चर्चा करते हुए लोरी रासेनकोफ व्हार्टन द डिसिप्टर के दिइलमा टि वो और यू टेलीविज़न इकोसिस्टम शाहजाद अंसारी कैंब्रिज, रघु गरुड पेन स्टेट और अरुण कुमारस्वामी वेस्ट चेस्टर, द सिंगल फॉक, क्वांगहुइ लिम और डॉन ओ सुलिवन मेलबर्न, डेनटेंट दान लेविन्थल व्हार्टन द अधिग्रहण और कॉमर्स अमेरिकी विनिर्माण घटना और प्रभाव में आविष्कार के आविष्कार आशिष अरोड़ा, वेस्ले एम वॉल्श जॉर्जिया टेक इंडिपेंडंट बोर्ड एंड इनोवेशन बेंजामिन बल्समेयर केयू लिउवेन, ली फ्लेमिंग और गस्टावो मोंस बर्कले का अनुभव है, सीखने का दिन व्यापार रणनीतियों मकडफी 4 घंटे मैक ईएए विदेशी मुद्रा जैदीप आनंद ओहियो, लुईस Mulotte तिलबर्ग और शेर्लोट रेन यूपीएन बहस दाऊद सू व्हार्टन पेटेंट गुप्त दिवस व्यापार रणनीतियों macduffie ब्रिटेन में विनिर्माण से सेवा उद्योग की शिफ्ट इसे और अधिक महत्वपूर्ण बना दिया है क्योंकि अधिकांश कर्मचारी ग्राहकों के साथ आमने-सामने संपर्क में हैं, इसलिए संगठन के नियमित संचालन में मानव पूंजी के महत्व पर बल देना जब छात्रों को पार सांस्कृतिक हित में संलग्न किया जाता है तो वे मूल रूप से अपने मूल राष्ट्रीय पृष्ठभूमि से दूर जाने के लिए प्रोत्साहित होते हैं। साइप्रस उत्तरदाताओं, सभी इस पत्र में, मैं मानव के बीच संबंध की जांच करूँगा संसाधन रणनीति और यह कैसे लचीलेपन के संदर्भ में प्रदर्शन में मदद करता है और नवाचार। मैक इंस्टीट्यूट फॉर इनोवेशन मैनेजमेंट और व्हार्टन स्कूल के मैनेजमेंट डिपार्टमेंट ने एक दो दिवसीय कार्यक्रम को प्रायोजित किया है, जो तकनीक आधारित उद्योगों और फर्मों के अध्ययन के लिए प्रोत्साहित करने, खेती करने और प्रोफ़ाइल प्रबंधन शोधकर्ताओं के लिए डिज़ाइन किया गया है। संगठन के सामरिक लक्ष्यों और उद्देश्यों को कोसोवो मानव संसाधन रणनीति में आवश्यक विदेशी मुद्रा ट्रेडिंग समय हासिल करने में मदद संगठन है, विशेष रूप से पिछले दो दशकों में एक कोने पत्थर की रणनीति के रूप में उभरा है जो कार्य बल के प्रदर्शन के साथ अधिक सकारात्मक सहसंबंध है स्टॉक एक्सचेंज बारबाडोस पीपीटी नवाचार, डिफ़ॉल्ट रूप से, एक ऐसी प्रक्रिया है जिसके द्वारा कोई विचार या आविष्कार अच्छा या सेवा या सेवा के लिए अनुवादित किया जाता है जिसके लिए लोग भुगतान करेंगे। सर्वश्रेष्ठ ट्रेडिंग साइटें .24 विकल्प व्यापार 10 मिनट की द्विपदीय। ट्रेड्रश खाता एक डेमो खाता खोलें। बॉस कैपिटल स्टार्ट ट्रेडिंग लाइव टुडे.आपके इनपुट और हमारे विश्लेषण के आधार पर हम यह कैसे करते हैं। सभी क्षेत्रों को सी के लिए आवश्यक है alculation accuracy. We आपको आपकी व्यक्तिगत रिपोर्ट तक पहुंचने के लिए एक ईमेल भेज देगी। हम आपके ईमेल पते को साझा नहीं करते हैं। स्वर्गीय पूर्णकालिक वार्षिक प्रारंभिक वेतन अंतरण, ठेकेदार और प्रति घंटा वेतनमान नियमित छूट कर्मचारी से भिन्न होता है मुआवजा काम के अनुभव, नौकरी पर निर्भर करता है स्थान, बोनस, लाभ और अन्य कारक। रीयल जॉब्स वेतन - वेतन सूची। 5 मिलियन कंपनी की सरकार ने दिनांक स्थान के साथ पेंशन की रिपोर्ट की। सैलरी कैलकुलेटर रैंक आपकी वेतन की गणना। यू एस में 15 लाख पश्चात स्केल आँकड़े एस। स्थान आधारित वेतन की जानकारी को नेविगेट करें। स्टेटस सिटी वेतन में महानगरीय क्षेत्रों के मजदूरी के आंकड़े उपलब्ध कराते हैं। वेतन में 200,000 से अधिक कंपनियों का वेतन डेटा है। मॉड्यूल 1 3 कॉर्पोरेट वित्त - कॉरपोरेट। यह बाकी का दस्तावेज एक्सेस करने के लिए पूर्वावलोकन का अंत है। Unformatted पाठ पूर्वावलोकन कॉर्पोरेट वित्त रीडिंग्स कॉर्पोरेट वित्त एक परिचय विकिपीडिया, मुक्त विश्वकोश से नेविगेशन पर जाएं, खोज इस लेख के लिए अतिरिक्त उद्धरणों की आवश्यकता है सत्यापन कृपया विश्वसनीय संदर्भ जोड़कर इस लेख को बेहतर बनाने में सहायता करें। अनसोर सामग्री को चुनौती दी जा सकती है और जुलाई 2008 को हटा दिया गया है कॉर्पोरेट वित्त कार्यशील पूंजी प्रबंधन कैश रूपांतरण चक्र पूंजी पर लौटें आर्थिक मूल्य जोड़ा गया बस समय में आर्थिक क्रम मात्रा छूट और भत्ते फैक्टरिंग वित्त पूंजी बजट बजट पूंजी निवेश निर्णय निवेश निर्णय वित्तपोषण निर्णय अनुभाग 1 प्रबंधकीय वित्त वित्तीय लेखा प्रबंधन लेखांकन विलय और अधिग्रहण बैलेंस शीट विश्लेषण व्यापार योजना कॉर्पोरेट कार्रवाई वित्त श्रृंखला वित्तीय बाजार वित्तीय बाजार सहभागियों कॉर्पोरेट वित्त निजी वित्त सार्वजनिक वित्त बैंक और बैंकिंग वित्तीय विनियमन इस बॉक्स को देखने की बात करें घरेलू क्रेडिट 2005 में निजी क्षेत्र कॉर्पोरेट वित्त वित्तीय निर्णय निगमों के साथ वित्त का एक क्षेत्र है और इन निर्णयों को करने के लिए इस्तेमाल किए जाने वाले उपकरण और विश्लेषण कॉर्पोरेट वित्त का प्राथमिक लक्ष्य कॉर्पोरेट को अधिकतम करने के लिए है फर्म के वित्तीय जोखिमों का प्रबंधन करते समय मूल्य हालांकि प्रबंधकीय वित्त से अलग सिद्धांत में है, जो निगमों के बजाय सभी कंपनियों के वित्तीय निर्णय का अध्ययन करता है, कॉर्पोरेट वित्त के अध्ययन में मुख्य अवधारणाओं को सभी प्रकार की वित्तीय समस्याओं पर लागू होता है फर्म अनुशासन को दीर्घकालिक और अल्पकालिक निर्णयों और तकनीकों में विभाजित किया जा सकता है पूंजी निवेश निर्णय दीर्घकालिक विकल्प हैं जिनके बारे में परियोजनाएं निवेश प्राप्त करती हैं, चाहे वह इक्विटी या ऋण के साथ निवेश, 2 और जब लाभांश का भुगतान किया जाए या नहीं शेयरधारकों को दूसरी तरफ, अल्पावधि के फैसले को कार्यशील पूंजी प्रबंधन शीर्षक के तहत वर्गीकृत किया जा सकता है यह विषय मौजूदा परिसंपत्तियों और वर्तमान देनदारियों के अल्पकालिक शेष के साथ काम करता है, यहां पर ध्यान नकदी, इन्वेंट्री और अल्पकालिक उधार लेने और ऋण जैसे ग्राहकों को दिए गए ऋण पर शर्तों के रूप में उधार, कॉर्पोरेट वित्त और कॉरपोरेट फाइनेंसर भी वाई से जुड़े हैं निवेशक बैंकरिंग एक निवेश बैंकर की विशिष्ट भूमिका है कंपनी की वित्तीय जरूरतों का मूल्यांकन करना और उपयुक्त प्रकार की पूंजी को बढ़ाने के लिए जो उन जरूरतों से बेहतर फिट बैठते हैं सामग्री 1 पूंजीगत निवेश के फैसले को छिपाते हैं 1 1 निवेश निर्णय 1 1 1 परियोजना मूल्यांकन 1 1 2 वैल्यूएंग लचीलापन 1 1 3 मात्रात्मक अनिश्चितता ओ 1 2 वित्तपोषण निर्णय ओ 1 3 लाभांश निर्णय 2 कार्यशील पूंजी प्रबंधन ओ 2 1 निर्णय मानदंड ओ 2 2 कार्यशील पूंजी का प्रबंधन 3 वित्तीय जोखिम प्रबंधन 4 वित्त में अन्य क्षेत्रों के साथ संबंध 4 1 निवेश बैंकिंग o 4 2 व्यक्तिगत और सार्वजनिक वित्त 5 संबंधित व्यावसायिक योग्यता 6 संदर्भ 7 यह भी देखें 3 संपादित करें 1 पूंजीगत निवेश निर्णय पूंजी निवेश निर्णय 1 दीर्घकालिक कॉर्पोरेट वित्त निर्णय तय परिसंपत्तियों और पूंजी संरचना से संबंधित निर्णय कई अंतर-संबंधित मानदंडों पर आधारित होते हैं कॉरपोरेट प्रबंधन परियोजनाओं में निवेश करके फर्म के मूल्य को अधिकतम करने की कोशिश करता है जो सकारात्मक शुद्ध उपस्थित करते हैं उचित छूट दर का उपयोग करते समय मूल्य का मूल्यांकन किया जाना चाहिए इन परियोजनाओं को भी उचित रूप से वित्तपोषित किया जाना चाहिए यदि ऐसा कोई अवसर मौजूद नहीं है, तो शेयरधारक मूल्य को अधिकतम करने से यह तय होता है कि प्रबंधन शेयरधारकों को अतिरिक्त लाभ प्रदान करता है। पूंजीगत निवेश निर्णय इस प्रकार एक निवेश निर्णय, एक वित्तपोषण निर्णय और एक लाभांश निर्णय 1 1 निवेश निर्णय मुख्य लेख कैपिटल बजटिंग प्रबंधन को प्रतिस्पर्धा के अवसरों के बीच सीमित संसाधनों को पूंजी बजट के रूप में जाना जाने वाली एक प्रक्रिया में आवंटित करना चाहिए। इस पूंजी आवंटन के फैसले को बनाने से प्रत्येक अवसर के मूल्य का आकलन करने की आवश्यकता होती है या भविष्य के आकार, समय और पूर्वानुमान नकदी प्रवाह संपादित करें 1 1 1 परियोजना मूल्यांकन अधिक जानकारी स्टॉक मूल्यांकन और मौलिक विश्लेषण सामान्य तौर पर, प्रत्येक प्रोजेक्ट के मूल्य का अनुमान लगाया जाएगा कि नकद प्रवाह के साथ DCF मूल्यांकन, और उच्चतम मूल्य के साथ मौका, जैसा परिणामस्वरूप शुद्ध वर्तमान मूल्य एनपीवी एप्पल का चयन किया जाएगा 1 9 51 में जोएल डीन द्वारा कॉरपोरेट फायनेंस के लिए आइडिया भी फिशर अलगाव प्रमेय, जॉन बूर विलियम्स थ्योरी देखें, इस परियोजना के परिणामस्वरूप आने वाले सभी नकदी प्रवाहों के आकार और समय का अनुमान लगाना आवश्यक है। ये भविष्य नकदी प्रवाह फिर उनके वर्तमान मूल्य को निर्धारित करने के लिए रियायती हैं पैसे का समय मूल्य ये वर्तमान मूल्यों को संक्षेप में दिया जाता है, और प्रारंभिक निवेश के परिव्यय का यह योग नेट है एनपीवी। एनपीवी बहुत छूट दर से प्रभावित है, इस प्रकार उचित छूट दर का चयन करने से परियोजना बाधा दर सही फैसला लेने के लिए महत्वपूर्ण है I बाधा दर निवेश पर न्यूनतम स्वीकार्य रिटर्न है अर्थात परियोजना उचित छूट दर बाधा दर निवेश की जोखिम को प्रतिबिंबित करती है, आमतौर पर नकदी प्रवाह की अस्थिरता से मापा जाता है, और वित्तपोषण मिश्रण प्रबंधक को सीएपीएम जैसे मॉडल का उपयोग करना चाहिए। या किसी विशेष परियोजना के लिए उचित दर का अनुमान लगाने के लिए एपीटी, और पूंजी डब्लूएसी की भारित औसत लागत का उपयोग करें सी का चयन वित्तपोषण मिश्रण को प्रतिबिंबित करने के लिए एक परियोजना के लिए छूट दर चुनने में एक आम 4 त्रुटि एक संपूर्ण WACC लागू करना है जो पूरे फर्म पर लागू होती है इस तरह के एक दृष्टिकोण उचित नहीं हो सकता है, जहां किसी विशेष परियोजना का जोखिम स्पष्ट रूप से अलग है संपत्ति के मौजूदा पोर्टफोलियो एनपीवी के साथ, कॉर्पोरेट वित्त में द्वितीयक चयन मानदंड के रूप में उपयोग किए जाने वाले कई अन्य उपाय हैं, ये डीसीएफ से दिखाई देते हैं और लौटाने की अवधि, आईआरआर, संशोधित आईआरआर, बराबर वार्षिकी, पूंजी दक्षता, और आरओआई सूची देखें मूल्यांकन विषयों का संपादन 1 2 मूल्य निर्धारण लचीलापन मुख्य लेख वास्तविक विकल्प विश्लेषण और निर्णय पेड़ कई मामलों में, उदाहरण के लिए आरडी परियोजनाएं, एक परियोजना कंपनी के लिए कार्रवाई का रास्ता खोल या बंद कर सकती है, लेकिन यह वास्तविकता आमतौर पर सख्त एनपीवी दृष्टिकोण इसलिए प्रबंधन कभी-कभी ऐसे उपकरणों को नियोजित करेगा जो इन विकल्पों पर एक स्पष्ट मूल्य देते हैं, जबकि डीसीएफ मूल्यांकन में सबसे अधिक संभावना या औसत या परिदृश्य विनिर्देश सी नकदी प्रवाह छूट गया है, यहां निवेश की लचीली और स्टेज प्रकृति का मॉडल है, और इसलिए सभी संभावित आबंटन को माना जाता है दो वैल्यूएशन के बीच का अंतर परियोजना में निहित लचीलापन का मूल्य है दो सबसे आम उपकरण निर्णय पेड़ विश्लेषण डीटीए और वास्तविक विकल्प विश्लेषण ROA डीटीए संभावित घटनाओं या राज्यों और परिणामी प्रबंधन निर्णयों को शामिल करके लचीलेपन का मूल्यांकन करता है फैसले के पेड़ में, किसी ईवेंट के जवाब में प्रत्येक प्रबंधन निर्णय एक शाखा या पथ उत्पन्न करता है जिसे कंपनी प्रत्येक घटना की संभावनाओं का पालन कर सकती है या निर्धारित प्रबंधन द्वारा एक बार जब पेड़ का निर्माण किया जाता है 1 सभी संभावित घटनाएं और उनके परिणामी पथ प्रबंधन के लिए 2 दृश्यमान हैं, जो कि घटनाओं का पालन कर सकते हैं, जो प्रबंधन का अनुसरण करता है, प्रबंधन उच्चतम मूल्य पथ से संबंधित कार्यों को चुनता है भारित 3 तर्कसंगत निर्णय मानते हुए यह पथ फिर प्रोजेक्ट वैल्यू के प्रतिनिधि के रूप में लिया गया निर्णय सिद्धांत च्वाइस देखें अनिश्चितता के तहत, उदाहरण के लिए, एक कंपनी एक फैक्ट्री का निर्माण करेगी कि उसके उत्पाद की मांग पायलट-चरण के दौरान एक निश्चित स्तर से अधिक हो, और आउटसोर्स उत्पादन अन्यथा इसके अलावा, आगे मांग दी गई, यह इसी तरह 5 फैक्ट्री का विस्तार करेगी और अन्यथा इसे बनाए रखेगा डीसीएफ मॉडल में, इसके विपरीत, कोई शाखा नहीं है - प्रत्येक परिदृश्य को अलग से तैयार किया जाना चाहिए ROA का उपयोग तब किया जाता है जब किसी प्रोजेक्ट का मान किसी अन्य परिसंपत्ति या अंतर्निहित चर के मूल्य पर आकस्मिक होता है, यहां एक वित्तीय रूप से उपयोग किए जाने वाले सिद्धांत के आधार पर, ब्लैक स्कोल्स के माध्यम से, ब्लैक स्कोल्स के जरिए कॉल ऑप्शन या एक पुट ऑप्शन के मुताबिक निर्णय लिया जाता है - वैल्यूएशन तब द्विवार्षिक मॉडल के माध्यम से या इस प्रयोजन के लिए अक्सर कम हो जाता है, आकस्मिक दावे मूल्यांकन देखें तो परियोजना का सही मूल्य है सबसे संभावित परिदृश्य के एनपीवी प्लस विकल्प मान उदाहरण के लिए, एक खनन परियोजना की व्यवहार्यता सोने की कीमत पर आकस्मिक है अगर कीमत बहुत कम है, तो प्रबंधन खनन रिग को छोड़ देगा टीएस, यदि पर्याप्त रूप से उच्च है, तो प्रबंधन अयस्क शरीर का विकास करेगा, फिर भी, डीसीएफ मूल्यांकन केवल इन परिणामों में से एक को संपादित करेगा 1 1 3 अनिश्चितता को बढ़ाता है अधिक जानकारी संवेदनशीलता विश्लेषण, परिदृश्य नियोजन, और वित्त में मोंटे कार्लो विधियों परियोजना में निहित अनिश्चितता को देखते हुए पूर्वानुमान और मूल्यांकन, विश्लेषक परियोजना एनपीवी की संवेदनशीलता का आकलन करने के लिए विभिन्न निविष्टियों या डीसीएफ मॉडल की धारणाओं को आकलित करने की इच्छा रखेंगे। एक विशिष्ट संवेदनशीलता विश्लेषण में विश्लेषक एक महत्वपूर्ण कारक होगा जबकि सभी अन्य निविष्टियां स्थिर रखना, कैटरिस पैराबिस एनपीवी की संवेदनशीलता उस कारक में बदलाव को एनपीवी कारक के रूप में देखा जाता है उदाहरण के लिए, विश्लेषक वाल्व मामले के लिए 5, वार्षिक मामले में 10 और सर्वश्रेष्ठ मामले के लिए 25 पर वार्षिक राजस्व वृद्धि दर निर्धारित करेगा - और एक संबंधित तकनीक का उपयोग करने वाले तीन संबंधित एनपीवी का उत्पादन करेगा, विश्लेषकों यह भी परिदृश्य आधारित पूर्वानुमान चला सकता है ताकि विभिन्न परिणामों के तहत परियोजना के मूल्य को देख कर इस तकनीक के तहत, परिदृश्य सी अर्थव्यवस्था-व्यापी, वैश्विक कारकों विनिमय दरों, कमोडिटी की कीमतों आदि के लिए एक विशेष परिणाम के साथ-साथ कंपनी-विशिष्ट कारकों के लिए राजस्व वृद्धि दर, इकाई लागत, इत्यादि के लिए एक विशेष परिणाम का अवमूल्यन किया जाता है। यहां ऊपर दिए गए उदाहरण को बढ़ाते हुए, विकास के अतिरिक्त मुख्य इनपुट भी समायोजित किए जाते हैं , और एनपीवी की गणना विभिन्न परिदृश्यों के लिए की जाती है, विश्लेषक तब इन मानदंडों को एक मूल्य-सतह या एक मूल्य-स्थान का उत्पादन करने के लिए साजिश करते हैं, जहां एनपीवी कई चर का एक कार्य है, इस पद्धति का एक अन्य अनुप्रयोग एक निष्पक्ष एनपीवी निर्धारित करना है, जहां प्रबंधन निर्धारित करता है प्रत्येक परिदृश्य के लिए एक व्यक्तिपरक संभावना - परियोजना के लिए एनपीवी तो विभिन्न परिदृश्यों की संभावना-भारित औसत है 6 उदाहरण के लिए परिदृश्य आधारित विश्लेषण, इनपुट के विभिन्न संयोजनों को आंतरिक रूप से सुसंगत होना चाहिए, जबकि संवेदनशीलता दृष्टिकोण के लिए ये आवश्यक नहीं है इसलिए आगे की तरफ से स्टॉचस्टिक या संभावनात्मक वित्तीय मॉडल का निर्माण करना है, जैसा कि एफ से ऊपर के रूप में पारंपरिक स्थिर और नियतात्मक मॉडल के विपरीत है या इस प्रयोजन के लिए सबसे आम तरीका मोंटे कार्लो सिमुलेशन का उपयोग परियोजना के एनपीवी का विश्लेषण करना है यह विधि 1 9 64 में डेविड बी हेर्टज़ द्वारा वित्त के लिए पेश की गई थी, हालांकि हाल ही में हाल ही में आम हो गई है विश्लेषकों को स्प्रेडशीट में आधारित सिमुलेशन भी संचालित करने में सक्षम हैं डीसीएफ मॉडल आमतौर पर ऐड-इन का प्रयोग करते हैं, जैसे कि क्रिस्टल बॉल का प्रयोग सिमुलेशन के लिए, नकदी प्रवाह घटकों को अनिश्चितता से भारी प्रभाव पड़ता है सिम्युलेटेड, गणितीय रूप से उनके यादृच्छिक विशेषताओं को दर्शाती है सिमुलेशन परिदृश्य दृष्टिकोण के ऊपर और आउटपुट के विपरीत कई हजार परीक्षण करता है a histogram of project NPV The average NPV of the potential investment - as well as its volatility and other sensitivities - is then observed This histogram provides information not visible from the static DCF for example, it allows for an estimate of the probability that a project has a net present value greater than zero or any other value See Monte Carlo Simulation versus What If Scenarios Here, conti nuing the above example, instead of assigning three discrete values to revenue growth, the analyst would assign an appropriate probability distribution commonly triangular or beta This distribution - and that of the other sources of uncertainty - would then be sampled repeatedly so as to generate the several thousand realistic but random scenarios, and the output is a realistic, representative set of valuations The resultant statistics average NPV and standard deviation of NPV will be a more accurate mirror of the project s randomness than the variance observed under the traditional scenario based approach edit 1 2 The financing decision Main article Capital structure Achieving the goals of corporate finance requires that any corporate investment be financed appropriately As above, since both hurdle rate and cash flows and hence the riskiness of the firm will be affected, the financing mix can impact the valuation Management must therefore identify the optimal mix of financing the capi tal structure that results in maximum value See Balance sheet, WACC, Fisher separation theorem but, see also the Modigliani-Miller theorem 7 The sources of financing will, generically, comprise some combination of debt and equity Financing a project through debt results in a liability that must be serviced and hence there are cash flow implications regardless of the project s success Equity financing is less risky in the sense of cash flow commitments, but results in a dilution of ownership and earnings The cost of equity is also typically higher than the cost of debt see CAPM and WACC , and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows One of the main theories of how firms make their financing decisions is the Pecking Order Theory, which suggests that firms avoid external financi ng while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when making their decisions An emerging area in finance theory is right-financing whereby investment banks and corporations can enhance investment return and company value over time by determining the right investment objectives, policy framework, institutional structure, source of financing debt or equity and expenditure framework within a given economy and under given market conditions One last theory about this decision is the Market timing hypothesis which states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt and equity edit 1 3 The dividend decision Main article The Dividend Decision The dividend is calculated mainly on t he basis of the company s unappropriated profit and its business prospects for the coming year If there are no NPV positive opportunities, i e where returns exceed the hurdle rate, then management must return excess cash to investors These free cash flows comprise cash remaining after all business expenses have been met This is the general case, however there are exceptions For example, investors in a Growth stock , expect that the company will, almost by definition, retain earnings so as to fund growth internally In other cases, even though an opportunity is 8 currently NPV negative, management may consider investment flexibility potential payoffs and decide to retain cash flows see above and Real options Management must also decide on the form of the distribution, generally as cash dividends or via a share buyback There are various considerations where shareholders pay tax on dividends, companies may elect to retain earnings, or to perform a stock buyback, in both cases increasing th e value of shares outstanding some companies will pay dividends from stock rather than in cash see Corporate action Today, it is generally accepted that dividend policy is value neutral see Modigliani-Miller theorem edit 2 0 WORKING CAPITAL MANAGEMENT Main article Working capital Decisions relating to working capital and short term financing are referred to as working capital management These involve managing the relationship between a firm s short-term assets and its short-term liabilities As above, the goal of Corporate Finance is the maximization of firm value In the context of long term, capital investment decisions, firm value is enhanced through appropriately selecting and funding NPV positive investments These investments, in turn, have implications in terms of cash flow and cost of capital The goal of Working capital management is therefore to ensure that the firm is able to operate, and that it has sufficient cash flow to service long term debt, and to satisfy both maturing sh ort-term debt and upcoming operational expenses In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital See Economic value added EVA edit 2 1 Decision criteria Working capital is the amount of capital which is readily available to an organization That is, working capital is the difference between resources in cash or readily convertible into cash Current Assets , and cash requirements Current Liabilities As a result, the decisions relating to working capital are always current decisions, i e short term decisions In addition to time horizon, working capital decisions differ from capital investment decisions in terms of discounting and profitability considerations they are also reversible to some extent Considerations as to Risk appetite and return 9 targets remain identical These decisions are therefore not taken on the same basis as long term decisions, and different criteria are applied here the main considerations are cash flow and liquidit y cashflow is probably the more important of the two The most widely used measure of cash flow is the net operating cycle, or cash conversion cycle This represents the time difference between cash payment for raw materials and cash collection for sales The cash conversion cycle indicates the firm s ability to convert its resources into cash Because this number effectively corresponds to the time that the firm s cash is tied up in operations and unavailable for other activities, management generally aims at a low net count Another measure is gross operating cycle which is the same as net operating cycle except that it does not take into account the creditors deferral period In this context, the most useful measure of profitability is Return on capital ROC The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed Return on equity ROE shows this result for the firm s shareholders As above, firm value is enhanced when, and if, the ret urn on capital, exceeds the cost of capital ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making edit 2 2 Management of working capital Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital These policies aim at managing the current assets generally cash and cash equivalents, inventories and debtors and the short term financing, such that cash flows and returns are acceptable Cash management Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs Inventory management Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow see Supply chain management Just In Time JIT Economic order quantity EOQ Economic production quantity EPQ 10 Debtors management Identify t he appropriate credit policy, i e credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital or vice versa see Discounts and allowances Short term financing Identify the appropriate source of financing, given the cash conversion cycle the inventory is ideally financed by credit granted by the supplier however, it may be necessary to utilize a bank loan or overdraft , or to convert debtors to cash through factoring edit 3 0 FINANCIAL RISK MANAGEMENT Main article Financial risk management 3 1 Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk Financial risk management focuses on risks that can be managed hedged using traded financial instruments typically changes in commodity prices, interest rates, foreign exchange rates and stock prices Financial risk management will also play an important role in cash manage ment This area is related to corporate finance in two ways Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions Secondly, both disciplines share the goal of creating, or enhancing, firm value All large corporations have risk management teams, and small firms practice informal, if not formal, risk management 3 2 Derivatives are the instruments most commonly used in Financial risk management Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets These standard derivative instruments include options, futures contracts, forward contracts, and swaps See Financial engineering Financial risk Default finance Credit risk Interest rate risk Liquidity risk Market risk Operational risk Volatility risk Settlement risk edit 4 0 edit 4 1 RELATIONSHIP WITH OTHER AREAS IN FINANCE Investment bank ing 11 Use of the term corporate finance varies considerably across the world In the United States it is used, as above, to describe activities, decisions and techniques that deal with many aspects of a company s finances and capital In the United Kingdom and Commonwealth countries, the terms corporate finance and corporate financier tend to be associated with investment banking - i e with transactions in which capital is raised for the corporation 2 edit 4 2 Personal and public finance Corporate finance utilizes tools from almost all areas of finance Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management But in other cases their application is very limited outside of the corporate finance arena Because corporations deal in quantities of money much greater than individuals, the analysis has d eveloped into a discipline of its own It can be differentiated from personal finance and public finance edit 5 0 RELATED PROFESSIONAL QUALIFICATIONS Qualifications related to the field include Finance qualifications Masters degree in Finance MSF , Chartered Financial Analyst CFA , Corporate Finance Qualification CF , Certified International Investment Analyst CIIA , Association of Corporate Treasurers ACT , Certified Market Analyst CMA FAD Dual Designation, Master Financial Manager MFM , Master of Finance Control MFC , Certified Treasury Professional CTP Association for Financial Professionals Business qualifications Master of Business Administration MBA , Master of Commerce M Comm , Doctor of Business Administration DBA , Certified Business Manager CBM Accountancy qualifications o Qualified accountant Certified Public Accountant CPA , Chartered Certified Accountant ACCA , Chartered Management Accountant CIMA , Chartered Accountant ACA o Non-statutory qualifications Chartered Cost Acco untant CCA Designation from AAFM , Certified Management Accountant CMA , 12 edit References 1 2 The framework for this section is based on Notes by Aswath Damodaran at New York University s Stern School of Business Beaney, Shaun, Defining corporate finance in the UK , The Institute of Chartered Accountants, April 2005 edit See also At Wikiversity, you can learn about Corporate finance Financial modeling Business organizations Financial planning Investment bank Managerial economics Private equity Real option Venture capital Right-financing Factoring finance Global Squeeze Related topics by category o List of accounting topics o List of corporate finance topics o List of valuation topics o List of finance topics 13 hide v d e Corporate finance and investment banking Capital structure Senior secured debt Senior debt Second lien debt Subordinated debt Mezzanine debt Convertible debt Exchangeable debt Preferred equity Shareholder loan Common equity Pari passu 14 Initial public offering IPO Secondary Market Offering Equity offerings SEO Follow-on offering Greenshoe Reverse Book building Transactions terms conditions Takeover Reverse takeover Tender offer Poison pill Freeze-out Mergers and merger Tagacquisitions along right Drag-along right Control premium Divestment Demerger Leverage Leveraged buyout Leveraged recap Financial sponsor Private equity Bond offering High-yield debt DIP financing 15 Valuation Financial modeling APV DCF Net present value NPV Cost of capital Weighted average Comparable company analysis Enterprise value Tax shield Minority interest EVA MVA List of investment banks List of finance topics Retrieved from Category Corporate finance Hidden category Articles needing additional references from July 2008 This page was last modified on 21 January 2009, at 13 18 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity CAPITAL BUDGETING From Wikipedia, the free encyclopedia Jump to navigation, search Capital budgeting or investment appraisal is the planning process used to determine whether a firm s long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing Many formal methods are used in capital budgeting, including the techniques such as Net present value Profitability index Internal rate of return Modified Internal Rate of Return, and 16 Equivalent annuity These methods use the incremental cash flows from each potential investment, or project Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and return on investment Simplified and hybrid methods are used as well, such as payback period and discounted payback period Contents hide 1 Net present value 2 Internal r ate of return 3 Equivalent annuity method 4 Real options 5 Ranked Projects 6 External links and references edit Net present value Main article Net Present Value Each potential project s value should be estimated using a discounted cash flow DCF valuation, to find its net present value NPV First applied to Corporate Finance by Joel Dean in 1951 see also Fisher separation theorem, John Burr Williams Theory This valuation requires estimating the size and timing of all of the incremental cash flows from the project These future cash flows are then discounted to determine their present value These present values are then summed, to get the NPV See also Time value of money The NPV decision rule is to accept all positive NPV projects in an unconstrained environment, or if projects are mutually exclusive, accept the one with the highest NPV GE The NPV is greatly affected by the discount rate, so selecting the proper rate sometimes called the hurdle rate - is critical to making the right decisi on The hurdle rate is the minimum acceptable return on an investment It should reflect the riskiness of the investment, typically measured by the volatility of cash flows, and must take into account the financing mix Managers may use models such as the CAPM or the APT to estimate a discount rate appropriate for each particular 17 project, and use the weighted average cost of capital WACC to reflect the financing mix selected A common practice in choosing a discount rate for a project is to apply a WACC that applies to the entire firm, but a higher discount rate may be more appropriate when a project s risk is higher than the risk of the firm as a whole edit Internal rate of return Main article Internal rate of return The internal rate of return IRR is defined as the discount rate that gives a net present value NPV of zero It is a commonly used measure of investment efficiency The IRR method will result in the same decision as the NPV method for nonmutually exclusive projects in an unco nstrained environment, in the usual cases where a negative cash flow occurs at the start of the project, followed by all positive cash flows In most realistic cases, all independent projects that have an IRR higher than the hurdle rate should be accepted Nevertheless, for mutually exclusive projects, the decision rule of taking the project with the highest IRR which is often used - may select a project with a lower NPV In some cases, several zero NPV discount rates may exist, so there is no unique IRR The IRR exists and is unique if one or more years of net investment negative cash flow are followed by years of net revenues But if the signs of the cash flows change more than once, there may be several IRRs The IRR equation generally cannot be solved analytically but only via iterations One shortcoming of the IRR method is that it is commonly misunderstood to convey the actual annual profitability of an investment However, this is not the case because intermediate cash flows are almost never reinvested at the project s IRR and, therefore, the actual rate of return is almost certainly going to be lower Accordingly, a measure called Modified Internal Rate of Return MIRR is often used Despite a strong academic preference for NPV, surveys indicate that executives prefer IRR over NPV, although they should be used in concert In a budgetconstrained environment, efficiency measures should be used to maximize the overall NPV of the firm Some managers find it intuitively more appealing to evaluate investments in terms of percentage rates of return than dollars of NPV 18 edit Equivalent annuity method The equivalent annuity method expresses the NPV as an annualized cash flow by dividing it by the present value of the annuity factor It is often used when assessing only the costs of specific projects that have the same cash inflows In this form it is known as the equivalent annual cost EAC method and is the cost per year of owning and operating an asset over its entire lifespan I t is often used when comparing investment projects of unequal lifespans For example if project A has an expected lifetime of 7 years, and project B has an expected lifetime of 11 years it would be improper to simply compare the net present values NPVs of the two projects, unless the projects could not be repeated The use of the EAC method implies that the project will be replaced by an identical project Alternatively the chain method can be used with the NPV method under the assumption that the projects will be replaced with the same cash flows each time To compare projects of unequal length, say 3 years and 4 years, the projects are chained together, i e four repetitions of the 3 year project are compare to three repetitions of the 4 year project The chain method and the EAC method give mathematically equivalent answers The assumption of the same cash flows for each link in the chain is essentially an assumption of zero inflation, so a real interest rate rather than a nominal interest rate is commonly used in the calculations edit Real options Main article Real options analysis Real options analysis has become important since the 1970s as option pricing models have gotten more sophisticated The discounted cash flow methods essentially value projects as if they were risky bonds, with the promised cash flows known But managers will have many choices of how to increase future cash inflows, or to decrease future cash outflows In other words, managers get to manage the projects - not simply accept or reject them Real options analysis try to value the choices - the option value - that the managers will have in the future and adds these values to the NPV 19 edit Ranked Projects The real value of capital budgeting is to rank projects Most organizations have many projects that could potentially be financially rewarding Once it has been determined that a particular project has exceeded its hurdle, then it should be ranked against peer projects e g - highest Profitability ind ex to lowest Profitability index The highest ranking projects should be implemented until the budgeted capital has been expended edit External links and references International Good Practice Guidance on Project Appraisal Using Discounted Cash Flow, International Federation of Accountants, June 2008, ISBN 978-1-934779-39-2 Retrieved from Categories Corporate finance Investment 1 0 NET PRESENT VALUE From Wikipedia, the free encyclopedia Jump to navigation, search Net present value NPV or net present worth NPW 1 is defined as the total present value PV of a time series of cash flows It is a standard method for using the time value of money to appraise long-term projects Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met The discounted cash flow is very similar Contents hide 1 Formula 2 The discount rate 20 3 What NPV Means 4 Example 5 Common pitfalls 6 Alternative capital b udgeting methods 7 References edit 1 1 Formula Each cash inflow outflow is discounted back to its present value PV Then they are summed Therefore NPV is the sum of all terms where t - the time of the cash flow i - the discount rate the rate of return that could be earned on an investment in the financial markets with similar risk Rt - the net cash flow the amount of cash, inflow minus outflow at time t for educational purposes, R0 is commonly placed to the left of the sum to emphasize its role as minus the investment edit 1 2 The discount rate The rate used to discount future cash flows to their present values is a key variable of this process A firm s weighted average cost of capital after tax is often used, but many people believe that it is appropriate to use higher discount rates to adjust for risk for riskier projects or other factors A variable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield curve prem ium for long-term debt Another approach to choosing the discount rate factor is to decide the rate which the capital needed for the project could return if invested in an alternative venture If, for example, the capital required for Project A can earn five percent elsewhere, use this discount rate in the NPV calculation to allow a direct comparison to be made between Project A and the alternative Related to this concept is to use the firm s Reinvestment Rate Reinvestment rate can be defined as the rate of return for the firm s investments on average When analyzing projects in a capital constrained environment, it may be appropriate to use the reinvestment rate rather than the 21 firm s weighted average cost of capital as the discount factor It reflects opportunity cost of investment, rather than the possibly lower cost of capital A NPV amount obtained using variable discount rates if they are known for the duration of the investment better reflects the real situation than that calculat ed from a constant discount rate for the entire investment duration Refer to the tutorial article written by Samuel Baker 2 for more detailed relationship between the NPV value and the discount rate For some professional investors, their investment funds are committed to target a specified rate of return In such cases, that rate of return should be selected as the discount rate for the NPV calculation In this way, a direct comparison can be made between the profitability of the project and the desired rate of return To some extent, the selection of the discount rate is dependent on the use to which it will be put If the intent is simply to determine whether a project will add value to the company, using the firm s weighted average cost of capital may be appropriate If trying to decide between alternative investments in order to maximize the value of the firm, the corporate reinvestment rate would probably be a better choice Using variable rates over time, or discounting guaranteed cash flows different from at risk cash flows may be a superior methodology, but is seldom used in practice Using the discount rate to adjust for risk is often difficult to do in practice especially internationally , and is really difficult to do well An alternative to using discount factor to adjust for risk is to explicitly correct the cash flows for the risk elements, then discount at the firm s rate edit 1 3 What NPV Means NPV is an indicator of how much value an investment or project adds to the firm With a particular project, if Ct is a positive value, the project is in the status of discounted cash inflow in the time of t If Ct is a negative value, the project is in the status of discounted cash outflow in the time of t Appropriately risked projects with a positive NPV could be accepted This does not necessarily mean that they should be undertaken since NPV at the cost of capital may not account for opportunity cost, i e comparison with other available investments In financial theory , if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected The following sums up the NPVs in various situations 22 If It means Then the investment NPV would add value to the project may be accepted 0 the firm the investment NPV would subtract value the project should be rejected 0 from the firm the investment NPV would neither gain 0 nor lose value for the firm We should be indifferent in the decision whether to accept or reject the project This project adds no monetary value Decision should be based on other criteria, e g strategic positioning or other factors not explicitly included in the calculation However, NPV 0 does not mean that a project is only expected to break even, in the sense of undiscounted profit or loss earnings It will show net total positive cash flow and earnings over its life edit 1 4 Example A corporation must decide whether to introduce a new product line The new product will have startup costs, operati onal costs, and incoming cash flows over six years This project will have an immediate t 0 cash outflow of 100,000 which might include machinery, and employee training costs Other cash outflows for years 1-6 are expected to be 5,000 per year Cash inflows are expected to be 30,000 per year for years 1-6 All cash flows are after-tax, and there are no cash flows expected after year 6 The required rate of return is 10 The present value PV can be calculated for each year Year Cash flow Present Value T 0 - 100,000 23 T 1 22,727 T 2 20,661 T 3 18,783 T 4 17,075 T 5 15,523 T 6 14,112 Sum of PVs 108,881 NPV PVs - Co 8,881 The sum of all these present values is the net present value, which equals 8,881 52 Since the NPV is greater than zero, it would be better to invest in the project than to do nothing, and the corporation should invest in this project if there is no alternative with a higher NPV The same example in an Excel formulae NPV rate, netinflow initialinvestment PV rate, yearnumber, yearly netinflow 24 25 More realistic problems would need to consider other factors, generally including the calculation of taxes, uneven cash flows, and salvage values as well as the availability of alternate investment opportunities edit 1 5 Common pitfalls 26 If for example the Ct are generally negative late in the project e g an industrial or mining project might have clean-up and restoration costs , then at that stage the company owes money, so a high discount rate is not cautious but too optimistic Some people see this as a problem with NPV A way to avoid this problem is to include explicit provision for financing any losses after the initial investment, that is, explicitly calculate the cost of financing such losses Another common pitfall is to adjust for risk by adding a premium to the discount rate Whilst a bank might charge a higher rate of interest for a risky project, that does not mean that this is a valid approach to adjusting a net present value for risk, although it can be a r easonable approximation in some specific cases One reason such an approach may not work well can be seen from the foregoing if some risk is incurred resulting in some losses, then a discount rate in the NPV will reduce the impact of such losses below their true financial cost A rigorous approach to risk requires identifying and valuing risks explicitly, e g by actuarial or Monte Carlo techniques, and explicitly calculating the cost of financing any losses incurred Yet another issue can result from the compounding of the risk premium R is a composite of the risk free rate and the risk premium As a result, future cash flows are discounted by both the risk-free rate as well as the risk premium and this effect is compounded by each subsequent cash flow This compounding results in a much lower NPV than might be otherwise calculated The certainty equivalent model can be used to account for the risk premium without compounding its effect on present value citation needed If NPV 0, the project should not be immediately rejected Sometimes companies have to execute an NPV-negative project if not executing it creates even more value destruction edit 1 6 Alternative capital budgeting methods Payback period which measures the time required for the cash inflows to equal the original outlay It measures risk, not return Cost-benefit analysis which includes issues other than cash, such as time savings Real option method which attempts to value managerial flexibility that is assumed away in NPV 27 Internal rate of return which calculates the rate of return of a project without making assumptions about the reinvestment of the cash flows hence internal modified internal rate of return MIRR similar to IRR, but it makes explicit assumptions about the reinvestment of the cash flows Sometimes it is called Growth Rate of Return Accounting rate of return edit References 1 2 Lin, Grier C I Nagalingam, Sev V 2000 CIM justification and optimisation London Taylor Francis pp 36 ISBN 0-7484-0858-4 Baker, Samuel L 2000 Perils of the Internal Rate of Return Retrieved on January 12, 2007 Profitability index From Wikipedia, the free encyclopedia Jump to navigation, search This article needs additional citations for verification Please help improve this article by adding reliable references Unsourced material may be challenged and removed February 2007 Profitability index identifies the relationship of investment to payoff of a proposed project The ratio is calculated as follows Profitability Index is also known as Profit Investment Ratio, abbreviated to P I and Value Investment Ratio V I R Profitability index is a good tool for ranking projects because it allows you to clearly identify the amount of value created per unit of investment, thus if you are capital constrained you wish to invest in those projects which create value most efficiently first 28 Nota Bene Statements below this paragraph assume the cash flow calculated does not include the investment made in the project Where investment costs are included in the computed cash flow a PV 0 simply indicates the project creates more value than the cost of capital which is determined by the Weighted Average Cost of Capital WACC A ratio of 1 is logically the lowest acceptable measure on the index Any value lower than one would indicate that the project s PV is less than the initial investment As values on the profitability index increase, so does the financial attractiveness of the proposed project Rules for selection or rejection of a project If PI 1 then accept the project If PI 1 then reject the project For Example, given CFAT Investment 40,000 life of the Machine 5 Years Year 1 2 3 4 5 CFAT 18000 12000 10000 9000 6000 Calculate Net present value at 10 and PI Year 1 2 3 4 5 CFAT PV 10 18000 0 909 12000 0 827 10000 0 752 9000 0 683 6000 0 621 Total present value - Investment NPV 29 PV 16362 9924 7520 6147 3726 43679 40000 3679 PI 43679 40000 1 091 1 Accept the project Detailed discussion on PI from an industry expert edit References How to compute Profitability Index Numerically and with MS Excel This economics or finance-related article is a stub You can help Wikipedia by expanding it Retrieved from Categories Financial terminology Economics and finance stubs Hidden category Articles needing additional references from February 2007 1 0 INTERNAL RATE OF RETURN IRR From Wikipedia, the free encyclopedia Jump to navigation, search This article does not cite any references or sources Please help improve this article by adding citations to reliable sources Unverifiable material may be challenged and removed June 2007 The internal rate of return IRR is a capital budgeting metric used by firms to decide whether they should make investments It is an indicator of the efficiency or quality of an investment, as opposed to net present value NPV , which indicates value or magnitude The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i e the yield on th e investment Put another way, the 30 internal rate of return for an investment is the discount rate that makes the net present value of the investment s income stream total to zero A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments of equal risk investing in other projects, buying bonds, even putting the money in a bank account Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium In general, if the IRR is greater than the project s cost of capital, or hurdle rate, the project will add value for the company In the context of savings and loans the IRR is also called effective interest rate Contents hide 1 Method o 1 1 Example 2 Graph of NPV as a function of r for the example 3 Problems with using internal rate of return IRR 4 Mathematics 5 See also 6 References 7 External links 8 Further reading edit 1 1 Method Given a collection of pairs time, cash flow involved in a project, the internal rate of return follows from the net present value as a function of the rate of return A rate of return for which this function is zero is an internal rate of return Thus, in the case of cash flows at whole numbers of years, to find the internal rate of return, find the value s of r that satisfies the following equation 31 Note that instead of converting to the present we can also convert to any other fixed time the value obtained is zero if and only if the NPV is zero In the case that the cash flows are random variables, such as in the case of a life annuity, the expected values are put into the formula edit 1 1 1 Example Calculate the internal rate of return for an investment of 100 value in the first year followed by returns over the following 4 years, as shown below Year Cash Flow 0 -100 1 40 2 59 3 55 4 20 Solution We use an iterative solver to determine the value of r that solves the following equation The result from the numerical iteration is edit 1 2 Graph of NPV as a function of r for the example 32 This graph shows the changing of NPV in relation to r labelled i in the graph 33 This page was last modified on 15 December 2007, at 17 46 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy edit 1 3 Problems with using internal rate of return IRR As an investment decision tool, the calculated IRR should not be used to rate mutually exclusive projects, but only to decide whether a single project is worth investing in 34 This graph is magnified for ease of reading and presented below 35 NPV vs discount rate comparison for two mutually exclusive projects Project A has a higher NPV for certain discount rates , even though its IRR x-axis intercept is lower than for project B click to enlarge 36 In cases where one project has a higher initia l investment than a second mutually exclusive project, the first project may have a lower IRR expected return , but a higher NPV increase in shareholders wealth and should thus be accepted over the second project assuming no capital constraints IRR assumes reinvestment of positive cash flows during the project at the same calculated IRR When positive cash flows cannot be reinvested back into the project, IRR overstates returns IRR is best used for projects with singular positive cash flows at the end of the project period When the calculated IRR is higher than the true reinvestment rate for interim cash flows, the measure will overestimate sometimes very significantly the annual equivalent return from the project The formula assumes that the company has additional projects, with equally attractive prospects, in which to invest the interim cash flows 1 This makes IRR a suitable and popular choice for analyzing venture capital and other private equity investments, as these strategies usu ally require several cash investments throughout the project, but only see one cash outflow at the end of the project e g via IPO or M A Since IRR does not consider cost of capital, it should not be used to compare projects of different duration Modified Internal Rate of Return MIRR does consider cost of capital and provides a better indication of a project s efficiency in contributing to the firm s discounted cash flow In the case of positive cash flows followed by negative ones - - - the IRR is a rate for lending owing money, so the lowest IRR is best This applies for example when a customer makes a deposit before a specific machine is built In a series of cash flows like -10, 21, -11 , one initially invests money, so a high rate of return is best, but then receives more than one possesses, so then one owes money, so now a low rate of return is best In this case it is not even clear whether a high or a low IRR is better There may even be multiple IRRs for a single project, like in th e example 0 as well as 10 Examples of this type of project are strip mines and nuclear power plants, where there is usually a large cash outflow at the end of the project 37 In general, the IRR can be calculated by solving a polynomial equation Sturm s theorem can be used to determine if that equation has a unique real solution In general the IRR equation cannot be solved analytically but only iteratively A potential shortcoming of the IRR method is that it does not take into account that the intermediate positive cash flows possibly come at inconvenient moments Their reinvestment may have a lower yield In that case it may be more realistic to compute the IRR of the project including the reinvestments until e g the end date of the project 2 Accordingly, MIRR is used, which has an assumed reinvestment rate, usually equal to the project s cost of capital Despite a strong academic preference for NPV, surveys indicate that executives prefer IRR over NPV Apparently, managers find it easier to compare investments of different sizes in terms of percentage rates of return than by dollars of NPV However, NPV remains the more accurate reflection of value to the business IRR, as a measure of investment efficiency may give better insights in capital constrained situations However, when comparing mutually exclusive projects, NPV is the appropriate measure edit 1 4 Mathematics Mathematically the value of the investment is assumed to undergo exponential growth or decay according to some rate of return any value greater than -100 , with discontinuities for cash flows, and the IRR of a series of cash flows is defined as any rate of return that results in a net present value of zero or equivalently, a rate of return that results in the correct value of zero after the last cash flow Thus internal rate s of return follow from the net present value as a function of the rate of return This function is continuous Towards a rate of return of -100 the net present value approaches infinity w ith the sign of the last cash flow, and towards a rate of return of positive infinity the net present value approaches the first cash flow the one at the present Therefore, if the first and last cash flow have a different sign there exists an internal rate of return Examples of time series without an IRR Only negative cash flows - the NPV is negative for every rate of return -1, 1, -1 , rather small positive cash flow between two negative cash flows the NPV is a quadratic function of 1 1 r , where r is the rate of return, or put differently, a quadratic function of the discount rate r 1 r the highest NPV is -0 75, for r 100 38 In the case of a series of exclusively negative cash flows followed by a series of exclusively positive ones, consider the total value of the cash flows converted to a time between the negative and the positive ones The resulting function of the rate of return is continuous and monotonically decreasing from positive infinity to negative infinity, so there is a u nique rate of return for which it is zero Hence the IRR is also unique and equal Although the NPV-function itself is not necessarily monotonically decreasing on its whole domain, it is at the IRR Similarly, in the case of a series of exclusively positive cash flows followed by a series of exclusively negative ones the IRR is also unique Extended Internal Rate of Return The Internal rate of return calculates the rate at which the investment made will generate cash flows This method is convenient if the project has a short duration, but for projects which has an outlay of many years this method is not practical as IRR ignores the Time Value of Money To take into consideration the Time Value of Money Extended Internal Rate of Return was introduced where all the future cash flows are first discounted at a discount rate and then the IRR is calculated This method of calculation of IRR is called Extended Internal Rate of Return or XIRR edit See also Accounting Capital budgeting Cost of capita l Finance Net present value Discounted cash flow edit References 1 2 Internal Rate of Return A Cautionary Tale Internal Rate of Return A Cautionary Tale edit External links Internal rate of return IRR in simple details 39 Using Excel to find IRR Using the web to find IRR Economics Interactive Lecture from University of South Carolina edit Further reading Bruce J Feibel Investment Performance Measurement New York Wiley, 2003 ISBN 0471268496 Retrieved from Category Mathematical finance Hidden categories Articles lacking sources from June 2007 All articles lacking sources This page was last modified on 7 January 2009, at 18 08 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Modified Internal Rate of Return From Wikipedia, the free encyclopedia Jump to navigation, sear ch Modified Internal Rate of Return MIRR is a financial measure used to determine the attractiveness of an investment It is generally used as part of a capital budgeting process to rank various alternative choices As the name implies, MIRR is a modification of the Internal Rate of Return IRR The modified internal rate of return assumes all positive cash flows are re-invested usually at the WACC for the remaining duration of the project All negative cash 40 flows are inflated at the finance rate to take account of the cost of funds and included in the initial investment outlay MIRR ranks project efficiency consistently with the present worth ratio variant of NPV Discounted Negative Cash Flow , considered the gold standard in many finance textbooks 1 2 Contents hide 1 Problems with the IRR 2 Formula 3 Using the MIRR formula in Microsoft s Excel 4 Problems with the MIRR 5 Bypassing the Problems of the MIRR 6 References 7 External links edit Problems with the IRR A problem of the IRR is th at it assumes that interim positive cash flows are reinvested at the same rates of return of the project that generated them This is usually an unrealistic scenario and a more likely situation is that the funds will be reinvested at a rate closer to the firm s cost of capital The IRR therefore often gives an unduly optimistic picture of the projects under study A second problem of the IRR appears whith projects that have irregular cash flows alternating between positive and negative values several times Numerous IRRs can be identified for such projects potentially leading to confusion and the wrong investment decisions being made edit Formula MIRR is calculated as follows 41 where n is the number of equal periods in which the cash flows occur What the formula does is that it adds up the negative cash flows after factoring in the cost of financing at time zero, adds up the positive cash flows after factoring in the proceeds of reinvestment at the final time period, then works out what r ate of return would equate the adjusted negative cash flows at time zero to the adjusted positive cash flows at the final time period This rate of return is the MIRR edit Using the MIRR formula in Microsoft s Excel Excel has a built-in function to calculate the MIRR of a series of cash flows The function can be invoked by typing MIRR in an empty cell It is important that the different components of the function are properly identified in order to obtain an accurate result The function has three parts values which is the cash flow series , financerate which is the cost of the funds that are invested in the project generating the cash flow series , and reinvestrate which is the rate of return at which the funds being generated by the project can be reinvested To determine the values , select the range of cells containing the cash flow series It is important that your selection does not include cells containing zeros beyond the project s horizon at the end of the cell range as the functio n considers these to be additional time periods and will underestimate the actual MIRR of the project as a result The finance rate accounts for the cost of funds being invested into the project Therefore, the finance rate should be typed in as a negative percentage figure Typing in the finance rate as a positive figure a common mistake that even Excel s help file did not manage to avoid will give the wrong result This is because a positive finance rate will cause the denominator in the MIRR formula see above to be smaller For example, assume that the finance rate is 10 If it is entered as a positive number, the funds invested will be discounted at 10 resulting in a small denominator and thus boosting the MIRR The correct approach is therefore to use negative 10 which will inflate the denominator thus taking into consideration the cost of the invested funds and ultimately resulting in a lower MIRR Note that the finance rate will have no effect if there is only one negative cash flow occ urring at the beginning of the project The reinvestment rate is entered as a positive percentage figure and takes into consideration the rate of return that any positive sums resulting from the project can generate if reinvested in other projects 42 edit Problems with the MIRR The MIRR formula see above does not deal adequately with negative cash flows that occur later on in the project Applying the method described in the previous section, interim negative cash flows would be treated as if they had been outstanding since the beginning of the project This would unjustly give them more weight resulting in the understatement of the project s actual rate of return edit Bypassing the Problems of the MIRR To avoid the problem of the MIRR mentioned above, calculate the cumulative cash balance generated by the project in each period if the balance is positive apply the reinvestment rate while if it is negative apply the finance rate The cumulative cash flow for each subsequent period should i nclude the resulting reinvestment and financing sums of the previous periods for correct compounding Having completed this step, add the reinvestment and financing amounts to the net cash flow figures in each period then apply the MIRR formula to these adjusted net cash flows while setting its two parameters the reinvestment and financing rates to zero edit References 1 2 Principles of Corporate Finance, Brealey, Myers, and Allen Economic Evaluation and Investment Decision Methods, Stermole and Stermole edit External links Internal Rate of Return A Cautionary Tale Retrieved from Category Mathematical finance This page was last modified on 17 January 2009, at 10 02 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia 43 Disclaimers Equivalent annual cost From Wikipedia, the free enc yclopedia Redirected from Equivalent Annual Cost Jump to navigation, search In finance the equivalent annual cost EAC is the cost per year of owning and operating an asset over its entire lifespan EAC is often used as a decision making tool in capital budgeting when comparing investment projects of unequal lifespans For example if project A has an expected lifetime of 7 years, and project B has an expected lifetime of 11 years it would be improper to simply compare the net present values NPVs of the two projects, unless neither project could be repeated EAC is calculated by dividing the NPV of a project by the present value of an annuity factor Equivalently, the NPV of the project may be multiplied by the loan repayment factor EAC The use of the EAC method implies that the project will be replaced by an identical project Contents hide 1 A practical example 2 External links 3 See also o 3 1 List of Marketing TopicsList of Management TopicsList of 44 Economics TopicsList of Accounting To picsList of Finance TopicsList of Economists edit A practical example A manager must decide on which machine to purchase Machine Investment Expected lifetime Annual maintenance 13,000 Machine Investment Expected lifetime Annual maintenance 7,500 3 A 50,000 years 8 B 150,000 years cost cost The cost of capital is 5 The EAC for machine A is 50,000 A3,5 13,000 31,360 The EAC for machine B is 150,000 A8,5 7,500 30,780 The conclusion is to invest in machine B since it has a lower EAC Note The loan repayment factors A values are for t years 3 or 5 years and 5 cost of capital A3,5 is given by 2 723 and A8,5 is given by 6 463 See ordinary annuity formulae for a derivation The larger an A value is, the greater the present value is on a succession of future annuity payments, thus contributing to a smaller annual cost Alternative method The manager calculates the NPV of the machines Machine A EAC 85,400 A3,5 31,360 Machine B EAC 198,474 A8,5 30,708 Note To get the numerators add the present value of the annual maintenance to the 45 purchase price For example, for Machine A 50,000 13,000 1 05 13,000 1 05 2 13,000 1 05 3 85,402 The result is the same, although the first method is easier it is essential that the annual maintenance cost is the same each year Alternatively the manager can use the NPV method under the assumption that the machines will be replaced with the same cost of investment each time This is known as the chain method since 8 repetitions of machine A are chained together and 3 repetitions of machine B are chained together Since the time horizon used in the NPV comparison must be set to 24 years 3 8 24 in order to compare projects of equal length, this method can be slightly more complicated than calculating the EAC In addition, the assumption of the same cost of investment for each link in the chain is essentially an assumption of zero inflation, so a real interest rate rather than a nominal interest rate is commonly used in the calculations edit External links Try the example above with your own values edit See also Capital budgeting Depreciation Net present value List of Marketing Topics List of Management Topics List of Economics Topics List of Accounting Topics List of Finance Topics List of Economists Retrieved from Categories Management accounting Finance Rate of return From Wikipedia, the free encyclopedia 46 Redirected from Return on investment Jump to navigation, search In finance, rate of return ROR , also known as return on investment ROI , rate of profit or sometimes just return, is the ratio of money gained or lost realized or unrealized on an investment relative to the amount of money invested The amount of money gained or lost may be referred to as interest, profit loss, gain loss, or net income loss The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment ROI is usually expressed as a percentage rather than a fraction ROI does not indicate how long an investment is held Howeve r, ROI is most often stated as an annual or annualized rate of return, and it is most often stated for a calendar or fiscal year In this article, ROI indicates an annual or annualized rate of return, unless otherwise noted ROI can be used to compare returns on investments where the moneys gained or lost are not easily compared using monetary values For instance, a 1,000 investment that earns 50 in interest generates more cash than a 100 investment that earns 20 in interest, but the 100 investment earns a higher return on investment 50 1,000 5 ROI 20 100 20 ROI The rate of return can take on any value greater than or equal to -100 -- a positive value corresponds to capital growth, a negative value corresponds to capital decay, and a value of 0 corresponds to no change Contents hide 1 Calculation o 1 1 Single-period o 1 1 1 Arithmetic return 1 1 2 Logarithmic or continuously compounded return 1 2 Multiperiod average returns 1 2 1 Arithmetic average rate of return 47 1 2 2 Geometric avera ge rate of return 1 2 3 Internal rate of return 2 Comparisons between various rates of return o 2 1 Arithmetic and logarithmic return o 2 2 Arithmetic average and geometric average rates of return o 2 3 Annual returns and annualized returns 3 Uses 4 Cash or potential cash returns o 4 1 Time value of money o 4 2 Compounding or reinvesting 5 Returns when capital is at risk o 5 1 Capital gains and losses o 5 2 Reinvestment when capital is at risk rate of return and yield o 5 3 Mutual fund returns 5 3 1 Total returns 5 3 2 Average annual return geometric 5 3 3 Example 6 Summary overall rate of return 7 References 8 See also 9 External links 10 Further reading edit Calculation 48 The initial value of an investment, Vi, does not always have a clearly defined monetary value, but for purposes of measuring ROI, the initial value must be clearly stated along with the rationale for this initial value The final value of an investment, Vf, also does not always have a clearly defined monetary value, but for purposes of measuring ROI, the final value must be clearly stated along with the rationale for this final value The rate of return can be calculated over a single period, or expressed as an average over multiple periods edit Single-period edit Arithmetic return The arithmetic return is defined as the following If the final investment value excludes capital gains, then rarith is sometimes referred to as the yield See also effective interest rate, effective annual rate EAR or annual percentage yield APY If the final investment value includes both capital gains and intermediate income such as dividends, then rarith is the holding period return edit Logarithmic or continuously compounded return The logarithmic return or continuously compounded return, also known as force of interest, is defined as It is the reciprocal of the e-folding time edit Multiperiod average returns edit Arithmetic average rate of return The arithmetic average rate of return over n periods is defined as 49 e dit Geometric average rate of return The geometric average rate of return, also known as the time-weighted rate of return, over n periods is defined as The geometric average rate of return calculated over n years is also known as the annualized return edit Internal rate of return Main article Internal rate of return The internal rate of return, also known as the dollar-weighted rate of return, is defined as the value s of that satisfies the following equation where NPV net present value of the investment edit Comparisons between various rates of return edit Arithmetic and logarithmic return For both arithmetic returns and logarithmic returns, an investment is profitable when either or 0, and unprofitable when either or 0 The final value of an investment is twice the initial value when or The final value falls to zero, i e the initial value can no longer be recovered when or 50 Arithmetic and logarithmic returns are not equal, but are approximately equal for small returns The difference between them is large only when percent changes are high For example, an arithmetic return of 50 is equivalent to a logarithmic return of 40 55 , while an arithmetic return of -50 is equivalent to a logarithmic return of -69 31 Logarithmic returns are often used by academics in their research The main advantage is that the continuously compounded return is symmetric, while the arithmetic return is not positive and negative percent arithmetic returns are not equal This means that an investment of 100 that yields an arithmetic return of 50 followed by an arithmetic return of -50 will result in 75, while an investment of 100 that yields a logarithmic return of 50 followed by an logarithmic return of -50 it will remain 100 Comparison of arithmetic and logarithmic returns for initial investment of 100 Initial investment, Vi 100 100 100 100 100 Final investment, Vf 0 50 100 150 200 Profit loss, Vf Vi - 100 - 50 0 50 100 Arithmetic return, rarith -100 -50 0 50 100 -69 31 0 40 55 69 31 Logari thmic return, rlog edit Arithmetic average and geometric average rates of return Both arithmetic and geometric average rates of returns are averages of periodic percentage returns Neither will accurately translate to the actual dollar amounts gained or lost if percent gains are averaged with percent losses 1 A 10 loss on a 100 investment is a 10 loss, and a 10 gain on a 100 investment is a 10 gain When percentage returns on investments are calculated, they are calculated for a 51 period of time not based on original investment dollars, but based on the dollars in the investment at the beginning and end of the period So if an investment of 100 loses 10 in the first period, the investment amount is then 90 If the investment then gains 10 in the next period, the investment amount is 99 A 10 gain followed by a 10 loss is a 1 dollar loss The order in which the loss and gain occurs does not affect the result A 50 gain and a 50 loss is a 25 loss An 80 gain plus an 80 loss is a 64 loss To reco ver from a 50 loss, a 100 gain is required The mathematics of this are beyond the scope of this article, but since investment returns are often published as average returns , it is important to note that average returns do not always translate into dollar returns Example 1 Level Rates of Return Year 1 Year 2 Year 3 Year 4 Rate of Return 5 5 5 5 Geometric Average at End of Year 5 5 5 5 Capital at End of Year 105 00 110 25 115 76 121 55 Dollar Profit Loss 21 55 Compound Yield 5 4 Example 2 Volatile Rates of Return, including losses Year 1 Year 2 Year 3 Year 4 Rate of Return 50 52 -20 30 -40 Geometric Average at End of Year 50 Capital at End of Year 9 5 16 -1 6 150 00 120 00 156 00 93 60 Dollar Profit Loss 6 40 Compound Yield -1 6 Example 3 Highly Volatile Rates of Return, including losses Year 1 Year 2 Year 3 Year 4 Rate of Return -95 Geometric Average at End of Year -95 Capital at End of Year 0 0 115 -77 6 -63 2 -42 7 5 00 5 00 5 00 10 75 Dollar Profit Loss 89 25 Compound Yield -22 3 ed it Annual returns and annualized returns Care must be taken not to confuse annual and annualized returns An annual rate of return is a single-period return, while an annualized rate of return is a multi-period, geometric average return 53 An annual rate of return is the return on an investment over a one-year period, such as January 1 through December 31st, or June 3rd 2006 through June 2nd 2007 Each ROI in the cash flow example above is an annual rate of return An annualized rate of return is the return on an investment over a period other than one year such as a month, or two years multiplied or divided to give a comparable one-year return For instance, a one-month ROI of 1 could be stated as an annualized rate of return of 12 Or a two-year ROI of 10 could be stated as an annualized rate of return of 5 In the cash flow example below, the dollar returns for the four years add up to 265 The annualized rate of return for the four years is 265 1,000 x 4 years 6 625 edit Uses ROI is a mea sure of cash or potential cash generated by an investment, or the cash lost due to the investment It measures the cash flow or income stream from the investment to the investor Cash flow to the investor can be in the form of profit, interest, dividends, or capital gain loss Capital gain loss occurs when the market value or resale value of the investment increases or decreases Cash flow here does not include the return of invested capital Cash Flow Example on 1,000 Investment Year 1 Year 2 Year 3 Year 4 Dollar Return 100 55 60 50 ROI 5 5 6 5 10 ROI values typically used for personal financial decisions include Annual Rate of Return and Annualized Rate of Return For nominal risk investments such as savings accounts or Certificates of Deposit, the personal investor considers the effects of reinvesting compounding on increasing savings balances over time For investments in which capital is at risk, such as stock 54 shares, mutual fund shares and home purchases, the personal investor consid ers the effects of price volatility and capital gain loss on returns Profitability ratios typically used by financial analysts to compare a company s profitability over time or compare profitability between companies include Gross Profit Margin, Operating Profit Margin, ROI ratio, Dividend yield, Net profit margin, Return on equity, and Return on assets 2 During capital budgeting, companies compare the rates of return of different projects to select which projects to pursue in order to generate maximum return or wealth for the company s stockholders Companies do so by considering the average rate of return, payback period, net present value, profitability index, and internal rate of return for various projects 3 A return may be adjusted for taxes to give the after-tax rate of return This is done in geographical areas or historical times in which taxes consumed or consume a significant portion of profits or income The after-tax rate of return is calculated by multiplying the rate of ret urn by the tax rate, then subtracting that percentage from the rate of return A return of 5 taxed at 15 gives an after-tax return of 4 25 0 05 x 0 15 0 0075 0 05 - 0 0075 0 0425 4 25 A return of 10 taxed at 25 gives an after-tax return of 7 5 0 10 x 0 25 0 025 0 10 - 0 025 0 075 7 5 Investors usually seek a higher rate of return on taxable investment returns than on non-taxable investment returns A return may be adjusted for inflation to better indicate its true value in purchasing power Any investment with a nominal rate of return less than the annual inflation rate represents a loss of value, even though the nominal rate of return might well be greater than 0 When ROI is adjusted for inflation, the resulting return is considered an increase or decrease in purchasing power If an ROI value is adjusted for inflation, it is stated explicitly, such as The return, adjusted for inflation, was 2 55 Many online poker tools include ROI in a player s tracked statistics, assisting users in evalu ating an opponent s profitability edit Cash or potential cash returns edit Time value of money Investments generate cash flow to the investor to compensate the investor for the time value of money Except for rare periods of deflation where the opposite is true, a dollar in cash is worth less today than it was yesterday, and worth more today than it will be worth tomorrow The main factors that are used by investors to determine the rate of return at which they are willing to invest money include estimates of future inflation rates estimates regarding the risk of the investment e g how likely it is that investors will receive regular interest dividend payments and the return of their full capital whether or not the investors want the money available liquid for other uses The time value of money is reflected in the interest rates that banks offer for deposits, and also in the interest rates that banks charge for loans such as home mortgages The risk-free rate is the rate on U S Treasury B ills, because this is the highest rate available without risking capital The rate of return which an investor expects from an investment is called the Discount Rate Each investment has a different discount rate, based on the cash flow expected in future from the investment The higher the risk, the higher the discount rate rate of return the investor will demand from the investment edit Compounding or reinvesting Compound interest or other reinvestment of cash returns such as interest and dividends does not affect the discount rate of an investment, but it does affect the Annual Percentage Yield, because compounding reinvestment increases the capital invested 56 For example, if an investor put 1,000 in a 1-year Certificate of Deposit CD that paid an annual interest rate of 4 , compounded quarterly, the CD would earn 1 interest per quarter on the account balance The account balance includes interest previously credited to the account Compound Interest Example 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Capital at the beginning of 1,000 the period 1,010 1,020 10 1,030 30 Dollar return for the period 10 10 10 20 10 30 Account Balance at end of 1,010 00 the period 1,020 10 1,030 30 1,040 60 Quarterly ROI 1 1 1 10 1 The concept of income stream may express this more clearly At the beginning of the year, the investor took 1,000 out of his pocket or checking account to invest in a CD at the bank The money was still his, but it was no longer available for buying groceries The investment provided a cash flow of 10 00, 10 10, 10 20 and 10 30 At the end of the year, the investor got 1,040 60 back from the bank 1,000 was return of capital Once interest is earned by an investor it becomes capital Compound interest involves reinvestment of capital the interest earned during each quarter is reinvested At the end of the first quarter the investor had capital of 1,010 00, which then earned 10 10 during the second quarter The extra dime was interest on his additional 10 investment The Annual Percentage Yield or Future value for compound interest is higher than for simple interest because the interest is 57 reinvested as capital and earns interest The yield on the above investment was 4 06 Bank accounts offer contractually guaranteed returns, so investors cannot lose their capital Investors Depositors lend money to the bank, and the bank is obligated to give investors back their capital plus all earned interest Because investors are not risking losing their capital on a bad investment, they earn a quite low rate of return But their capital steadily increases edit Returns when capital is at risk edit Capital gains and losses Many investments carry significant risk that the investor will lose some or all of the invested capital For example, investments in company stock shares put capital at risk The value of a stock share depends on what someone is willing to pay for it at a certain point in time Unlike capital invested in a savings account, the capital value pric e of a stock share constantly changes If the price is relatively stable, the stock is said to have low volatility If the price often changes a great deal, the stock has high volatility All stock shares have some volatility, and the change in price directly affects ROI for stock investments Stock returns are usually calculated for holding periods such as a month, a quarter or a year edit Reinvestment when capital is at risk rate of return and yield Example Stock with low volatility and a regular quarterly dividend, reinvested End of 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Dividend 1 1 01 1 02 1 03 Stock Price 98 101 102 99 Shares Purchased 0 010204 0 01 0 01 0 010404 Total Shares Held 1 010204 1 020204 1 030204 1 040608 Investment Value 99 103 04 105 08 103 02 Quarterly ROI -1 4 08 1 98 -1 96 58 Yield is the compound rate of return that includes the effect of reinvesting interest or dividends To the right is an example of a stock investment of one share purchased at the beginnin g of the year for 100 The quarterly dividend is reinvested at the quarter-end stock price The number of shares purchased each quarter Dividend Stock Price The final investment value of 103 02 is a 3 02 Yield on the initial investment of 100 This is the compound yield, and this return can be considered to be the return on the investment of 100 To calculate the rate of return, the investor includes the reinvested dividends in the total investment The investor received a total of 4 06 in dividends over the year, all of which were reinvested, so the investment amount increased by 4 06 Total Investment Cost Basis 100 4 06 104 06 Capital gain loss 103 02 - 104 06 - 1 04 a capital loss 4 06 dividends - 1 04 capital loss 104 06 total investment 2 9 ROI The disadvantage of this ROI calculation is that it does not take into account the fact that not all the money was invested during the entire year the dividend reinvestments occurred throughout the year The advantages are 1 it uses the cost basi s of the investment, 2 it clearly shows which gains are due to dividends and which gains losses are due to capital gains losses, and 3 the actual dollar return of 3 02 is compared to the actual dollar investment of 104 06 For American income tax purposes, if the shares were sold at the end of the year, dividends would be 4 06, cost basis of the investment would be 104 06, sale price would be 103 02, and the capital loss would be 1 04 Since all returns were reinvested, the ROI might also be calculated as a continuously compounded return or logarithmic return The effective continuously compounded rate of return is the natural log of the final investment value divided by the initial investment value Vi is the initial investment 100 59 Vf is the final value 103 02 edit Mutual fund returns Mutual funds and exchange-traded funds ETFs hold portfolios of various companies stock shares When the companies pay a dividend, and when the fund trades shares, dividends and capital gains are distribute d to the mutual fund shareholders Mutual funds trade at the net asset value of the stock shares edit Total returns Mutual funds report total returns based on reinvestment factors Reinvestment factors are based on total distributions dividends plus capital gains during each period 60 Total Return Final Price x Last Reinvestment Factor - Beginning Price Beginning Price edit Average annual return geometric Average Annual Return geometric US mutual funds use SEC form N-1A to report the average annual compounded rates of return for 1-year, 5-year and 10year periods as the average annual total return for each fund The following formula is used 4 P 1 T n ERV Where P a hypothetical initial payment of 1,000 T average annual total return n number of years ERV ending redeemable value of a hypothetical 1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods or fractional portion edit Example Example Mutual Fund with low volatility and a re gular annual dividend, reinvested at year-end share price, initial share value 100 End of Year 1 Year 2 Year 3 Year 4 Year 5 Dividend 5 5 5 5 5 61 Capital Distribution Gain 2 Total Distribution 5 5 7 5 5 Share Price 98 101 102 99 101 Shares Purchased 0 05102 0 04950 0 06863 0 05051 0 04950 Shares Owned 1 05102 1 10053 1 16915 1 21966 1 26916 Reinvestment Factor 1 05102 1 05203 1 07220 1 05415 1 05219 Total Return 101 x 1 05219 - 100 100 6 27 net of expenses Average Annual Return geometric 28 19 100 1 1 5 1 x 100 5 09 Using a Holding Period Return calculation, after 5 years, an investor who reinvested owned 1 26916 share valued at 101 per share 128 19 in value 128 19- 100 100 5 5 638 yield An investor who did not reinvest received a total of 27 in dividends and 1 in capital gain 27 1 100 5 5 600 return Mutual funds include capital gains as well as dividends in their return calculations Since the market price of a mutual fund share is based on net asset value, a capital gain distribution is offset by an equal decrease in mutual fund share value price From the shareholder s perspective, a capital gain distribution is not a net gain in assets, but it is a realized capital gain edit Summary overall rate of return Rate of Return and Return on Investment indicate cash flow from an investment to the investor over a specified period of time, usually a year 62 ROI is a measure of investment profitability, not a measure of investment size While compound interest and dividend reinvestment can increase the size of the investment thus potentially yielding a higher dollar return to the investor , Return on Investment is a percentage return based on capital invested In general, the higher the investment risk, the greater the potential investment return, and the greater the potential investment loss edit References 1 2 Damato, Karen Doing the Math Tech Investors Road to Recovery is Long Wall Street Journal, pp C1-C19, May 18, 2001 A A Groppelli and Ehsan Nikbakht 2000 Barron s Financ e, 4th Edition New York pp 442 456 ISBN 0-7641-1275-9 3 Barron s Finance pp 151 163 4 SEC 1998 Final Rule Registration Form Used by Open-End Management Investment Companies Sample Form and instructions edit See also Average for a discussion of annualization of returns Compound interest Capital budgeting Compound annual growth rate Dollar cost averaging Expected return Internal rate of return Net Present Value Rate of profit Return on assets Return on capital Return of capital 63 Value investing edit External links ROR Nomenclature and usage by different products edit Further reading A A Groppelli and Ehsan Nikbakht Barron s Finance, 4th Edition New York Barron s Educational Series, Inc 2000 ISBN 0-7641-1275-9 Zvi Bodie, Alex Kane and Alan J Marcus Essentials of Investments, 5th Edition New York McGraw-Hill Irwin, 2004 ISBN 0-07-251077-3 Richard A Brealey, Stewart C Myers and Franklin Allen Principals of Corporate Finance, 8th Edition McGraw-Hill Irwin, 2006 Walter B Meigs and Robert F Meigs Financial Accounting, 4th Edition New York McGraw-Hill Book Company, 1970 ISBN 0-07-041534-X Bruce J Feibel Investment Performance Measurement New York Wiley, 2003 ISBN 0471268496 Retrieved from Categories Financial ratios Basic financial concepts Payback period From Wikipedia, the free encyclopedia Jump to navigation, search Payback period in business and economics refers to the period of time required for the return on an investment to repay the sum of the original investment For example, a 1000 investment which returned 500 per year would have a two year payback period It intuitively measures how long something takes to pay for itself shorter payback periods are obviously preferable to longer payback periods all else being equal Payback period is widely used due to its ease of use despite recognized limitations, described below The expression is also widely used in other types of investment areas, often with respect to energy efficiency technologies, maintenance, upgrades, or other changes 64 For example, a compact fluorescent light bulb may be described of having a payback period of a certain number of years or operating hours assuming certain costs here, the return to the investment consists of reduced operating costs Although primarily a financial term, the concept of a payback period is occasionally extended to other uses, such as energy payback period the period of time over which the energy savings of a project equal the amount of energy expended since project inception these other terms may not be standardized or widely used Payback period as a tool of analysis is often used because it is easy to apply and easy to understand for most individuals, regardless of academic training or field of endeavour When used carefully or to compare similar investments, it can be quite useful As a stand-alone tool to compare an investment with doing nothing , payback period has no explicit criteria for decision-making except, perhaps, that the payback period shoul d be less than infinity The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not properly account for the time value of money, risk, financing or other important considerations such as the opportunity cost Whilst the time value of money can be rectified by applying a weight average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation Alternative measures of return preferred by economists are net present value and internal rate of return An implicit assumption in the use of payback period is that returns to the investment continue after the payback period Payback period does not specify any required comparison to other investments or even to not making an investment edit Basic formula Payback Days Weeks Months x Initial Investment Total cash received edit External links Payback period How to compute payback period numerically and with MS Excel edi t References Retrieved from Categories Finance Business terms This page was last modified on 1 December 2008, at 10 32 65 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Efficient energy use From Wikipedia, the free encyclopedia Redirected from Energy efficiency Jump to navigation, search Energy efficiency redirects here For energy efficiency as a ratio in physics, see Energy conversion efficiency Compact fluorescent light bulb Efficient energy use, sometimes simply called energy efficiency, is using less energy to provide the same level of energy service An example would be insulating a home to use less heating and cooling energy to achieve the same temperature Another example would be installing fluorescent lights and or skylights instead of incandescent lights t o attain the same level of illumination 66 Efficient energy use is achieved primarily by means of a more efficient technology or process rather than by changes in individual behaviour 1 Energy efficient buildings, industrial processes and transportation could reduce the world s energy needs in 2050 by one third, and help controlling global emissions of greenhouse gases, according to the International Energy Agency 2 Energy efficiency and renewable energy are said to be the twin pillars of sustainable energy policy 3 However, there are many problems in calculating energy usage, and even bigger problems when discussing environmental impact Contents hide 1 Overview 2 Energy efficient appliances 3 Energy efficient building design 4 Energy efficiency for industry 5 Energy efficient vehicles 6 Energy conservation 7 Sustainable energy 8 Rebound effect 9 See also 10 Organizations promoting energy efficiency 11 References 12 External links edit Overview Making homes, vehicles, and businesses mo re energy efficient is seen as a largely untapped solution to addressing global warming, energy security, and fossil fuel depletion Many of these ideas have been discussed for years, since the 1973 oil 67 crisis brought energy issues to the forefront In the late 1970s, physicist Amory Lovins popularized the notion of a soft energy path , with a strong focus on energy efficiency Among other things, Lovins popularized the notion of negawatts -- the idea of meeting energy needs by increasing efficiency instead of increasing energy production Energy efficiency has proved to be a cost-effective strategy for building economies without necessarily growing energy consumption, as environmental business strategist Joel Makower has noted For example, the state of California began implementing energy-efficiency measures in the mid-1970s, including building code and appliance standards with strict efficiency requirements During the following years, California s energy consumption has remained appro ximately flat on a per capita basis while national U S consumption doubled As part of its strategy, California implemented a three-step plan for new energy resources that puts energy efficiency first, renewable electricity supplies second, and new fossilfired power plants last Still, efficiency often has taken a secondary position to new power generation as a solution to global warming in creating national energy policy Some companies also have been reluctant to engage in efficiency measures, despite the often favorable returns on investments that can result Lovins Rocky Mountain Institute points out that in industrial settings, there are abundant opportunities to save 70 to 90 of the energy and cost for lighting, fan, and pump systems 50 for electric motors and 60 in areas such as heating, cooling, office equipment, and appliances In general, up to 75 of the electricity used in the U S today could be saved with efficiency measures that cost less than the electricity itself Other studi es have emphasized this A report published in 2006 by the McKinsey Global Institute, asserted that there are sufficient economically viable opportunities for energy-productivity improvements that could keep global energydemand growth at less than 1 percent per annum -- less than half of the 2 2 percent average growth anticipated through 2020 in a business-as-usual scenario Energy productivity -- which measures the output and quality of goods and services per unit of energy input -- can come from either reducing the amount of energy required to produce something, or from increasing the quantity or quality of goods and services from the same amount of energy The Vienna Climate Change Talks 2007 Report, under the auspices of the United Nations Framework Convention on Climate Change UNFCCC , clearly shows that energy efficiency can achieve real emission reductions at low cost 4 68 edit Energy efficient appliances Modern energy-efficient appliances, such as refrigerators, freezers, ovens, s toves, dishwashers, and clothes washers and dryers, use significantly less energy than older appliances Current energy efficient refrigerators, for example, use 40 percent less energy than conventional models did in 2001 Modern power management systems also reduce energy usage by idle appliances by turning them off or putting them into a low-energy mode after a certain time Many countries identify energyefficient appliances using an Energy Star label 5 edit Energy efficient building design A building s location and surroundings play a key role in regulating its temperature and illumination For example, trees, landscaping, and hills can provide shade and block wind In cooler climates, designing buildings with an east-west orientation to increase the number of south-facing windows minimizes energy use, by maximizing passive solar heating Tight building design, including energy-efficient windows, well-sealed doors, and additional thermal insulation of walls, basement slabs, and foundation s can reduce heat loss by 25 to 50 percent 5 Dark roofs may become up to 70 F hotter than the most reflective white surfaces, and they transmit some of this additional heat inside the building US Studies have shown that lightly colored roofs use 40 percent less energy for cooling than buildings with darker roofs White roof systems save more energy in sunnier climates Advanced electronic heating and cooling systems can moderate energy consumption and improve the comfort of people in the building 5 Proper placement of windows and skylights and use of architectural features that reflect light into a building, can reduce the need for artificial lighting Compact fluorescent lights use two-thirds less energy and last 6 to 10 times longer than incandescent light bulbs Newer fluorescent lights produce a natural light, and in most applications they are cost effective, despite their higher initial cost, with payback periods as low as a few months 6 However, those ideals may not always be achieve d in practice, because lifetime depends on the frequency of usage In addition, CFLs emit UV light which can harm polymers and pigments Thay also respind more slowly when switched on, so may represent a safety hazard in halls and stairways for example Increased use of natural and task lighting have been shown by one study to increase productivity in schools and offices 5 However, fluorescent lighting can be harsh, and the flicker can induce migraine, so caution is needed when replacing incandescent lights 69 Effecive energy-efficient building design can include the use of low cost Passive Infra Reds PIRs to switch-off lighting when areas are unnoccupied such as toilets, corridors or even office areas out-of-hours In addition, lux levels can be monitored using daylight sensors linked to the building s lighting scheme to switch on off or dim the lighting to pre-defined levels to take into account the natural light and thus reduce consumption Building Management Systems BMS link all of thi s together in one centralised computer to control the whole building s lighting and power requirements 7 Smart meters are slowly being adopted by the commerial sector to highlight to staff and for internal monitoring purposes the building s energy usage in a dynamic presentable format The use of Power Quality Analysers can be introduced into an existing building to assess usage, harmonic distortion, peaks, swells and interruptions amongst others to ultimately make the building more energy-efficient edit Energy efficiency for industry In industry, when electricity is generated, the heat which is produced as a byproduct can be captured and used for process steam, heating or other industrial purposes Conventional electricity generation is about 30 percent efficient, whereas combined heat and power also called cogeneration converts up to 90 percent of the fuel into usable energy 8 Advanced boilers and furnaces can operate at higher temperatures while burning less fuel These technologies ar e more efficient and produce fewer pollutants 8 Over 45 percent of the fuel used by US manufacturers is burnt to make steam The typical industrial facility can reduce this energy usage 20 percent according to the US Department of Energy by insulating steam and condensate return lines, stopping steam leakage, and maintaining steam traps 8 Electric motors usually run on a constant flow of energy, but an adjustable speed drive can vary the motor s energy output to match the load This achieves energy savings ranging from 3 to 60 percent, depending on how the motor is used Motor coils made of superconducting materials can also reduce energy losses 8 Motors may also benefit from voltage optimisation Many industries use compressed air for sand blasting, painting, or other tools According to the US Department of Energy, optimizing compressed air systems by 70 installing variable speed drives, along with preventive maintenance to detect and fix air leaks, can improve energy efficiency 20 to 50 percent 8 edit Energy efficient vehicles Further information Automotive market and Alternative propulsion Using improved aerodynamics to minimize drag can increase vehicle fuel efficiency Reducing vehicle weight can significantly also improve fuel economy More advanced tires, with decreased tire to road friction and rolling resistance, can save gasoline Fuel economy can be improved over three percent by keeping tires inflated to the correct pressure Replacing a clogged air filter can improve a cars fuel consumption by as much as 10 percent 9 Fuel efficient vehicles may reach twice the fuel efficiency of the average automobile Cutting-edge designs, such as the diesel Mercedes-Benz Bionic concept vehicle have achieved a fuel efficiency as high as 84 miles per US gallon 2 8 L 100 km 101 mpg-imp , four times the current conventional automotive average 9 Another growing trend in automotive efficiency is the rise of hybrid and electric cars Hybrids, like the Toyota Prius, use regenerative br aking to recapture energy that would dissipate in normal cars the effect is especially pronounced in city driving plug-in hybrids also have electrical plugs, which makes it possible to drive for limited distances without burning any gasoline in this case, energy efficiency is dictated by whatever process coal-burning, hydroelectric, etc created the power Plug-ins can typically drive for around 40 mile purely on electricity without recharging if the battery runs low, a gas engine kicks in allowing for extended range Finally, all-electric cars are also growing in popularity the Tesla Roadster sports car is the only high-performance all-electric car currently on the market, and others are in design 10 edit Energy conservation Energy conservation is broader than energy efficiency in that it encompasses using less energy to achieve a lesser energy service, for example through behavioural change, as well as encompassing energy efficiency Examples of conservation without efficiency improvemen ts would be heating a room less in winter, driving 71 less, or working in a less brightly lit room As with other definitions, the boundary between efficient energy use and energy conservation can be fuzzy, but both are important in environmental and economic terms This is especially the case when actions are directed at the saving of fossil fuels 11 edit Sustainable energy Main article Sustainable energy Energy efficiency and renewable energy are said to be the twin pillars of a sustainable energy policy Both strategies must be developed concurrently in order to stabilize and reduce carbon dioxide emissions in our lifetimes Efficient energy use is essential to slowing the energy demand growth so that rising clean energy supplies can make deep cuts in fossil fuel use If energy use grows too rapidly, renewable energy development will chase a receding target Likewise, unless clean energy supplies come online rapidly, slowing demand growth will only begin to reduce total carbon emissions a reduction in the carbon content of energy sources is also needed A sustainable energy economy thus requires major commitments to both efficiency and renewables 12 edit Rebound effect Further information Rebound effect conservation and Jevons paradox If the demand for energy services remains constant, improving energy efficiency will reduce energy consumption and carbon emissions However, many efficiency improvements do not reduce energy consumption by the amount predicted by simple engineering models This is because they make energy services cheaper, and so consumption of those services increase For example, since fuel efficient vehicles make travel cheaper, consumers may choose to drive further and or faster, thereby offsetting some of the potential energy savings This is an example of the direct rebound effect 13 Estimates of the size of the rebound effect range from roughly 5 to 40 14 15 16 Rebound effects are smaller in mature markets where demand is saturated The rebound effect i s likely to be less than 30 at the household level and may be closer to 10 for transport 13 A rebound effect of 30 implies that improvements in energy efficiency should achieve 70 of the reduction in energy consumption projected using engineering models 72 Since more efficient and hence cheaper energy will also lead to faster economic growth, there are suspicions that improvements in energy efficiency may eventually lead to even faster resource use This was postulated by economists in the 1980 s and remains a controversial hypothesis Ecological economists have suggested that any cost savings from efficiency gains be taxed away by the government in order to avoid this outcome 17 edit See also Energy portal Alliance to Save Energy Banning of incandescent lightbulbs Cogeneration Energy efficiency in British housing Energy-efficient landscaping Energy resilience Energy saving lamp Green computing Performance per watt Green energy High temperature insulation wool Hybrid vehicle and plug-in hybrid vehicle International Partnership for Energy Efficiency Cooperation National Electrical Manufacturers Association National Energy Action Negawatt power One watt initiative Plug-in Hybrid Electric Vehicle Renewable heat 73 Solar lamp Standby power Vehicle-to-grid Window insulation film edit Organizations promoting energy efficiency International European Council for an Energy Efficient Economy International Electrotechnical Commission International Energy Agency e g One watt initiative Iceland Marorka United States Alliance to Save Energy American Council for an Energy Efficient Economy Climate savers computing initiative Consortium for Energy Efficiency Energy Star, from United States Environmental Protection Agency Industrial Assessment Center Institute for Electric Efficiency Rocky Mountain Institute edit References 1 Diesendorf, Mark 2007 Greenhouse Solutions with Sustainable Energy, UNSW Press, p 86 2 Invest in clean technology says IEA report 74 3 The Twin Pillars of Sustai nable Energy Synergies between Energy Efficiency and Renewable Energy Technology and Policy 4 Microsoft Word - 5 a b c d Energy-Efficient Buildings Using whole building design to reduce energy consumption in homes and offices 6 CFL savings calculator, Green Energy Efficient Homes 7 Creating Energy Efficient Offices - Electrical Contractor Fit-out Article 8 a b c d e Industrial Energy Efficiency Using new technologies to reduce energy use in industry and manufacturing 9 a b Automotive Efficiency Using technology to reduce energy use in passenger vehicles and light trucks 10 1 11 Diesendorf, Mark 2007 Greenhouse Solutions with Sustainable Energy, UNSW Press, p 87 12 The Twin Pillars of Sustainable Energy Synergies between Energy Efficiency and Renewable Energy Technology and Policy American Council for an Energy-Efficient Economy 13 a b The Rebound Effect an assessment of the evidence for economy-wide energy savings from improved energy efficiency pp v-vi 14 Greening, Lorna 2000 , Energy efficiency and consumption the rebound effect a survey , Energy Policy 28 389-401 15 The Effect of Improved Fuel Economy on Vehicle Miles Traveled Estimating the Rebound Effect Using U S State Data, 1966-2001 University of California Energy Institute Policy Economics Retrieved on 2007-11-23 16 Energy Efficiency and the Rebound Effect Does Increasing Efficiency Decrease Demand Retrieved on 2007-11-21 17 Wackernagel, Mathis and William Rees, 1997, Perpetual and structural barriers to investing in natural capital economics from an ecological footprint perspective Ecological Economics, Vol 20 No 3 p3-24 75 edit External links Energy Efficiency in the Power Grid Directive 2006 32 EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93 76 EEC European Council for an Energy Efficient Economy ASHRAE, DOE Partner to Promote Energy Efficiency and Renewable Energy A layman s introduction to energy effici ency Article on reading your power meter, and explaining how much money you save with newer appliances vs old ones Conservation and Efficiency Are Key to Our Energy Future IEA cites gains from energy efficiency En-Q - Energy Efficiency - Initiative for Energy-Intelligence of ZVEI MANAGEMENT OF WORKING CAPITAL Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital These policies aim at managing the current assets generally cash and cash equivalents, inventories and debtors and the short term financing, such that cash flows and returns are acceptable Cash management Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs Inventory management Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow see Supply chain management Just In Time JIT Economic order quantity EOQ Economic production quantity EPQ Debtors management Identify the appropriate credit policy, i e credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital or vice versa see Discounts and allowances 76 Short term financing Identify the appropriate source of financing, given the cash conversion cycle the inventory is ideally financed by credit granted by the supplier however, it may be necessary to utilize a bank loan or overdraft , or to convert debtors to cash through factoring Cash management From Wikipedia, the free encyclopedia Jump to navigation, search This article does not cite any references or sources Please help improve this article by adding citations to reliable sources Unverifiable material may be challenged and removed June 2007 In United States banking, cash management, or treasury management, is a marketing term for cer tain services offered primarily to larger business customers It may be used to describe all bank accounts such as checking accounts provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and automated clearing house facilities Sometimes, private banking customers are given cash management services edit Cash Management Services Generally offered The following is a list of services generally offered by banks and utilised by larger businesses and corporations Account Reconcilement Services Balancing a checkbook can be a difficult process for a very large business, since it issues so many checks it can take a lot of human monitoring to understand which checks have not cleared and therefore what the company s true balance is To address this, banks have developed a system which allows companies to upload a list of all the checks that they issue on a daily basis, so that at the end of the month the bank statement will show not only which checks have cleared, but also which have not More recently, banks have used this system to prevent checks from being fraudulently cashed if they are not on the list, a process known as positive pay Advanced Web Services Most banks have an Internet-based system which is more advanced than the one available to consumers This enables 77 managers to create and authorize special internal logon credentials, allowing employees to send wires and access other cash management features normally not found on the consumer web site Armored Car Services Large retailers who collect a great deal of cash may have the bank pick this cash up via an armored car company, instead of asking its employees to deposit the cash Automated Clearing House services are usually offered by the cash management division of a bank The Automated Clearing House is an electronic system used to transfer funds between banks Companies use this to pay others, especially employees this is how direct deposit works Certain companies also use it to collect funds from customers this is generally how automatic payment plans work This system is criticized by some consumer advocacy groups, because under this system banks assume that the company initiating the debit is correct until proven otherwise Balance Reporting Services Corporate clients who actively manage their cash balances usually subscribe to secure web-based reporting of their account and transaction information at their lead bank These sophisticated compilations of banking activity may include balances in foreign currencies, as well as those at other banks They include information on cash positions as well as float e g checks in the process of collection Finally, they offer transaction-specific details on all forms of payment activity, including deposits, checks, wire transfers in and out, ACH automated clearinghouse debits and credits , investments, etc Cash Concentration Services Large or national chain retailers often are in areas where their primary bank does not have branches Therefore, they open bank accounts at various local banks in the area To prevent funds in these accounts from being idle and not earning sufficient interest, many of these companies have an agreement set with their primary bank, whereby their primary bank uses the Automated Clearing House to electronically pull the money from these banks into a single interest-bearing bank account Lockbox services Often companies such as utilities which receive a large number of payments via checks in the mail have the bank set up a post office box for them, open their mail, and deposit any checks found This is referred to as a lockbox service 78 Positive Pay Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank The bank therefore will only pay checks listed in that register, with exactly the same specifications as listed in the register amount, payee, serial number, etc This system dramatically reduces check fraud Sweep Accounts are typically offered by the cash management division of a bank Under this system, excess funds from a company s bank accounts are automatically moved into a money market mutual fund overnight, and then moved back the next morning This allows them to earn interest overnight This is the primary use of money market mutual funds Zero Balance Accounting can be thought of as somewhat of a hack Companies with large numbers of stores or locations can very often be confused if all those stores are depositing into a single bank account Traditionally, it would be impossible to know which deposits were from which stores without seeking to view images of those deposits To help correct this problem, banks developed a system where each store is given their own bank account, but all the money deposited into the individual store accounts are automatically moved or swept into the company s main bank account This allows the company to look at individual statements for each store U S banks are almost all converting their systems so that companies can tell which store made a particular deposit, even if these deposits are all deposited into a single account Therefore, zero balance accounting is being used less frequently Wire Transfer A wire transfer is an electronic transfer of funds Wire transfers can be done by a simple bank account transfer, or by a transfer of cash at a cash office Bank wire transfers are often the most expedient method for transferring funds between bank accounts A bank wire transfer is a message to the receiving bank requesting them to effect payment in accordance with the instructions given The message also includes settlement instructions The actual wire transfer itself is virtually instantaneous, requiring no longer for transmission than a telephone call Controlled Disbursement This is another product offered by banks under Cash Management Services The bank provides a daily report, typically early in the day, that provides the amount of disbursements that will be charged to the customer s account This early knowledge of daily funds requirement allows the customer to invest any surplus in intraday investment 79 opportunities, typically money market investments This is different from delayed disbursements, where payments are issued through a remote branch of a bank and customer is able to delay the payment due to increased float time In the past, other services have been offered the usefulness of which has diminished with the rise of the Internet For example, companies could have daily faxes of their most recent transactions or be sent CD-ROMs of images of their cashed checks Cash management services can be costly but usually the cost to a company is outweighed by the benefits cost savings, accuracy, efficiencies, etc edit External links Article - The Adoption of Web Based Cash Management Systems Article - How will web services impact cash management Corporate Cash Management ben efit from Electronic Payments International Cash Management Guide The Best Practice Guide to Managing Petty Cash Retrieved from Category Financial terminology Hidden categories Articles lacking sources from June 2007 All articles lacking sources Inventory management Inventory management Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow see Supply chain management Just In Time JIT Economic order quantity EOQ Economic production quantity EPQ Supply chain management From Wikipedia, the free encyclopedia Jump to navigation, search 80 An illustration of a company s supply chain the arrows stand for supplierrelationship management, internal SCM and customer-relationship management cf Chen Paulraj, 2004 Supply chain management SCM is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages requ ired by end customers Harland, 1996 Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption supply chain Contents hide 1 Idea 2 Supply Chain Management Problems 3 Activities functions o 3 1 Strategic o 3 2 Tactical o 3 3 Operational 4 Supply chain management 5 Developments in Supply Chain Management 6 Supply chain business process integration 81 7 Theories of Supply Chain Management 8 Components of Supply Chain Management Integration 9 References 10 Further reading 11 See also 12 External links edit Idea The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers In essence, Supply Chain Management integrates supply and demand management within and across companies More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise 1 Supply Chain Management can also refer to Supply chain management software which are tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes Supply chain event management abbreviated as SCEM is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain With SCEM possible scenarios can be created and solutions can be planned edit Supply Chain Management Problems Supply chain management must address the following problems Distribution Network Configuration Number, location and network missions of suppliers, production facilities, distribution centers, warehouses , cross-docks and customers Distribution Strategy Including questions of operating control centralized, decentralized or shared delivery scheme e g direct shipment, pool point shipping, Cross docking, DSD direct store delivery , closed loop shipping 82 mode of transportation e g motor carrier, including truckload, LTL, parcel railroad intermodal, including TOFC and COFC ocean freight airfreight replenishment strategy e g pull, push or hybrid and transportation control e g owner-operated, private carrier, common carrier, contract carrier, or 3PL Trade-Offs in Logistical Activities The above activities must be coordinated well together in order to achieve the least total logistics cost Trade-offs exist that increase the total cost if only one of the activities is optimized For example, full truckload FTL rates are more economical on a cost per pallet basis than less than truckload LTL shipments If, however, a full truckload of a product is ordered to reduce transportation costs there will be an increase in inventory holding costs which may increase total logistics costs It is therefore imperative to take a systems approach when planning logistical activities These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy Information Integration of and other processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, and potential collaboration etc Inventory Management Quantity and location of inventory including raw materials, work-in-progress WIP and finished goods Cash-Flow Arranging the payment terms and the methodologies for exchanging funds across entities within the supply chain Supply chain execution is managing and coordinating the movement of materials, information and funds across the supply chain The flow is bi-directional edit Activities functions Supply chain management is a cross-functional approach to manage the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and then the movement of finished goods out of the organization toward the end-consumer As organizations strive to focus on core competencies and becoming more flexible, they have reduced their ownership of raw materials sources and distribution channels These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations Less control and more supply chain partners led to the creation of supply chain management concepts The purpose of supply chain management is to 83 improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries SCOR is a supply chain management model promoted by the Supply Chain Management Council Another model is the SCM Model proposed by the Global Supply Chain Forum GSCF Supply chain activities can be grouped into strategic, tactical, and operational levels of activities edit Strategic Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management Information Technology infrastructure, to support supply chain operations Where-to-make and what-to-make-or-buy decisions Aligning overall organizational strategy with supply st rategy edit Tactical Sourcing contracts and other purchasing decisions Production decisions, including contracting, scheduling, and planning process definition Inventory decisions, including quantity, location, and quality of inventory Transportation strategy, including frequency, routes, and contracting Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise Milestone payments Focus on customer demand 84 edit Operational Daily production and distribution planning, including all nodes in the supply chain Production scheduling for each manufacturing facility in the supply chain minute by minute Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers Inbound operations, including transportation from suppliers and receiving inventory Production operations, inc luding the consumption of materials and flow of finished goods Outbound operations, including all fulfillment activities and transportation to customers Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers edit Supply chain management Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy 2 In Peter Drucker s 1998 management s new paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities Scott, 1993 This inter-organizational supply network can be acknowledged as a new form of organization However, with the complicated interactions among the players, the network structure fits neither market nor hierarchy categories Powell, 1990 It is not clear what kind of performance impacts that different supply network 85 structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players From a system s point of view, a complex network structure can be decomposed into individual component firms Zhang and Dilts, 2004 Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players Therefore, the choice of an internal management control structure is known to impact local firm performance Mintzberg, 1979 In the 21st century, there have been a few changes in business environment that have contributed to the development of supply chain networks First, as an outcome of globalization and the proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships, there were found to be significant success factors, following the earlier Just-In-Time , Lean Management and Agile Manufacturing practices 3 Second, technological changes, particularly the dramatic fall in information communication costs, which are a paramount component of transaction costs, have led to changes in coordination among the members of the supply chain network Coase, 1998 Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as Keiretsu , Extended Enterprise , Virtual Corporation , Global Production Network , and Next Generation Manufacturing System 4 In general, such a structure can be defined as a group of semi-independent organizations, each with their capabilities, which collabor ate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration Akkermans, 2001 The security management system for supply chain is described in ISO IEC 28000 and ISO IEC 28001 and related standards published jointly by ISO and IEC edit Developments in Supply Chain Management Six major movements can be observed in the evolution of supply chain management studies Creation, Integration, and Globalization Lavassani et al 2008a , Specialization Phases One and Two, and SCM 2 0 1 Creation Era The term supply chain management was first coined by an American industry consultant in the early 1980s However the concept of supply chain in 86 management, was of great importance long before in the early 20th century, especially by the creation of the assembly line The characteristics of this era of supply chain management include the need for large scale changes, reengineering, downsizing driven by cost reduction programs, and wid espread attention to the Japanese practice of management 2 Integration Era This era of supply chain management studies was highlighted with the development of Electronic Data Interchange EDI systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning ERP systems This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems This era of SC evolution is characterized by both increasing value-added and cost reduction through integration 3 Globalization Era The third movement of supply chain management development, globalization era, can be characterized by the attention towards global systems of supplier relations and the expansion of supply chain over national boundaries and into other continents Although the use of global sources in the supply chain of organizations can be traced back to several decades ago e g the oil industry , it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business This era is characterized by the globalization of supply chain management in organizations with the goal of increasing competitive advantage, creating more value-added, and reducing costs through global sourcing 4 Specialization Era -- Phase One -- Outsourced Manufacturing and Distribution In the 1990s industries began to focus on core competencies and adopted a specialization model Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies This changed management requirements by extending the supply chain well beyond the four walls and distributing management across specialized supply chain partnerships This transition also refocused the fundamental perspectives of each respective organization OEMs became brand owners that needed deep visibility into their supply base They had to control the entire supply chain from above instead of 87 from within C ontract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work - in-process visibility and vendor-managed inventory VMI The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands 5 Specialization Era -- Phase Two -- Supply Chain Management as a Service Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non asset based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management At any given moment, market forces could demand changes within suppliers, logistics providers, locations, customers and any number of these specialized participants within supply chain networks This variability has significant effect on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to the morecomplex requirements, including the configuration of the processes and work flows that are essential to the management of the network itself Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done it allows them to focus on their core competencies and assemble networks of best in class domain specific partners to contribute to the overall value chain itself thus increasing overall performance and efficiency The ability to quickly obtain and deploy this domain specific suppl y chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root in transportation and collaboration categories most dominantly This has progressed from the Application Service Provider ASP model from approximately 1998 through 2003 to the On-Demand model from approximately 88 2003-2006 to the Software as a Service SaaS model we are currently focused on today 6 Supply Chain Management 2 0 SCM 2 0 Building off of globalization and specialization, SCM 2 0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new era Web 2 0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users At it s core, the common attribute that Web 2 0 brings is it helps us navigate the vast amount of information available on the web to find what we are looking for It is the notion of a usable pathway SCM 2 0 follows this notion into supply chain operations It is the pathway to SCM results the combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price flucuations, surging oil prices, short product life cycles, expanded specialization, near far and off shoring, and talent scarcity SCM 2 0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success This is delivered through competency networks composed of best of breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critica l few that deliver the results as well as the intimate understanding of how to manage these elements to achieve desired results, finally the solutions are delivered in a variety of options as no-touch via business process outsourcing, mid-touch via managed services and software as a service SaaS , or high touch in the traditional software deployment model edit Supply chain business process integration This article may require copy-editing for grammar, style, cohesion, tone or spelling You can assist by editing it now A how-to guide is available October 2007 Successful integrating purchasing Marketing, SCM requires a change from managing individual functions to activities into key supply chain processes An example scenario the department places orders as requirements become appropriate responding to customer demand, communicates with several 89 distributors and retailers as it attempts to satisfy this demand Shared information between supply chain partners can only be fully leveraged th rough process integration Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information According to Lambert and Cooper 2000 operating an integrated supply chain requires continuous information flow However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business The key supply chain processes stated by Lambert 2004 5 are Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management One could suggest other key critical supply business processes combining these processes stated by Lambert such as a Customer service management b Procurement c Product development and commercialization d Manufacturing flow management sup port e Physical distribution f Outsourcing partnerships g Performance measurement a Customer service management process 90 Customer Relationship Management concerns the relationship between the organization and its customers Customer service provides the source of customer information It also provides the customer with real-time information on promising dates and product availability through interfaces with the company s production and distribution operations Successful organizations use following steps to build customer relationships determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers b Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products In firms where operations extend globally, sourcing should be managed on a global basis The desired outcome is a win-win relationshi p, where both parties benefit, and reduction times in the design cycle and product development are achieved Also, the purchasing function develops rapid communication systems, such as electronic data interchange EDI and Internet linkages to transfer possible requirements more rapidly Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programmes c Product development and commercialization Here, customers and suppliers must be united into the product development process, thus to reduce time to market As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive According to Lambe rt and Cooper 2000 , managers of the product development and commercialization process must 1 coordinate with customer relationship management to identify customerarticulated needs 2 select materials and suppliers in conjunction with procurement, and 91 3 develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product market combination d Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization Orders are processes operating on a just-in-time JIT basis in minimum lot sizes Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers Activities related to planning, scheduling and supporting manufacturing operations, such as work-inproces s storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations e Physical distribution This concerns movement of a finished product service to customers In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product service is a vital part of each channel participant s marketing effort It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers e g links manufacturers, wholesalers, retailers f Outsourcing partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level 92 g Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance As logistics competency becomes a more critical fact or in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow A T Kearney Consultants 1985 noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity According to experts internal measures are generally collected and analyzed by the firm including 1 Cost 2 Customer Service 3 Productivity measures 4 Asset measurement, and 5 Quality External performance measurement is examined through customer perception measures and best practice benchmarking, and includes 1 customer perception measurement, and 2 best practice benchmarking Components of Supply Chain Management are 1 Standardization 2 Postponement 3 Customization edit Theories of Supply Chain Management Currently there exists a gap in the literature available in the area of supply chain management studies, on providing theoretical support for explainin g the existence and the boundaries of supply chain management Few authors such as Halldorsson, et al 2003 , Ketchen and Hult 2006 and Lavassani, et al 2008b had tried to provide theoretical foundations for different areas related to supply chain with employing organizational theories These theories includes Resource-based view RBV Transaction Cost Analysis TCA Knowledge-based view KBV 93 Strategic Choice Theory SCT Agency theory AT Institutional theory InT Systems Theory ST Network Perspective NP edit Components of Supply Chain Management Integration The management components of SCM The SCM components are the third element of the four-square circulation framework The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link Ellram and Cooper, 1990 Houlihan, 1985 Consequently, adding more management components or increasing the level of each component can increase the level of integrati on of the business process link The literature on business process reengineering, 6 buyer-supplier relationships, 7 and SCM 8 suggests various possible components that must receive managerial attention when managing supply relationships Lambert and Cooper 2000 identified the following components which are Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude However, a more careful examination of the existing literature 9 will lead us to a more comprehensive structure of what should be the key critical supply chain 94 components, the branches of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related with suppliers and customers accordingly Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highe st level of joint achievement Bowersox and Closs, 1996 A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components Bowersox and Closs, 1996 A secondary level participant specialized , is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are in support of primary participants Third level channel participants and components that will support the primary level channel participants, and which are the fundamental branches of the secondary level components, may also be included Consequently, Lambert and Cooper s framework of supply chain components does not lead us to the conclusion about what are the primary or secondary specialized level supply chain components see Bowersox and Closs, 1996, p g 93 That is, what supply chain components s hould be viewed as primary or secondary, how these components should be structured in order to have a more comprehensive supply chain structure, and to examine the supply chain as an integrative one See above sections 2 1 and 3 1 Reverse Supply Chain Reverse logistics is the process of planning, implementing and controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal Reverse logistics is also referred to as Aftermarket Customer Services In other words, anytime money is taken from a company s Warranty Reserve or Service Logistics budget, that is a Reverse Logistics operation edit References 1 2 3 Definition of Terms A Management Consultant Large Retrieved on 2008-02-27 Baziotopoulos, 2004 MacDuffie and Helper, 1997 Monden, 1993 Womack and Jones, 1996 Gunasekaran, 1999 95 4 Drucker, 1998 Tapscott, 1996 Dilts, 1999 5 Lambert, Douglas Ch ain Management Processes, Partnerships, Performance, 3rd edition, 2008 6 Macneil ,1975 Williamson, 1974 Hewitt, 1994 7 Stevens, 1989 Ellram and Cooper, 1993 Ellram and Cooper, 1990 Houlihan, 1985 8 Cooper et al 1997 Lambert et al ,1996 Turnbull, 1990 9 Zhang and Dilts, 2004 Vickery et al 2003 Hemila, 2002 Christopher, 1998 Joyce et al 1997 Bowersox and Closs, 1996 Williamson, 1991 Courtright et al 1989 Hofstede, 1978 edit Further reading Haag, S Cummings, M McCubbrey, D Pinsonneault, A Donovan, R 2006 , Management Information Systems For the Information Age 3rd Canadian Ed , Canada McGraw Hill Ryerson ISBN 0-072-81947-2 Halldorsson, Arni, Herbert Kotzab Tage Skjott-Larsen 2003 Interorganizational theories behind Supply Chain Management discussion and applications, In Seuring, Stefan et al eds , Strategy and Organization in Supply Chains, Physica Verlag Halldorsson, A Kotzab, H Mikkola, J H Skjoett-Larsen, T 2007 Complementary theories to supply chain management Supply Chain Management An International Journal, Volume 12 Issue 4 284-296 Handfield and Bechtel, 2001 Prater et al 2001 Kern and Willcocks, 2000 Bowersox and Closs, 1996 Christopher, 1992 Bowersox, 1989 Kaushik K D Cooper, M 2000 Industrial Marketing Management Volume29, Issue 1 January 2000, Pages 65-83 Ketchen Jr G Hult, T M 2006 Bridging organization theory and supply chain management The case of best value supply chains Journal of Operations Management, 25 2 573-580 Larson, P D and Halldorsson, A 2004 Logistics versus supply chain management an international survey International Journal of Logistics Research Application, Vol 7, Issue 1, 17-31 96 Lavassani, M K Movahedi B Kumar V 2008 a Transition to B2B eMarketplace enabled Supply Chain Readiness Assessment and Success Factors, Information Resources Management Conf-IRM , 2008, Niagara, Canada Lavassani, M K Movahedi B Kumar V 2008b HISTORICAL DEVELOPMENTS IN THEORIES OF SUPPLY CHAIN MANAGEMENT THE CASE OF B2B E-MARKETPLACES Administrative Science Associ ation of Canada ASAC , 2008, Halifax, Canada Mentzer, J T et al 2001 Defining Supply Chain Management, in Journal of Business Logistics, Vol 22, No 2, 2001, pp 1-25 Simchi-Levi D, Kaminsky P Simchi-levi E 2007 , Designing and Managing the Supply Chain, third edition, Mcgraw Hill edit See also Beer distribution game Bullwhip effect Calculating accuracy demand forecast Military supply management Operations management Order fulfillment chain Customer-driven supply chain Procurement Demand chain management Procurement outsourcing Distribution Reverse logistics Industrial engineering Service management Information management Strategic information system Supply chain network Supply chain security Supply chain Supply management Tender technology Integrated business planning Inventory Liquid logistics Logistic engineering Logistics 97 Logistics management Value chain Logistics Officer Value grid Management information system Vendor-managed inventory Warehouse management system edit External li nks CIO Magazine s ABCs of Supply Chain Management Retrieved from Categories Commercial item transport and distribution Supply chain management Management Marketing Production and manufacturing Distribution, retailing, and wholesaling Supply chain management terms Hidden categories Wikipedia articles needing copy edit from October 2007 All articles needing copy edit This page was last modified on 3 January 2009, at 13 55 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Just-in-time business From Wikipedia, the free encyclopedia Redirected from Just In Time business Jump to navigation, search This article includes a list of references or external links, but its sources remain unclear because it lacks inline citations Please improve this article by introducing more pr ecise citations where appropriate March 2008 98 Corporate finance Working capital management Cash conversion cycle Return on capital Economic value added Just In Time Economic order quantity Discounts and allowances Factoring finance Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Finance series 99 Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation This box view talk edit Just-in-time JIT is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs In order to achieve JIT the process must have signals of what is going on elsewhere within the process This means that the process is often driven by a series of signals, wh ich can be Kanban Kanban , that tell production processes when to make the next part Kanban are usually tickets but can be simple visual signals, such as the presence or absence of a part on a shelf When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization s return on investment, quality, and efficiency Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction This saves warehouse space and costs However since stock levels are determined by historical demand, any sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues Some 1 have suggested that recycling Kanban faster can also help flex the system by as much as 10-30 In recent years manufacturers have touted a trailing 13 week average as a better predictor for JIT planning than most forecastors could provide 2 Contents hide 1 History 2 Philo sophy o 2 1 Stocks o 2 2 Transaction cost approach 100 o 2 3 Environmental concerns o 2 4 Price volatility o 2 5 Quality volatility o 2 6 Demand stability 3 JIT Implementation Design o 3 1 Effects o 3 2 Benefits o 3 3 Problems 3 3 1 Within a JIT system 3 3 2 Within a raw material stream 3 3 3 Oil 4 Business models following similar approach o 4 1 Vendor Managed Inventory o 4 2 Customer Managed Inventory 5 See also 6 References 7 Further reading edit History The technique was first used by the Ford Motor Company as described explicitly by Henry Ford s My Life and Work 1923 We have found in buying materials that it is not worthwhile to buy for other than immediate needs We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever The carloads of raw materials would arrive on schedule and in the p lanned order and amounts, and go from the railway cars into production That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials With bad transportation one has 101 to carry larger stocks This statement also describes the concept of dock to factory floor in which incoming materials are not even stored or warehoused before going into production The concept needed an effective freight management system FMS Ford s Today and Tomorrow 1926 describes one The technique was subsequently adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota Production System TPS However, Toyota famously did not adopt the procedure from Ford, but from Piggly Wiggly Although Toyota visited Ford as part of its tour of American businesses, Ford had not fully adopted the Just-In-Time system, and Toyota executives were appalled at the piles of inventory laying around and the uneven work schedule of the employe es of Ford Toyota also visited Piggly Wiggly, and it was there that Toyota executives first observed a fully functioning and successful Just-In-Time system, and modeled TPS after it It is hard for Japanese corporations to warehouse finished products and parts, due to the limited amount of land available for them Before the 1950s, this was thought to be a disadvantage because it forced the production lot size below the economic lot size An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product The undesirable result was poor return on investment for a factory The chief engineer at Toyota in the 1950s, Taiichi Ohno Ohno Taiichi , examined accounting assumptions and realized that another method was possible The factory could implement JIT which would require it to be made more flexible and reduce the overhead costs of retooling and thereby reduce the economic lot size to fit the available w arehouse space JIT is now regarded by Ohno as one of the two pillars of the Toyota Production System Therefore over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding Toyota was one of the first to apply flexible robotic systems for these tasks Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks The number and types of fasteners were reduced in order to standardize assembly steps and tools In some cases, identical sub-assemblies could be used in several models Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body 102 parts These were adjusted by hand, using crowbars and wrenches It sometimes took as long as several days to install a large, multi-ton die set and adjust it for acceptable quality Further, these were usually installed one at a time by a team of experts, so that the line was down for several weeks So Toyota implemented a strategy now called Single Minute Exchange of Die SMED , developed with Shigeo Shingo Shing Shigeo With very simple fixtures, measurements were substituted for adjustments Almost immediately, die change times fell to hours instead of days At the same time, quality of the stampings became controlled by a written recipe, reducing the skill level required for the change Further analysis showed that a lot of the remaining time was used to search for hand tools and move dies Procedural changes such as moving the new die in place with the line in operation and dedicated tool-racks reduced the die-change times to as little as 40 seconds Today dies are changed in a ripple through the factory as a new product begins flowing After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants Carrying the process into parts-storage made it possible to store as little as one part in each assembly station When a part disappeared, that was used as a signal Kanban to produce or order a replacement edit Philosophy The philosophy of JIT is simple - inventory is defined to be waste JIT inventory systems expose the hidden causes of inventory keeping and are therefore not a simple solution a company can adopt there is a whole new way of working the company must follow in order to manage its consequences The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management and behavioral science In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting This does not mean to say JIT is implemented without an awareness that removing inventory exposes pre-existing ma nufacturing issues With this way of working, businesses are encouraged to eliminate inventory that does not compensate for manufacturing process issues, and then to constantly improve those processes so that less inventory can be kept Secondly, allowing any 103 stock habituates the management to stock keeping and it can then be a bit like a narcotic Management are then tempted to keep stock there to hide problems within the production system These problems include backups at work centers, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity among other things In short, the just-in-time inventory system is all about having the right material, at the right time, at the right place, and in the exact amount , without the safety net of inventory The JIT system has implications of which are broad for the implementors edit Stocks JIT emphasises inventory as one of the seven wastes overproduction, waiting time, transportation, invent ory, processing, motion and product defect , and as such its practice involves the philosophical aim of reducing input buffer inventory to zero Zero buffer inventory means that production is not protected from exogenous external shocks As a result, exogenous shocks reducing the supply of input can easily slow or stop production with significant negative consequences For example, 3 Toyota suffered a major supplier failure as a result of the 1997 Aisin fire which rendered one of its suppliers incapable of fulfilling Toyota s orders In the U S the 1992 railway strikes resulted in General Motors having to idle a 75,000-worker plant because they had no supplies coming in edit Transaction cost approach JIT reduces inventory in a firm However, unless it is used throughout the supply chain, it can be hypothesized that firms are simply outsourcing their input inventory to suppliers Naj 1993 This effect was investigated by Newman 1993 , who found, on average, suppliers in Japan charged JIT custo mers a 5 price premium edit Environmental concerns During the birth of JIT, multiple daily deliveries were often made by bicycle with increases in scale has come the adoption of vans and lorries trucks for these deliveries Cusumano 1994 has highlighted the potential and actual problems this causes with regard to gridlock and the burning of fossil fuels This violates three JIT wastes 1 Time wasted in traffic jams 104 2 Inventory specifically pipeline in transport inventory and 3 Scrap with respect to petrol or diesel burned while not physically moving edit Price volatility JIT implicitly assumes a level of input price stability such that it is desirable to inventory inputs at today s prices Where input prices are expected to rise storing inputs may be desirable edit Quality volatility JIT implicitly assumes the quality of available inputs remains constant over time If not, firms may benefit from hoarding high quality inputs edit Demand stability Karmarker 1989 highlights the importance of relatively stable demand which can help ensure efficient capital utilisation rates Karmarker argues without a significant stable component of demand, JIT becomes untenable in high capital cost production In the U S the 1992 railway strikes resulted in General Motors having to idle a 75,000-worker plant because they had no supplies coming in edit JIT Implementation Design Based on a diagram modeled after the one used by Hewlett-Packard s Boise plant to accomplish its JIT program 1 F Design Flow Process - F Redesign relayout for flow - L Reduce lot sizes - O Link operations - W Balance workstation capacity - M Preventative maintenance - S Reduce Setup Times 2 Q Total quality control - C worker compliance - I Automatic inspection - M quality measures - M fail-safe methods - W Worker participation 105 3 S Stabilize Schedule - S Level Schedule - W establish freeze windows - UC Underutilize Capacity 4 K Kanban Pull System - D Demand pull - B Backflush - L Reduce lot sizes 5 V Work with ve ndors - L Reduce lead time - D Frequent deliveries - U Project usage requirements - Q Quality Expectations 6 I Further reduce inventory in other areas - S Stores - T Transit - C Implement Carroussel to reduce motion waste - C Implement Conveyor belts to reduce motion waste 7 P Improve Product Design - P Standard Production Configuration - P Standardize and reduce the number of parts - P Process design with product design - Q Quality Expectations edit Effects Some of the initial results at Toyota were horrible, who but in contrast to that a huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out and sold This by itself generated tremendous enthusiasm in upper management citation needed Another surprising effect was that the response time of the factory fell to about a day This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay 106 Also, many vehicles began to be built to order, comp letely eliminating the risk they would not be sold This dramatically improved the company s return on equity by eliminating a major source of risk Since assemblers no longer had a choice of which part to use, every part had to fit perfectly The result was a severe quality assurance crisis, and a dramatic improvement in product quality Eventually, Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful statistical controls for quality control Toyota had to test and train suppliers of parts in order to assure quality and delivery In some cases, the company eliminated multiple suppliers When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed or even stopped No inventory meant that a line could not operate from in-process inventory while a production problem was fixed Many people in Toyota confidently predicted that the initiative would be abandoned for this reason In t he first week, line stops occurred almost hourly But by the end of the first month, the rate had fallen to a few line stops per day After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell-pull, that permitted any worker on the production line to order a line stop for a process or quality problem Even with this, line stops fell to a few per week The result was a factory that eventually became the envy of the industrialized world, and has since been widely emulated The just-in-time philosophy was also applied to other segments of the supply chain in several types of industries In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment edit Benefits As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System JIT can have many benefits resulting from it The main benefits of JIT are listed below 1 Set u p times are significantly reduced in the factory Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need 107 2 improvement This allows the reduction or elimination of the inventory held to cover the changeover time, the tool used here is SMED The flows of goods from warehouse to shelves are improved Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand Small or individual piece lot sizes reduce lot delay inventories which simplifies inventory flow and its management 3 Employees who possess multiple skills are utilized more efficiently Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of wor kers and a high demand for a particular product 4 Better consistency of scheduling and consistency of employee work hours If there is no demand for a product at the time, workers don t have to be working This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day 5 Increased emphasis on supplier relationships No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public 6 Supplies continue around the clock keeping workers productive and businesses focused on turnover Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in ter ms of job satisfaction, promotion or even higher pay edit Problems edit Within a JIT system The major problem with just-in-time operation is that it leaves the supplier and downstream consumers open to supply shocks and large supply or demand changes For internal reasons, this was seen as a feature rather than a bug by Ohno, who used the analogy of lowering the level of water in a river in order to expose 108 the rocks to explain how removing inventory showed where flow of production was interrupted Once the barriers were exposed, they could be removed since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area One of the other key tools to manage this weakness is production levelling to remove these variations Just-in-time is a means to improving performance of the system, not an end With very low stock levels meaning that there are shipments of the same part coming in sometimes several times p er day, Toyota is especially susceptible to an interruption in the flow For that reason, Toyota is careful to use two suppliers for most assemblies As noted in Liker 2003 , there was an exception to this rule that put the entire company at risk by the 1997 Aisin fire However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation Thus, a strong, long-term relationship with a few suppliers is preferred to short-term, price-based relationships with competing suppliers This long-term relationship has also been used by Toyota to send Toyota staff into their suppliers to improve their suppliers processes These interventions have now been going on for twenty years and result in improved margins for Toyota and the supplier as well as lower final customer costs and a more reliable supply chain Toyota encourages their sup pliers to duplicate this work with their own suppliers edit Within a raw material stream This article may contain wording that promotes the subject in a subjective manner without imparting real information Please remove or replace such wording or find sources which back the claims As noted by Liker 2003 and Womack and Jones 2003 , it would ultimately be desirable to introduce synchronised flow and linked JIT all the way back through the supply stream However, none followed this in detail all the way back through the processes to the raw materials With present technology, for example, an ear of corn cannot be grown and delivered to order The same is true of most raw materials, which must be discovered and or grown through natural processes that require time and must account for natural variability in weather and discovery The part of this currently viewed as impossible is the synchronised part of flow and the linked part of JIT It is for the reasons stated raw materials companies decoup le their supply chain from their clients demand by carrying large finished goods 109 stocks Both flow and JIT can be implemented in isolated process islands within the raw materials stream The challenge then becomes to achieve that isolation by some means other than the huge stocks they carry to achieve it today It is because of this almost all value chains are split into a part which makes-toforecast and a part which could, by using JIT, become make-to-order Often, historically, the make-to-order part has been within the retailer portion of the value chain Toyota s revolutionary step has been to take Piggly Wiggly s supermarket replenishment system and drive it back to at least half way through their automobile factories Their challenge today is to drive it all the way back to their goods-inwards dock Of course, the mining of iron and making of steel is still not done specifically because somebody orders a particular car Recognising JIT could be driven back up the supply chain has rea ped Toyota huge benefits and a world dominating position in the auto industry It should be noted that the advent of the mini mill steelmaking facility is starting to challenge how far back JIT can be implemented, as the electric arc furnaces at the heart of many mini-mills can be started and stopped quickly, and steel grades changed rapidly edit Oil It has been frequently charged that the oil industry has been influenced by JIT 4 5 6 The argument is presented as follows The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004 As a result, the industry is susceptible to supply shocks, which cause spikes in prices and subsequently reduction in domestic manufacturing output The effects of hurricanes Katrina and Rita are given as an example in 2005, Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large number of oil production and transfer facilities, resulting in the loss of 20 of the US d omestic refinery output Rita subsequently shut down refineries in Texas, further reducing output The GDP figures for the third and fourth quarters showed a slowdown from 3 5 to 1 2 growth Similar arguments were made in earlier crises Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT, JIT students and even oil gas 110 industry analysts question whether JIT as it has been developed by Ohno, Goldratt, and others is used by the petroleum industry Companies routinely shut down facilities for reasons other than the application of JIT One of those reasons may be economic rationalization when the benefits of operating no longer outweigh the costs, including opportunity costs, the plant may be economically inefficient JIT has never subscribed to such considerations directly following Waddel and Bodek 2005 , this ROI-based thinking conforms more to Brown-style accounting and Sloan management Further, and more signi ficantly, JIT calls for a reduction in inventory capacity, not production capacity From 1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only 8 5 from 228,331 to 222,903 bbls to 208,986 Energy Information Administration data Stocks fluctuate seasonally by as much as 20,000 bbls During the 2005 hurricane season, stocks never fell below 194,000 thousand bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls in 1997 This shows that while industry storage capacity has decreased in the last 30 years, it hasn t been drastically reduced as JIT practitioners would prefer Finally, as shown in a pair of articles in the Oil Gas Journal, JIT does not seem to have been a goal of the industry In Waguespack and Cantor 1996 , the authors point out that JIT would require a significant change in the supplier refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies Specifically, the relationships remain cost-dri ven among many competing suppliers rather than quality-based among a select few long-term relationships They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America In the follow-up editorial, the Oil Gas Journal claimed that casually adopting popular business terminology that doesn t apply had provided a rhetorical bogey to industry critics Confessing that they had been as guilty as other media sources, they confirmed that It also happens not to be accurate edit Business models following similar approach edit Vendor Managed Inventory Vendor Managed Inventory VMI employs the same principles as those of JIT inventory however the responsibilities of managing inventory is placed with the vendor in a vendor customer relationship Whether it s a manufacturer who is managing inventory for a distributor, or a distributor managing inventory for their customers the role of managing inventory is given to the vendor 111 The primary advanta ge of this business model is that the vendor has industry experience and expertise which enables them to better anticipate demand and inventory needs The inventory planning and controlling is facilitated by the use of applications that allow vendors to have access to the inventory picture of its customer Third party applications offer vendors the benefit afforded by a quick implementation time Further, such companies hold valuable inventory management knowledge and expertise that helps organizations immensely edit Customer Managed Inventory With Customer Managed Inventory CMI , the customer as opposed to the vendor in a VMI model is given the responsibility of making all inventory decisions This is similar to the concepts employed by JIT inventory With a clear picture of their inventory and that of their supplier s, the customer is able to anticipate fluctuations in demand and make inventory replenishment decisions accordingly edit See also Theory of Constraints Lean Manufacturing CONW IP Just in case Manufacturing Just in Sequence Industrial Engineering Liquid Logistics Statistical process control Total Quality Management Vendor Managed Inventory edit References 1 A study of the Toyota Production System, Shigeo Shingo, Productivity Press, 1989, p 187 112 2 Gilliland, Michael Is Forecasting a Waste of Time , Supply Chain Management Review, July August 2002 3 Liker 2003 4 Bongiorni, Sara All in the timing , The Greater Baton Rouge Business Report, 19 July 2004 5 Online NewsHour Rising gas prices -- April 30, 1996 Retrieved on 2007-09-24 6 Story taken from Time magazine May 13, 1996 Volume 147, No 20 Retrieved on 2007-09-24 edit Further reading Schonberger, Richard J 1982 , Japanese Manufacturing Techniques Nine Hidden Lessons in Simplicity, Free Press, ISBN 0029291003 Editorial, The Inventory Land Mine , Oil Gas Journal, Vol 94, Number 29, 15 July 1996 Flinchbaugh, Jamie and Carlino, Andy 2006 , The Hitchhiker s Guide to Lean Lessons from the Road, SME, ISBN 0-87263-8 31-6 Goldratt, Eliyahu M and Fox, Robert E 1986 , The Race, North River Press, ISBN 0-88427-062-9 Hirano, Hiroyuki and Makota, Furuya 2006 , JIT Is Flow Practice and Principles of Lean Manufacturing , PCS Press, Inc ISBN 0-9712436-1-1 Liker, Jeffrey 2003 , The Toyota Way 14 Management Principles from the World s Greatest Manufacturer, First edition, McGraw-Hill, ISBN 0-07139231-9 Management Coaching and Training Services, 2006 The Just-In-Time JIT Approach Retrieved June 19, 2006 from the World Wide Web 1 Ohno, Taiichi 1988 , Toyota Production System Beyond Large-Scale Production, Productivity Press, ISBN 0-915299-14-3 Ohno, Taiichi 1988 , Just-In-Time for Today and Tomorrow, Productivity Press, ISBN 0-915299-20-8 113 Wadell, William, and Bodek, Norman 2005 , The Rebirth of American Industry, PCS Press, ISBN 0-9712436-3-8 Waguespack, Kevin, and Cantor, Bryan 1996 , Oil inventories should be based on margins, supply reliability , Oil Gas Journal, Vol 94, Number 28, 8 July 1996 Womack, J ames P and Jones, Daniel T 2003 , Lean Thinking Banish Waste and Create Wealth in Your Corporation, Revised and Updated, HarperBusiness, ISBN 0-7432-4927-5 Womack, James P Jones, Daniel T and Roos, Daniel 1991 , The Machine That Changed the World The Story of Lean Production, HarperBusiness, 2003, ISBN 0-06-097417-6 Retrieved from Categories Business terms Production and manufacturing Commercial item transport and distribution Management Manufacturing Inventory Lean concepts Hidden categories Articles lacking in-text citations Articles with specificallymarked weasel-worded phrases All articles with unsourced statements Articles with unsourced statements since October 2008 Articles with peacock terms This page was last modified on 18 January 2009, at 14 36 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Priv acy policy About Wikipedia Disclaimers Economic order quantity From Wikipedia, the free encyclopedia Jump to navigation, search Corporate finance 114 Working capital management Cash conversion cycle Return on capital Economic value added Just In Time Economic order quantity Discounts and allowances Factoring finance Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Finance series 115 Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation This box view talk edit Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs The framework used to determine this order quantity is also known as Wilson EOQ Model The model was developed by F W Harris in 1913 But still R H Wilson is given credit for his early in-depth analysis of the model Contents hide 1 Underlying assumptions 2 Variables 3 The Total Cost function 4 Extensions 5 See also 6 References 7 Links edit Underlying assumptions 1 The ordering cost is constant 2 The rate of demand is constant 3 The lead time is fixed 4 The purchase price of the item is constant i e no discount is available 116 EOQ is the level of the inventory where ordering cost and carrying cost remains equal edit Variables Q order quantity Q optimal order quantity D annual demand quantity of the product P purchase cost per unit C fixed cost per order not per unit, in addition to unit cost H annual holding cost per unit also known as carrying cost warehouse space, refrigeration, insurance, etc usually not related to the unit cost edit The Total Cost function The single-item EOQ formula finds the minimum point of the following cost function EOQ is the level of the inventory where ordering cost and carrying cost remains equa l Total Cost purchase cost ordering cost holding cost - Purchase cost This is the variable cost of goods purchase unit price annual demand quantity This is P D - Ordering cost This is the cost of placing orders each order has a fixed cost C, and we need to order D Q times per year This is C D Q - Holding cost the average quantity in stock between fully replenished and empty is Q 2, so this cost is H Q 2 117 In order to determine the minimum point of the total cost curve, set its derivative equal to zero The result of this derivation is Solving for Q gives Q the optimal order quantity Therefore Note that interestingly, Q is independent of P, it is a function of only C, D, H edit Extensions Several extensions can be made to the EOQ model, including backordering costs and multiple items Additionally, the economic order interval can be determined from the EOQ and the economic production quantity model which determines the optimal production quantity can be determined in a similar fashion e dit See also Classical Newsvendor model Newsvendor edit References 118 Harris, F W How Many Parts To Make At Once Factory, The Magazine of Management, 10 2 , 135-136, 152 1913 Harris, F W Operations Cost Factory Management Series , Chicago Shaw 1915 Wilson, R H A Scientific Routine for Stock Control Harvard Business Review, 13, 116-128 1934 edit Links Lot Sizing Models Retrieved from Categories Management Production and manufacturing Supply chain management Operations research Economics of production Economic production quantity From Wikipedia, the free encyclopedia Jump to navigation, search Economic Production Quantity model also known as the EPQ model is an extension of the Economic Order Quantity model The EPQ model was developed by E W Taft in 1918 The difference being that the EPQ model assumes orders are received incrementally during the production process The function of this model is to balance the inventory holding cost and the average fixed ordering cost Contents hide 1 Vari ables 2 Formula 3 Relevant Formulas 119 4 See also 5 References edit Variables K setup cost D demand rate F holding cost T cycle length P production rate edit Formula edit Relevant Formulas Average holding cost per unit time Average ordering and holding cost as a function of time edit See also Classical Newsvendor problem edit References 120 Gallego, G IEOR4000 Production Management Lecture 2 , Columbia 2004 1 Stevenson, W J Operations Management PowerPoint slide 19, The McGraw-Hill Companies 2005 2 Retrieved from Category Economics of production Views Article Discussion Edit this page History Personal tools Log in create account Navigation Main page Contents Featured content Current events Random article Search Go Search Interaction About Wikipedia Community portal Recent changes 121 Contact Wikipedia Donate to Wikipedia Help Toolbox What links here Related changes Upload file Special pages Printable version Permanent link Cite this page This page was last modified on 4 April 2008, at 11 45 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Debtors management Debtors management Identify the appropriate credit policy, i e credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital or vice versa see Discounts and allowances 122 Credit finance Policy From Wikipedia, the free encyclopedia Jump to navigation, search Finance Financial markets Bond market Stock Equities Market Forex market Derivatives market Commodity market Money market Spot cash Market OTC market Real Estate market Private equity Market participants Investors Speculators Institutional Investors Corporate finance Structured Capital Financial Mergers risk and finance budgeting management Acquisitions 123 Accounting Financial Auditing Credit rating Leveraged Venture capital Statements agency buyout Personal finance Credit and Employment Retirement Financial planning Debt contract Public finance Tax Banks and banking Fractional-reserve Central List of Deposits Loan Money supply banking Bank banks Financial regulation Finance designations Accounting scandals History of finance 124 Stock market bubble Recession Stock market crash History of private equity This box view talk edit Domestic credit to private sector in 2005 Credit is the provision of resources such as granting a loan by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources or material s of equal value at a later date The first party is called a creditor, also known as a lender, while the second party is called a debtor, also known as a borrower Movements of financia l capital are normally dependent on either credit or equity transfers Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds Credit need not necessarily be based on formal monetary systems The credit concept can be applied in barter economies based on the direct exchange of goods and services, and some would go so far as to suggest that the true nature of money is best described as a representation of the credit-debt relationships that exist in society Ingham 2004 p 12-19 Credit is denominated by a unit of account Unlike money by a strict definition , credit itself cannot act as a unit of account However, many forms of credit can readily act as a medium of exchange As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply Credit is also traded in the market The purest form is the credit default swap market, which is essentially a traded market in credit insuran ce A credit default swap represents the price at which two parties exchange this risk the protection 125 seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points one basis point is 1 100 of a percent of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying a loan, bond or other receivable , delivers this receivable to the protection seller and receives from the seller the par amount that is, is made whole Contents hide 1 Trade credit 2 Consumer credit 3 See also 4 References 5 External links edit Trade credit The word credit is used in commercial trade in the term trade credit to refer to the approval for delayed payments for purchased goods Credit is sometimes not granted to a person who has financial instability or difficulty Companies frequently offer credit to their customers as part of the terms of a purchase agreement Organizations that offer credit to their c ustomers frequently employ a credit manager edit Consumer credit Consumer credit can be defined as money, goods or services provided to an individual in lieu of payment Common forms of consumer credit include credit cards, store cards, motor auto finance, personal loans installment loans , retail loans retail installment loans and mortgages This is a broad definition of consumer credit and corresponds with the Bank of England s definition of Lending to individuals Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer credit - such as the one adopted by the Federal Reserve in the US The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay It includes interest, arrangement fees and any other 126 charges Some costs are mandatory, required by the lender as an integral par t of the credit agreement Other costs, such as those for credit insurance, may be optional The borrower chooses whether or not they are included as part of the agreement Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate APR The goal of the APR calculation is to promote truth in lending , to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products The APR is derived from the pattern of advances and repayments made during the agreement Optional charges are not included in the APR calculation So if there is a tick box on an application form asking if the consumer would like to take out payment insurance, then insurance costs will not be included in the APR calculation Finlay 2005 p 34 edit See also Credit bureau Credit history Credit ombudsman service Credit risk Credit score Debt Default finance Fair Credit Reporting Act Fair Isaac Financial literacy Installment credit Payday loan Person-to-person lending Predatory lending Revolving credit 127 Risk-return spectrum Settlement finance Subprime lending Social Credit edit References Finlay, S 2005 Consumer Credit Fundamentals Palgrave Macmillan Ingham, G 2004 The Nature of Money Polity Press edit External links New York Times PBS FRONTLINE multimedia collaboration Secret History of the Credit Card, November 2004 Money as Debt also known as Credit, blog by Sabine K McNeill Retrieved from Category Credit This page was last modified on 16 January 2009, at 06 33 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Discounts and allowances From Wikipedia, the free encyclopedia Jump to n avigation, search Corporate finance 128 Working capital management Cash conversion cycle Return on capital Economic value added Just In Time Economic order quantity Discounts and allowances Factoring finance Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Finance series 129 Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation This box view talk edit senior discount redirects here For the band, see Senior Discount band Discounts and allowances are reductions to a basic price of goods or services They can occur anywhere in the distribution channel, modifying either the manufacturer s list price determined by the manufacturer and often printed on the package , the retail price set by the retailer and often attached to the product with a sticker , or the list price which is quoted to a potential buyer, usually in written form The market price also called effective price is the amount actually paid The purpose of discounts is to increase short-term sales, move out-of-date stock, reward valuable customers, encourage distribution channel members to perform a function, or otherwise reward behaviors that benefit the discount issuer 1 Some discounts and allowances are forms of sales promotion Contents hide 1 Types of discounts and allowances o 1 1 Dependence of price on quantity 2 References 3 See also edit Types of discounts and allowances The most common types of discounts and allowances are Cash discounts for prompt payment - These are intended to speed payment and thereby provide liquidity to the firm They are sometimes used as a promotional device Examples are 130 o 2 10 net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 2 discount if they pay within 10 d ays of the invoice date o 3 7 EOM - this means the buyer will receive a cash discount of 3 if the bill is paid within 7 days after the end of the month indicated on the invoice date It should be noted that if an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month o 3 7 EOM net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 3 discount if they pay within 7 days after the end of the month indicated on the invoice date 2 It should be noted that if an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month o 2 15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2 discount if paid in 15 days of the receipt of goods by the purchaser ROG is short for Receipt of goods 3 Cash discounts for preferred payment method - Some retailers particularly small retailers with low margins offer discounts to customers paying with cash, to avoid paying fees on credit card transactions Quantity discounts - These are price reductions given for large purchases The rationale behind them is to obtain economies of scale and pass some or all of these savings on to the customer In some industries, buyer groups and co-ops have formed to take advantage of these discounts Generally there are two types o Cumulative quantity discounts also called accumulation discounts These are price reductions based on the quantity purchased over a set period of time The expectation is that they will impose an implied switching cost and thereby bond the purchaser to the seller o Non-cumulative quantity discounts These are price reductions based on the quantity of a single order The expectation is that they will 131 encourage larger orders, thus reducing billing, order filling, shipping, and sales personal expenses Trade discounts also called functional discounts - These are payments to distribution channel members for performing some function Examples of these functions are warehousing and shelf stocking Trade discounts are often combined to include a series of functions, for example 20 12 5 could indicate a 20 discount for warehousing the product, an additional 12 discount for shipping the product, and an additional 5 discount for keeping the shelves stocked Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel referred to as channel captains Partial payment discounts - Similar to the Trade discount, this is used when the seller wishes to improve cash flow or liquidity, but finds that the buyer typically is unable to meet the desired discount deadline A partial discount fo r whatever payment the buyer makes helps the seller s cash flow partially 4 Seasonal discounts - These are price reductions given when an order is placed in a slack period example purchasing skis in April in the northern hemisphere, or in September in the southern hemisphere On a shorter time scale, a happy hour may fall in this category Generally, this discount is referred to as X-Dating or Ex-Dating An example of X-Dating would be o 3 7 net 30 extra 10 - this means the buyer must pay within 30 days of the invoice date, but will receive a 3 discount if they pay within 7 days after the end of the month indicated on the invoice date plus an extra 10 days 5 Forward dating - This is where the purchaser doesn t pay for the goods until well after they arrive The date on the invoice is moved forward example purchase goods in November for sale during the December holiday season, but the payment date on the invoice is January 7th Promotional allowances - These are price reductions given to the buyer for performing some promotional activity These include an allowance for creating and maintaining an in-store display or a co-op advertising allowance 132 Brokerage allowance - From the point of view of the manufacturer, any brokerage fee paid is similar to a promotional allowance It is usually based on a percentage of the sales generated by the broker Trade-ins - This can be a way of reducing the price By offering more for a trade-in than it is actually worth, the net effect is to reduce the effective price earned by the seller The advantage of this is it encourages replacement sales without altering the list price or the perceived value Coupons - A discount, either of a certain specified amount of a percentage to the holder of a voucher Coupons can be distributed in places like newspapers, brochures, and the internet Rebates - A refund of part of sometimes the full price of the product following purchase, though some rebates are offered at the time of purchase Senior discount - A discount offered to a customer who has reached a certain age, which depending on the type of business or setting, may vary Similar discounts in some settings may be offered to those with disabilities, regardless of age Sliding scale - A discount offered based on one s ability to pay More common with non-profit organizations than with for-profit retail Bargaining - Where the seller and the buyer negotiate a price, which the buyer hopes is lower than the marked price edit Dependence of price on quantity An extreme form of quantity discount is when, within a quantity range, the price does not depend on quantity if one wants less than the minimum amount one has to be pay for the minimum amount anyway if one wants an amount between two of the fixed amounts on offer, one has to pay for the higher amount These also apply in the case of a service with quantity referring to time For example, an entrance ticket for a zoo is usually for a day if one stays shorter, the price is the same It is a kind of pass for unlimited use of a service during a day, where one can distinguish whether or not, when leaving and returning, one has to 133 pay again Similarly a pass can be for another period In the case of long periods, it is obvious that one can leave and return without paying again If one has to buy more than one wants, we can distinguish between the surplus just not being used, or the surplus being a nuisance, e g because of having to carry a large container edit References 1 2 Professor Cram Discounts and Invoices Discounts and Allowances Overview 14 May 2008 Professor Cram Discounts and Invoices Cash Discounts Using EOM Dating 14 May 2008 3 Professor Cram Discounts and Invoices Cash Discounts Using ROG Dating 14 May 2008 4 Professor Cram Discounts and Invoices Calculating Partial Payments 14 May 2008 5 Professor Cram Discounts and Invoices Cash Discounts Using X Dating 14 May 2008 edit See also Discount Net 30 Multi-use tickets for public transport Ticket systems Retrieved f rom Categories Pricing Promotion and marketing communications Marketing Distribution, retailing, and wholesaling Sales promotion Generally Accepted Accounting Principles 134 Short term financing Short term financing Identify the appropriate source of financing, given the cash conversion cycle the inventory is ideally financed by credit granted by the supplier however, it may be necessary to utilize a bank loan or overdraft , or to convert debtors to cash through factoring Loan From Wikipedia, the free encyclopedia Jump to navigation, search For other uses, see Loan disambiguation Finance Financial markets Bond market Stock Equities Market Forex market Derivatives market Commodity market Money market Spot cash Market OTC market Real Estate market Private equity Market participants Investors Speculators 135 Institutional Investors Corporate finance Structured finance Capital budgeting Financial risk management Mergers and Acquisitions Accounting Financial Statements Auditing Credit ratin g agency Leveraged buyout Venture capital Personal finance Credit and Employment Retirement Financial planning Debt contract Public finance Tax Banks and banking Fractional-reserve Central List of Deposits Loan banking Bank banks 136 Money supply Financial regulation Finance designations Accounting scandals History of finance Stock market bubble Recession Stock market crash History of private equity This box view talk edit A loan is a type of debt This article focuses exclusively on monetary loans, although, in practice, any material object might be lent Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower The borrower initially does receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender This service is generally provided at a cost, referred to as interest on the debt A loan is of the annuity type if the amount paid periodically for paying o ff and interest together is fixed A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan Acting as a provider of loans is one of the principal tasks for financial institutions For other institutions, issuing of debt contracts such as bonds is a typical source of funding Legally, a loan is a contractual promise between two parties where one party, the creditor, agrees to provide a sum of money to a debtor, who promises to return the 137 money to the creditor either in one lump sum or in parts over a fixed period in time This agreement may include providing additional payments of rental charges on the funds advanced to the debtor for the time the funds are in the hands of the debtor interest Contents hide 1 Types of loans o 1 1 Secured o 1 2 Unsecured 2 Abuses in lending 3 United States taxes 4 Income from discharge of indebtedness 5 See also 6 References edit Types of loans edit Secured A secured loan is a loan in which the borrower pledges some asset e g a car or property as collateral for the loan A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing In this arrangement, the money is used to purchase the property The financial institution, however, is given security a lien on the title to the house until the mortgage is paid off in full If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing The duration of the loan period is considerably shorter often corresponding to the useful life of the car There are two types of auto loans, direct and indirect A direct auto loan is where a bank gives the loan directly to a consumer An indirect auto 138 loan is where a car dealership acts as an intermediary between the bank or financial institution and th e consumer A type of loan especially used in limited partnership agreements is the recourse note A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk citation needed A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case Only certain types of lawsuit cases are eligible for a pre-settlement loan citation needed This is considered a secured non-recourse debt due to the fact if the case reaches a verdict in favor of the defendant the loan is forgiven Examples of secured loans 1 Auto Loans Home Financial Services Education Loan Share Financing edit Unsecured Unsecured loans are monetary loans that are not secured against the borrowers assets These may be available from financial institutions under many different guises or marketing packages credit card debt personal loans bank overdrafts credit facilities or lines of credit corporate bonds The interest rates applicable to these different forms may vary depending on the lender and the borrower These may or may not be regulated by law In the United 139 Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974 edit Abuses in lending Predatory lending is one form of abuse in the granting of loans It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her Where the moneylender is not authorised, it could be considered a loan shark Usury is a different form of abuse, where the lender charges excessive interest In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous extra charges 2 Ab uses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender edit United States taxes Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress the Internal Revenue Code and the Treasury Department Treasury Regulations another set of rules that interpret the Internal Revenue Code 3 Yet such rules are universally accepted 4 1 A loan is not gross income to the borrower 5 Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth 6 2 The lender may not deduct the amount of the loan 7 The rationale here is that one asset the cash has been converted into a different asset a promise of repayment 8 Deductions are not typically available when an outlay serves to create a new or different asset 9 3 The amount paid to satisfy the loan obligation is not deductible by the borrower 10 4 Repayment of the loan is not gros s income to the lender 11 In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender 12 140 5 Interest paid to the lender is included in the lender s gross income 13 Interest paid represents compensation for the use of the lender s money or property and thus represents profit or an accession to wealth to the lender 14 Interest income can be attributed to lenders even if the lender doesn t charge a minimum amount of interest 15 6 Interest paid to the lender may be deductible by the borrower 16 In general, interest paid in connection with the borrower s business activity is deductible, while interest paid on personal loans are not deductible 17 The major exception here is interest paid on a home mortgage 18 edit Income from discharge of indebtedness Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness 19 Thus, if a debt is discharged, then the borrower es sentially has received income equal to the amount of the indebtedness The Internal Revenue Code lists Income from Discharge of Indebtedness in Section 62 a 12 as a source of gross income Example X owes Y 50,000 If Y discharges the indebtedness, then X no longer owes Y 50,000 For purposes of calculating income, this should be treated the same way as if Y gave X 50,000 For a more detailed description of the discharge of indebtedness , look at Section 108 Cancellation of Debt COD Income of the Internal Revenue Code 20 edit See also Finance, Personal finance, Settlement finance Debt, Consumer debt, Debt consolidation, Government debt Bank, Fractional-reserve banking, Building society Annual percentage rate a k a Effective annual rate Default finance Interest-only loan, Negative amortization, PIK loan FAFSA Federal student loan consolidation 141 Federal Perkins Loan George D Sax and the Exchange National Bank of Chicago - Innovation of instant loans Loan guarantee Loan sale Payday loan Refu nd Anticipation Loan Stafford loan Student loan Syndicated loan Title loan Student loan default edit References 1 Types of Loans 2 Credit card holders pay Rs 6,000 cr extra May 03, 2007 3 Samuel A Donaldson, Federal Income Taxation of Individuals Cases, Problems and Materials, 2nd Ed 111 2007 4 Id 5 Id 6 Id See Commissioner v Glenshaw Glass Co 348 U S 426 1955 giving the three-prong standard for what is income for tax purposes 1 accession to wealth, 2 clearly realized, 3 over which the taxpayer has complete dominion 7 Donaldson, at 111 8 Id 9 Id 10 Id 142 11 Id 12 Id 13 Id 26 U S C 61 a 4 2007 14 Id 15 Id at 112 16 Id 17 Id 18 Id 19 Id 26 U S C 61 a 12 2007 20 Id 26 U S C 108 2007 Retrieved from Categories Credit Debt Hidden categories All articles with unsourced statements Articles with unsourced statements since December 2007 Articles with unsourced statements since December 2008 This page was last modified on 22 January 2009, at 08 00 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Factoring finance From Wikipedia, the free encyclopedia Redirected from Factoring trade Jump to navigation, search 143 This article is about finance For other uses, see factor Corporate finance Working capital management Cash conversion cycle Return on capital Economic value added Just In Time Economic order quantity Discounts and allowances Factoring finance Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action 144 Finance series Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation This box vi ew talk edit Factoring is a financial transaction whereby a business sells its accounts receivable i e invoices at a discount Factoring differs from a bank loan in three main ways First, the emphasis is on the value of the receivables essentially a financial asset 1 , not the firm s credit worthiness Secondly, factoring is not a loan it is the purchase of a financial asset the receivable Finally, a bank loan involves two parties whereas factoring involves three Factoring is a word often misused synonymously with invoice discounting factoring is the sale of receivables whereas invoice discounting is borrowing where the receivable is used as collateral The three parties directly involved are the one who sells the receivable, the debtor, and the factor The receivable is essentially a financial asset associated with the debtor s Liability to pay money owed to the seller usually for work performed or goods sold The seller then sells one or more of its invoices the receivables at a discount to the third party, the specialized financial organization aka the factor , to obtain cash The sale of the receivables essentially transfers ownership of the receivables to the factor, indicating the factor obtains all of the rights and risks associated with the receivables 2 Accordingly, the factor obtains the right to receive the payments made by the debtor for the invoice amount and must bear the loss if the debtor does not pay the invoice amount Usually, the debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections However, at times, the seller will collect the payments made by the debtor, and will remit them to the factor The factor usually charges the seller a service charge, as well as interest based on how long the factor must wait to receive payments from the debtor 3 The seller also estimates the amount that may not be collected due to 145 non-payment, and makes accomidation for this when determining the amount that will be gi ven to the seller The factor s overall profit is the difference between the price it paid for the invoice and the money received from the debtor, less the amount lost due to non-payment 2 American Accounting considers the receivables sold when the buyer has no recourse 4 , or when the financial transaction is substantially a transfer of all of the rights associated with the receivables and the seller s monetary Liability under any recourse provision is well established at the time of the sale 5 Otherwise, the financial transaction is treated as a loan, with the receivables used as collateral Contents hide 1 Reason 2 Differences from bank loans 3 Invoice sellers 4 Factors 5 Invoice payers debtors 6 Risks 7 History 8 See also 9 External links 10 References edit Reason Factoring is a method used by a firm to obtain Cash when the available Cash Balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs The use of Factoring to obtain the Cash n eeded to accommodate the firm s immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance By reducing the size of its Cash Balances, more money is made available for investment in the firm s growth A company sells its 146 invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its customer s bank Accordingly, Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables Therefore, the trade off between the return the firm earns on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on hand Many businesses have Cash Flow that varies A business might have a relatively large Cash Flow in one period, and might have a relatively small Cash Flow in another perio d Because of this, firms find it necessary to both maintain a Cash Balance on hand, and to use such methods as Factoring, in order to enable them to cover their Short Term cash needs in those periods in which these needs exceed the Cash Flow Each business must then decide how much it wants to depend on Factoring to cover short falls in Cash, and how large a Cash Balance it wants to maintain in order to ensure it has enough Cash on hand during periods of low Cash Flow Generally, the variability in the cash flow will determine the size of the Cash Balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as Factoring Cash flow variability is directly related to 2 factors 1 The extent Cash Flow can change, 2 The length of time Cash Flow can remain at a below average level If Cash Flow can decrease drastically, the business will find it needs large amounts of Cash from either existing Cash Balances or from a Factor to cover its obligation s during this period of time Likewise, the longer a relatively low Cash Flow can last, the more Cash is needed from another source Cash Balances or a Factor to cover its obligations during this time As indicated, the business must balance the opportunity cost of losing a return on the Cash that it could otherwise invest, against the costs associated with the use of Factoring The Cash Balance a business holds is essentially a Demand for Transactions Money As stated, the size of the Cash Balance the firm decides to hold is directly 147 related to its unwillingness to pay the costs necessary to use a Factor to finance its short term cash needs The problem faced by the business in deciding the size of the Cash Balance it wants to maintain on hand is similar to the decision it faces when it decides how much physical inventory it should maintain In this situation, the business must balance the cost of obtaining cash proceeds from a Factor against the opportunity cost of the losing the Rate o f Return it earns on investment within its business 6 The solution to the problem is CB 7 where CB is the Cash Balance, nCF is the average Negative Cash Flow in a given period, i is the Discount Rate that cover the Factoring Costs, and r is the rate of return on the firm s assets 8 edit Differences from bank loans Factors make funds available, even when banks would not do so, because factors focus first on the credit worthiness of the debtor, the party who is obligated to pay the invoices for goods or services delivered by the seller In contrast, the fundamental emphasis in a bank lending relationship is on the creditworthiness of the borrower, not that of its customers While bank lending is cheaper than factoring, the key terms and conditions under which the small firm must operate differ significantly From a combined cost and availability of funds and services perspective, factoring creates wealth for some but not all small businesses For small businesses, their choice is slowing the ir growth or the use of external funds beyond the banks In choosing to use external funds beyond the banks the rapidly growing firm s choice is between seeking venture capital i e equity or the lower cost of selling invoices to finance their growth The latter is also easier to access and can be obtained in a matter of a week or two, whereas securing funds from venture capitalists can typically take up to six months Factoring is also used as bridge financing while the firm pursues venture capital and in conjunction with venture capital to provide a lower average cost of funds than equity financing alone Firms can also combine the three types of financing, angel venture, factoring and bank line of credit to further reduce their total cost of funds whilst at the same time improving cash flow As with any technique, factoring solves some problems but not all Businesses with a small spread between the revenue from a sale and the cost of a sale, should limit 148 their use of factoring to sale s above their breakeven sales level where the revenue less the direct cost of the sale plus the cost of factoring is positive While factoring is an attractive alternative to raising equity for small innovative fast-growing firms, the same financial technique can be used to turn around a fundamentally good business whose management has encountered a perfect storm or made significant business mistakes which have made it impossible for the firm to work within the constraints of their bank covenants The value of using factoring for this purpose is that it provides management time to implement the changes required to turn the business around The firm is paying to have the option of a future the owners control The association of factoring with troubled situations accounts for the half truth of it being labeled last resort financing However, use of the technique when there is only a modest spread between the revenue from a sale and its cost is not advisable for turnarounds Nor are turnarounds usually able to recreate wealth for the owners in this situation Large firms use the technique without any negative connotations to show cash on their balance sheet rather than an account receivable entry, money owed from their customers, particularly when these show payments being due for extended periods of time beyond the North American norm of 60 days or less edit Invoice sellers The invoice seller presents recently generated invoices to the factor in exchange for a dollar amount that is less than the value of the invoice s by an agreed upon discount and a reserve A reserve is a provision to cover short payments, payment of less than the full amount of the invoice by the debtor, or a payment received later than expected The result is an initial payment followed by a second one equal to the amount of the reserve if the invoice is paid in full and on time or a credit to the account of the seller with the factor In an ongoing relationship the invoice seller will get their funds one o r two days after the factor receives the invoices Astute invoice sellers can use a combination of techniques to cover the range of 1 to 5 plus cost of factoring for invoices paid within 50 to 60 days or more In many industries, customers expect to pay a few percentage points higher to get flexible sales terms In effect the customer is willing to pay the supplier to be their bank and reduce the equity the customer needs to run their business To counter this it is a widespread practice to offer a prompt payment discount on the invoice This is commonly set out on an invoice as an offer of a 2 discount for payment in ten days Invoice sellers can also seek a cash discount from a supplier of 2 up to 10 depending on the industry standard in return for prompt payment Large firms also use the technique of factoring at the end of reporting periods to dress their balance sheet by showing cash instead of accounts receivable There are a number of varieties of factoring arrangements offered to invoi ce sellers depending upon their specific requirements The basic ones are described under the heading Factors below edit Factors When initially contacted by a prospective invoice seller, the factor first establishes whether or not a basic condition exists, does the potential debtor s have a history of paying their bills on time That is, are they creditworthy A factor may actually obtain insurance against the debtor s becoming bankrupt and thus the invoice not being paid The factor is willing to consider purchasing invoices from all the invoice seller s creditworthy debtors The classic arrangement which suits most small firms, particularly new ones, is full service factoring where the debtor is notified to pay the factor who also takes responsibility for collection of payments from the debtor and the risk of the debtor not paying in the event the debtor becomes insolvent, non recourse factoring This traditional method of factoring puts the risk of non-payment fully on the factor If the d ebtor cannot pay the invoice due to insolvency, it is the factor s problem to deal with and the factor cannot seek payment from the seller The factor will only purchase solid credit worthy invoices and often turns away average credit quality customers The cost is typically higher with this factoring process because the factor assumes a greater risk and provides credit checking and payment collection services as part of the overall package For firms with formal management structures such as a Board of Directors with outside members , and a Controller with a professional designation , debtors may not be notified i e non-notification factoring The invoice seller may not retain the credit control function If they do then it is likely that the factor will insist on recourse against the seller if the invoice is not paid after an agreed upon elapse of time, typically 60 or 90 days In the event of nonpayment by the customer, the seller must buy back the invoice with another credit worthy invoi ce Recourse factoring is typically the lowest cost for the seller because they retain the bad debt risk, which makes the arrangement less risky for the factor Despite the fact that most large organizations have in place processes to deal with suppliers who use third party financing arrangements incorporating direct contact 150 with them, many entrepreneurs remain very concerned about notification of their clients It is a part of the invoice selling process that benefits from salesmanship on the part of the factor and their client in its conduct Even so, in some industries there is a perception that a business that factors its debts is in financial distress edit Invoice payers debtors Large firms and organizations such as governments usually have specialized processes to deal with one aspect of factoring, redirection of payment to the factor following receipt of notification from the third party i e the factor to whom they will make the payment Many but not all in such organizations are knowledgeable about the use of factoring by small firms and clearly distinguish between its use by small rapidly growing firms and turnarounds Distinguishing between assignment of the responsibility to perform the work and the assignment of funds to the factor is central to the customer debtor s processes Firms have purchased from a supplier for a reason and thus insist on that firm fulfilling the work commitment Once the work has been performed however, it is a matter of indifference who is paid For example, General Electric has clear processes to be followed which distinguish between their work and payment sensitivities GE is also very active in the factoring industry as a supplier of funds edit Risks The most important risks of a factor are Counter party credit risk related to clients and risk covered debtors Risk covered debtors can be partly reinsured, which limit the risks of a factor External fraud by clients fresh air fake invoicing, indirect payments, pre-invoicing, not assig ned credit notes, etc A fraud insurance policy could limit the risks Legal, compliance and tax risks large number of applicable laws and regulations in different countries Operational risks Market risks more fierce competition and new market entrants intruders ICT risks complicated, integrated factoring system, extensive data exchange with client Two elements however can make the factor very vulnerable and cause heavy losses A fraud committed by the client B weak or reduced factorability A Fraud commited by the client 151 The main fraud actions a factor can be confronted with fresh air invoices not assigned credit notes assigned invoices are credited and re-invoiced credit notes new invoices not assigned assignment clause not mentioned on invoices, mentioning of client s bank account instead of factor s bank account collection by the client of payments, cheques, drafts banked money direct payments by debtors to client re assigned accounts receivables not mentioned transferred to the fa ctor Signals of potential fraud by the client Unexpected strong increase of the use of the available credit Strong fluctuations in turnover Unexpected changes in ownership, senior management or bookkeeping staff Large number of disputes Late or non remittance of credit notes and indirect payments Growing number of days of payment debtors and creditors Withholding important information which could influence the position of the factor Complaints of debtors in relation to the client Change of bank accounts Client is very difficult to reach and does not reply answer requests Seizures of bank accounts B Factorability issues Stage invoicing progress invoicing When a certain job is done progressively, partial invoices following the progress of the job Example construction of buildings a contractor builds apartments during a period of 1 year and makes monthly partial invoices when the contractor client goes bankrupt before finalising, debtors will refuse to pay outstandings Invoicing of a down payment A percentage of the goods or services of the total value is invoiced before delivery Example at the receipt of an order for a certain article, 30 is being invoiced as advance payment When the factor finances this invoice and the client does not supply the goods, the debtor will obviously not pay Pre-invoicing The client invoices a service or goods which will probably be delivered later When client does not make the delivery, the debtor will not pay Guarantee invoices warranties Last 5 or 10 of the invoices are only payable after a certain period 1 year or after final delivery construction Such a receivable is conditioned, sensitive to disputes and has a long payment term, it is not factorable 152 Consignment deliveries right of return Deliveries containing the suspending condition that the debtor can pay after having sold the goods himself, and has the right to return the unsold goods Example applies often in cosmetic industry Contractors building whose registration number is cancelled When a client s registration number is cancelled, debtors are obliged to withhold amounts as stipulated by law min 35 up to 100 and to transfer these directly to the government Example work in immovable state Debtors who refuse to pay to the factor ban of assignment Generally known under the German definition Abtretungsverbot Mix of interests intercompanies Example deliveries made within a concern between mother, daughter or sister companies Deliveries with very long payment terms The factor does per definition short term financing no investment goods Counter-claims set-off When a debtor is at the same time creditor of the client, the debtor will execute debt compensation, e g in sectors like transport Non-factorable countries Where the export factor does not see the possibility to handle the accounts receivable himself on a direct basis single factor system and where no factoring companies exist two factors system , e g some African and South-American countries Industries th at are difficult to factor This is for instance the case for the agricultural industry farmers or the meat sector butchers where invoices are merely paid cash Concentrations When a concentration debtor becomes insolvent or disputes the accounts receivable, which occurs frequently in an end situation, it will be impossible for the factor to collect out Lock on bill and hold UK Invoiced but not yet delivered goods on call debtors will not pay if goods finally are not delivered available Maintenance invoices upfront invoices for 3 m 6 m year When client goes bankrupt, debtors will not pay the invoice when service is not rendered 153 Contractual agreements Contractual clauses foreseeing penalties in case of nonadherence, debtor will compensate the amount of penalties with outstanding invoices, e g car industry when production of debtor is suspended due to non - or non-timely delivery by client Subcontracting Loi Gaysot Debtors are obliged by French law to pay directly to the subcontractor for goods or services delivered by subcontractor but remaining unpaid by client, e g in particular loy Gaysot in transport industry Crown rights of set-off UK Crown creditors have the right to set off arrears with outstanding accounts receivable on public institutions, e g the army clients edit History Factoring s origins lie in the financing of trade, particularly international trade Factoring as a fact of business life was underway in England prior to 1400 9 It appears to be closely related to early merchant banking activities The latter however evolved by extension to non-trade related financing such as sovereign debt 10 Like all financial instruments, factoring evolved over centuries This was driven by changes in the organization of companies technology, particularly air travel and non-face to face communications technologies starting with the telegraph, followed by the telephone and then computers These also drove and were driven by modifications of the common law framework in Eng land and the United States 11 Governments were latecomers to the facilitation of trade financed by factors English common law originally held that unless the debtor was notified, the assignment between the seller of invoices and the factor was not valid The Canadian Federal Government legislation governing the assignment of moneys owed by it still reflects this stance as does provincial government legislation modelled after it As late as the current century the courts have heard arguments that without notification of the debtor the assignment was not valid In the United States it was only in 1949 that the majority of state governments had adopted a rule that the debtor did not have to be notified thus opening up the possibility of nonnotification factoring arrangements 12 Originally the industry took physical possession of the goods, provided cash advances to the producer, financed the credit extended to the buyer and insured the credit strength of the buyer 13 In England the control o ver the trade thus obtained resulted in an Act of Parliament in 1696 to mitigate the monopoly power of the 154 factors 13 With the development of larger firms who built their own sales forces, distribution channels, and knowledge of the financial strength of their customers, the needs for factoring services were reshaped and the industry became more specialized By the twentieth century in the United States factoring became the predominant form of financing working capital for the then high growth rate textile industry In part this occurred because of the structure of the US banking system with its myriad of small banks and consequent limitations on the amount that could be advanced prudently by any one of them to a firm 14 In Canada, with its national banks the limitations were far less restrictive and thus factoring did not develop as widely as in the US Even then factoring also became the dominant form of financing in the Canadian textile industry Today factoring s rationale still in cludes the financial task of advancing funds to smaller rapidly growing firms who sell to larger more creditworthy organizations While almost never taking possession of the goods sold, factors offer various combinations of money and supportive services when advancing funds Factors often provide their clients four key services information on the creditworthiness of their prospective customers domestic and international maintain the history of payments by customers i e accounts receivable ledger daily management reports on collections and, make the actual collection calls The outsourced credit function both extends the small firms effective addressable marketplace and insulates it from the survival-threatening destructive impact of a bankruptcy or financial difficulty of a major customer A second key service is the operation of the accounts receivable function The services eliminate the need and cost for permanent skilled staff found within large firms Although today even they are ourso urcing such backoffice functions More importantly, the services insure the entrepreneurs and owners against a major source of a liquidity crises and their equity In the latter half of the twentieth century the introduction of computers eased the accounting burdens of factors and then small firms The same occurred for their ability to obtain information about debtor s creditworthiness Introduction of the Internet and the web has accelerated the process while reducing costs Today credit information and insurance coverage is available any time of the day or night online The web has also made it possible for factors and their clients to collaborate in realtime on collections Acceptance of signed documents provided by facsimile as 155 being legally binding has eliminated the need for physical delivery of originals , thereby reducing time delays for entrepreneurs By the first decade of the twenty first century a basic public policy rationale for factoring remains that the product is well sui ted to the demands of innovative rapidly growing firms critical to economic growth 15 A second public policy rationale is allowing fundamentally good business to be spared the costly management time consuming trials and tribulations of bankruptcy protection for suppliers, employees and customers or to provide a source of funds during the process of restructuring the firm so that it can survive and grow edit See also Capital formation Invoice discounting edit External links article on invoice factoring United Nations Convention on the Assignment of Receivables in International Trade 2004 Role of Reverse Factoring in Supplier Financing of Small and Medium Sized Enterprises International Factors Group - The International Association for Factoring edit References 1 J Downes, J E Goodman, Dictionary of Finance Investment Terms , Baron s Financial Guides, 2003 Taken from a combination of the definitions of a financial asset and accounts receivable 2 a b J Downes, J E Goodman, Dictionary of F inance Investment Terms , Baron s Financial Guides, 2003 and The Vest Pocket CPA , Wiley, 2005 3 The Vest Pocket CPA , Wiley, 2005 4 The factor cannot obtain additional payments from the seller for the occurance of bad debt 156 5 The Vest Pocket CPA , Wiley, 2005 The Liability under the recourse agreement must be readily estimateable, the buyer must have all of the future rights and benefits associated with the receivables, and the buyer cannot force the seller to repurchase the receivables 6 The return on its investment can be estimated by looking at its Net Income Relative to its Total Assets 7 William J Baumol, The Quaterly Journal of Economics, Nov, 1952 , 545556 8 Note As a general rule, when Cash Flow tends to be positive on average However, as mentioned, there are periods of time in which Cash Flow can be negative more cash flows out than in 9 Four Centuries of Factoring Hillyer, William Hurd Quarterly Journal of Economics MIT Press 1939 10 Bankers and Pashas International Finan ce and Economic Imperialism in Egypt Landes, David S Harper Torchbooks 1969 11 Factoring, Jones, Owen Harvard Business Review February 1939 and Factoring as a Financing Device, Silverman, Herbert R Harvard Business Review, September 1949 12 Silverman, Herbert R Harvard Business Review, September 1949 13 a b Hillyer 14 Silbert HBR Jan Feb 1952 15 Good Capitalism Bad Capitalism and The Economics of Growth and Prosperity Baumol, William J Litan, Robert E and Schramm, Carl J Yale University Press 2007 Retrieved from Category Finance This page was last modified on 20 January 2009, at 20 09 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity 157 Privacy policy About Wikipedia Disclaimers Financial risk management Main article Financial risk management Risk management is the process of measuring risk and then devel oping and implementing strategies to manage that risk Financial risk management focuses on risks that can be managed hedged using traded financial instruments typically changes in commodity prices, interest rates, foreign exchange rates and stock prices Financial risk management will also play an important role in cash management This area is related to corporate finance in two ways Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions Secondly, both disciplines share the goal of creating, or enhancing, firm value All large corporations have risk management teams, and small firms practice informal, if not formal, risk management Derivatives are the instruments most commonly used in Financial risk management Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets These standard deri vative instruments include options, futures contracts, forward contracts, and swaps See Financial engineering Financial risk Default finance Credit risk Interest rate risk Liquidity risk Market risk Operational risk Volatility risk Settlement risk edit Relationship with other areas in finance edit Investment banking Use of the term corporate finance varies considerably across the world In the United States it is used, as above, to describe activities, decisions and techniques 158 that deal with many aspects of a company s finances and capital In the United Kingdom and Commonwealth countries, the terms corporate finance and corporate financier tend to be associated with investment banking - i e with transactions in which capital is raised for the corporation 2 edit Personal and public finance Corporate finance utilizes tools from almost all areas of finance Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to pa rtnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management But in other cases their application is very limited outside of the corporate finance arena Because corporations deal in quantities of money much greater than individuals, the analysis has developed into a discipline of its own It can be differentiated from personal finance and public finance Financial risk management Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly Credit risk and market risk Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly ex posures to risk In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks Contents hide 1 When to use financial risk management 2 References 3 See also 159 4 External links edit When to use financial risk management Finance theory i e financial economics prescribes that a firm should take on a project when it increases shareholder value Finance theory also shows that firm managers cannot create value for shareholders, also called its investors, by taking on projects that shareholders could do for themselves at the same cost When applied to financial risk management, this implies that firm managers should not hedge risks that investors can hedge for themselves at the same cost This notion is captured by the hedging irrelevance proposition In a perfect market, the firm cannot create value by hedging a risk when the price of bearing that risk within the firm is the same as the price of bearing it outside of the firm In practice, financial markets are not likely to be perfect markets This suggests that firm managers likely have many opportunities to create value for shareholders using financial risk management The trick is to determine which risks are cheaper for the firm to manage than the shareholders A general rule of thumb, however, is that market risks that result in unique risks for the firm are the best candidates for financial risk management edit References Crockford, Neil 1986 An Introduction to Risk Management 2nd ed Woodhead-Faulkner ISBN 0-85941-332-2 Charles, Tapiero 2004 Risk and Financial Management Mathematical and Computational Methods John Wiley Son ISBN 0-470-84908-8 Lam, James 2003 Enterprise Risk Management From Incentives to Controls John Wiley ISBN-13 978-0471430001 van Deventer, Donald R Kenji Imai and Mark Mesler 2004 Advanced Financial Risk Management Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Man agement John Wiley ISBN-13 9780470821268 edit See also Market risk Corporate governance Credit risk management 160 Liquidity risk Risk adjusted return on capital Risk modeling Risk pool edit External links CERA - The Chartered Enterprise Risk Analyst Credential - Society of Actuaries SOA Financial Risk Manager Certification Program - Global Association of Risk Professional GARP Professional Risk Manager Certification Program - Professional Risk Managers International Association PRMIA Retrieved from Categories Mathematical science occupations Risk in finance This page was last modified on 15 January 2009, at 19 10 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers Financial instrument From Wikipedia, the free encyclopedia Redirected from Financial instruments Jump to navigation, search 161 Financial instruments are cash, evidence of an ownership interest in an entity, or a contractual right to receive, or deliver, cash or another financial instrument Contents hide 1 Categorization 2 Matrix Table 3 Measuring Financial Instrument s Gain or Loss 4 See also 5 External links edit Categorization Financial instruments can be categorized by form depending on whether they are cash instruments or derivative instruments Cash instruments are financial instruments whose value is determined directly by markets They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying assets They can be divided into exchange-traded derivatives and over-the-counter OTC derivatives Alternatively, financial instruments can be c ategorized by asset class depending on whether they are equity based reflecting ownership of the issuing entity or debt based reflecting a loan the investor has made to the issuing entity If it is debt, it can be further categorised into short term less than one year or long term Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category edit Matrix Table Combining the above methods for categorization, the main instruments can be organized into a matrix as follows 162 Instrument Type Asset Class Securities Debt Long Term Bonds 1 year Other cash Exchange-traded OTC derivatives derivatives Loans Interest rate swaps Interest rate caps Bond futures and floors Options on bond Interest rate futures options Exotic instruments Bills, e g TDebt Short Deposits Short Bills Term Certificates of interest Commercial 1 year deposit futures paper Equity Foreign Exchange Stock N A term Forward rate agreements rate Stock options Stock options Exotic Equity futures instruments N A Spot foreign Currency futures exchange Foreign exchange options Outright forwards Foreign exchange swaps Currency swaps Some instruments defy categorization into the above matrix, for example repurchase agreements edit Measuring Financial Instrument s Gain or Loss The table below shows how to measure a financial instrument s gain or loss Instrument Type Categories Measurement 163 Gains and losses Assets Net income when asset is derecognized or impaired foreign Loans and Amortized costs exchange and impairment receivables recognized in net income immediately Assets Available for Other comprehensive income Deposit account sale financial impairment recognized in net - Fair value assets income immediately See also Off-balance-sheet issues edit External links IFRS List - The online community about IFRS IAS and Auditing Retrieved from Category Financial markets Credit risk From Wikipedia, the free encyclopedia Jump to navigation, search Credit risk is the risk of loss due to a debtor s non-payment of a loan or other line of credit either the principal or interest coupon or both Contents hide 1 Faced by lenders to consumers 2 Faced by lenders to business 3 Faced by business 4 Faced by individuals 5 Counterparty risk 164 6 Sovereign risk 7 References 8 See also o 8 1 Other types of risk 9 External links edit Faced by lenders to consumers Main article Consumer credit risk Most lenders employ their own models credit scorecards to rank potential and existing customers according to risk, and then apply appropriate strategies With products such as unsecured personal loans or mortgages, lenders charge a higher price for higher risk customers and vice versa With revolving products such as credit cards and overdrafts, risk is controlled through careful setting of credit limits Some products also require security, most commonly in the form of property edit Faced by lenders to business Lenders will trade off the cost benefits of a loan according to its risks and the interest charged But interest rates are not the only method to compensate for risk Protective covenants are written into loan agreements that allow the lender some controls These covenants may limit the borrower s ability to weaken their balance sheet voluntarily e g by buying back shares, or paying dividends, or borrowing further allow for monitoring the debt requiring audits, and monthly reports allow the lender to decide when he can recall the loan based on specific events or when financial ratios like debt equity, or interest coverage deteriorate A recent innovation to protect lenders and bond holders from the danger of default are credit derivatives, most commonly in the form of a credit default swap These financial contracts allow companies to buy protection against defaults from a third party, the protection seller The protection seller receives a periodic fee the credit 165 spread as compensation for the risk it takes, and in return it agrees to buy the debt shoul d a credit event default occur Credit scoring models also form part of the framework for which a banks or lending institutions grant credit to clients For corporate and commerical borrowers, these models generally have qualitative and quantitative sections outlining various aspects of the risk including, but not limited to, operating experience, management expertise, asset quality, and leverage and liquidity ratios, respectively Once this information has been fully reviewed by credit officers and credit committees, the lender provides the funds subject to the terms and conditions presented within the contact as outlined above edit Faced by business Companies carry credit risk when, for example, they do not demand up-front cash payment for products or services 1 By delivering the product or service first and billing the customer later - if it s a business customer the terms may be quoted as net 30 - the company is carrying a risk between the delivery and payment Significant resources an d sophisticated programs are used to analyze and manage risk Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit or not accordingly They may use in house programs to advise on avoiding, reducing and transferring risk They also use third party provided intelligence Companies like Standard Poor s, Moody s and Dun and Bradstreet provide such information for a fee For example, a distributor selling its products to a troubled retailer may attempt to lessen credit risk by tightening payment terms to net 15 , or by actually selling fewer products on credit to the retailer, or even cutting off credit entirely, and demanding payment in advance Such strategies impact sales volume but reduce exposure to credit risk and subsequent payment defaults Credit risk is not really manageable for very small companies i e those with only one or two customers This makes these companies very vulnerable to defaults, or even payment delay s by their customers The use of a collection agency is not really a tool to manage credit risk rather, it is an extreme measure closer to a write down in that the creditor expects a belowagreed return after the collection agency takes its share if it is able to get anything at all 166 edit Faced by individuals Consumers may face credit risk in a direct form as depositors at banks or as investors lenders They may also face credit risk when entering into standard commercial transactions by providing a deposit to their counterparty, e g for a large purchase or a real estate rental Employees of any firm also depend on the firm s ability to pay wages, and are exposed to the credit risk of their employer In some cases, governments recognize that an individual s capacity to evaluate credit risk may be limited, and the risk may reduce economic efficiency governments may enact various legal measures or mechanisms with the intention of protecting consumers against some of these risks Bank deposi ts, notably, are insured in many countries to some maximum amount for individuals, effectively limiting their credit risk to banks and increasing their willingness to use the banking system edit Counterparty risk Counterparty risk, otherwise known as default risk, is the risk that an organization does not pay out on a credit derivative, credit default swap, credit insurance contract, or other trade or transaction when it is supposed to 2 Even organizations who think that they have hedged their bets by buying credit insurance of some sort still face the risk that the insurer will be unable to pay, either due to temporary liquidity issues or longer term systemic issues 3 Large insurers are counterparties to many transactions, and thus this is the kind of risk that prompts financial regulators to act, e g the bailout of insurer AIG On the methodological side, counterparty risk can be affected by wrong way risk, namely the risk that different risk factors be correlated in the most harmful direction Including correlation between the portfolio risk factors and the counterparty default into the methodology is not trivial, see for example Brigo and Pallavicini 4 edit Sovereign risk Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees 5 The existence of sovereign risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country Firstly one should consider 167 the sovereign risk quality of the country and then consider the firm s credit quality 6 Five macroeconomic variables that affect the probability of sovereign debt rescheduling are 7 Debt service ratio Import ratio Investment ratio Variance of export revenue Domestic money supply growth The probability of rescheduling is an increasing function of debt service ratio, import ratio, variance of export revenue and domestic money supply growth Frenkel, Karmann and Scholtens also argue that the likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains Saunders argues that rescheduling can become more likely if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries investors 8 edit References 1 Principles for the management of credit risk from the Bank for International Settlement 2 Investopedia Counterparty risk Retrieved 2008-10-06 3 Tom Henderson Counterparty Risk and the Subprime Fiasco 2008-01-02 Retrieved 2008-10-06 4 Brigo, Damiano and Andrea Pallavicini 2007 Counterparty Risk under Correlation between Default and Interest Rates In Miller, J Edelman, D and Appleby, J Editors , Numerical Methods for Finance Chapman Hall ISBN SSRN Research Paper 5 Country Risk and Foreign Direct Investment Duncan H Meldrum 1999 6 Cary L Cooper, Derek F Channon 1998 The Concise Blackwell Encyclopedia of Manag ement ISBN 978-0631209119 168 7 Frenkel, Karmann and Scholtens 2004 Sovereign Risk and Financial Crises Springer ISBN 978-3540222484 8 Cornett, Marcia Millon and Saunders, Anthony 2006 Financial Institutions Management A Risk Management Approach, 5th Edition McGraw Hill ISBN 978-0073046679 Bluhm, Christian, Ludger Overbeck, and Christoph Wagner 2002 An Introduction to Credit Risk Modeling Chapman Hall CRC ISBN 9781584883265 Damiano Brigo and Massimo Masetti 2006 Risk Neutral Pricing of Counterparty Risk, in Pykhtin, M Editor , Counterparty Credit Risk Modeling Risk Management, Pricing and Regulation Risk Books ISBN 1-904339-76-X de Servigny, Arnaud and Olivier Renault 2004 The Standard Poor s Guide to Measuring and Managing Credit Risk McGraw-Hill ISBN 978-0071417556 Darrell Duffie and Kenneth J Singleton 2003 Credit Risk Pricing, Measurement, and Management Princeton University Press ISBN 9780691090467 edit See also Credit analysis Consumer credit risk Credit rating Credit reference D efault finance Distressed securities Optimism bias Risk modeling edit Other types of risk Market risk 169 Interest rate risk Legal risk Liquidity risk Operational risk Optimism bias Volatility risk Settlement risk Concentration risk edit External links The Risk Management Association - leading industry organisation for credit risk professionals - web site maintained by Greg Gupton with research and white papers on credit risk modelling Retrieved from Category Risk in finance Market risk From Wikipedia, the free encyclopedia Jump to navigation, search This article may require cleanup to meet Wikipedia s quality standards Please improve this article if you can January 2008 Market risk is the risk that the value of an investment will decrease due to moves in market factors The five standard market risk factors are Equity risk, the risk that stock prices will change Interest rate risk, the risk that interest rates will change Currency risk, the risk that foreign exchange rates will change 170 Commodity risk, the risk that commodity prices e g grains, metals will change Contents hide 1 Measuring 2 Use in annual reports of U S corporations 3 Risk management 4 References 5 See also 6 External links edit Measuring As with other forms of risk, market risk may be measured in a number of ways Traditionally, this is done using a Value at Risk methodology Value at risk is well established as a risk management technique, but it contains a number of limiting assumptions that constrain its accuracy The first assumption is that the composition of the portfolio measured remains unchanged over the single period of the model For short time horizons, this limiting assumption is often regarded as acceptable For longer time horizons, many of the transactions in the portfolio may mature during the modeling period Intervening cash flow, embedded options, changes in floating rate interest rates, and so on are ignored in this single period modeling technique Market risk can also be contrasted with specific risk, which measures the risk of a decrease in edit Use in annual reports of U S corporations In the United States, a section on market risk is mandated by the SEC 1 in all annual reports submitted on Form 10-K The company must detail how its own results may depend directly on financial markets This is designed to show, for example, an investor who believes he is investing in a normal milk company, that the company is in fact also carrying out non-dairy activities such as investing in complex derivatives or foreign exchange futures 171 edit Risk management All businesses take risks based on two factors the probability an adverse circumstance will come about and the cost of such adverse circumstance edit References 1 FAQ on the United States SEC Market Disclosure Rules Dorfman, Mark S 1997 Introduction to Risk Management and Insurance 6th ed Prentice Hall ISBN 0-13-752106-5 edit See also Systemic risk Cost risk Credit risk Demand risk Legal risk Liquidity risk Operational risk Optimism bias Risk modeling Risk attitude edit External links Managing market risks by forward pricing How hedge funds limit exposure to market risk Retrieved from Category Risk in finance Hidden categories Cleanup from January 2008 All pages needing cleanup RISK MANAGEMENT 172 From Wikipedia, the free encyclopedia Jump to navigation, search This article or section is missing citations or needs footnotes Using inline citations helps guard against copyright violations and factual inaccuracies July 2007 This article or section appears to contain a large number of buzzwords Please help rewrite this article to make it more concrete and meaningful This article contains instructions, advice, or how-to content The purpose of Wikipedia is to present facts, not to teach subject matter Please help improve this article either by rewriting the how-to content or by moving it to Wikiversity For non-business risks, see risk or the disambiguation page risk analysis Risk management is activity di rected towards the assessing, mitigating to an acceptable level and monitoring of risks In some cases the acceptable risk may be near zero Risks can come from accidents, natural causes and disasters as well as deliberate attacks from an adversary The main ISO standards on risk management include 1 , 2 In businesses, risk management entails organized activity to manage uncertainty and threats and involves people following procedures and using tools in order to ensure conformance with risk-management policies The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk Some traditional risk management programs e g health risk assessment are focused on risks stemming from physical or legal causes e g natural disasters or fires, accidents, ergonomics, death and lawsuits Financial risk management, on the other hand, focuses on risks that can be managed using trad ed financial instruments Contents hide 1 Introduction 2 Principles of risk management 173 3 Process o 3 1 Establishing the context o 3 2 Identification o 3 3 Assessment o 3 4 Potential risk treatments 3 4 1 Risk avoidance 3 4 2 Risk reduction 3 4 3 Risk retention 3 4 4 Risk transfer o 3 5 Create a risk-management plan o 3 6 Implementation o 3 7 Review and evaluation of the plan 4 Limitations 5 Areas of risk management o 5 1 Enterprise risk management o 5 2 Risk-management activities as applied to project management 6 Risk management and business continuity 7 References 8 Further reading 9 See also 10 External links edit Introduction This section provides an introduction to the principles of risk management The vocabulary of risk management is defined in ISO Guide 73, Risk management Vocabulary 1 174 In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss and the greatest probability of occurring are handled first, and risks with lower pro bability of occurrence and lower loss are handled in descending order In practice the process can be very difficult, and balancing between risks with a high probability of occurrence but lower loss versus a risk with high loss but lower probability of occurrence can often be mishandled Intangible risk management identifies a new type of risk - a risk that has a 100 probability of occurring but is ignored by the organization due to a lack of identification ability For example, when deficient knowledge is applied to a situation, a knowledge risk materialises Relationship risk appears when ineffective collaboration occurs Process-engagement risk may be an issue when ineffective operational procedures are applied These risks directly reduce the productivity of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation, brand value, and earnings quality Intangible risk management allows risk management to create immediate value from the identification and re duction of risks that reduce productivity Risk management also faces difficulties allocating resources This is the idea of opportunity cost Resources spent on risk management could have been spent on more profitable activities Again, ideal risk management minimizes spending while maximizing the reduction of the negative effects of risks edit Principles of risk management The International Organization for Standardization identifies the following principles of risk management 1 Risk management should create value Risk management should be an integral part of organizational processes Risk management should be part of decision making Risk management should explicitly address uncertainty Risk management should be systematic and structured Risk management should be based on the best available information Risk management should be tailored Risk management should take into account human factors 175 Risk management should be transparent and inclusive Risk management should be dynamic, iterativ e and responsive to change Risk management should be capable of continual improvement and enhancement edit Process if Risk Management According to the standard ISO DIS 31000 Risk management -- Principles and guidelines on implementation 2 , the process of risk management consists of several steps as follows edit Establishing the context Establishing the context involves 1 Identification of risk in a selected domain of interest 2 Planning the remainder of the process 3 Mapping out the following o the social scope of risk management o the identity and objectives of stakeholders o the basis upon which risks will be evaluated, constraints 4 Defining a framework for the activity and an agenda for identification 5 Developing an analysis of risks involved in the process 6 Mitigation of risks using available technological, human and organizational resources edit Identification After establishing the context, the next step in the process of managing risk is to identify potential risks Risks are about events that, when triggered, cause problems Hence, risk identification can start with the source of problems, or with the problem itself 176 Source analysis Risk sources may be internal or external to the system that is the target of risk management Examples of risk sources are stakeholders of a project, employees of a company or the weather over an airport Problem analysis Risks are related to identified threats For example the threat of losing money, the threat of abuse of privacy information or the threat of accidents and casualties The threats may exist with various entities, most important with shareholders, customers and legislative bodies such as the government When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated For example stakeholders withdrawing during a project may endanger funding of the project privacy information may be stolen by employees even within a closed network lightning st riking a Boeing 747 during takeoff may make all people onboard immediate casualties The chosen method of identifying risks may depend on culture, industry practice and compliance The identification methods are formed by templates or the development of templates for identifying source, problem or event Common risk identification methods are Objectives-based risk identification Organizations and project teams have objectives Any event that may endanger achieving an objective partly or completely is identified as risk Scenario-based risk identification In scenario analysis different scenarios are created The scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction of forces in, for example, a market or battle Any event that triggers an undesired scenario alternative is identified as risk - see Futures Studies for methodology used by Futurists Taxonomy-based risk identification The taxonomy in taxonomy-based risk identification is a breakdown of poss ible risk sources Based on the taxonomy and knowledge of best practices, a questionnaire is compiled The answers to the questions reveal risks Taxonomy-based risk identification in software industry can be found in CMU SEI-93-TR-6 Common-risk checking In several industries lists with known risks are available Each risk in the list can be checked for application to a particular situation An example of known risks in the software industry is the Common Vulnerability and Exposures list found at 177 Risk charting risk mapping This method combines the above approaches by listing Resources at risk, Threats to those resources Modifying Factors which may increase or decrease the risk and Consequences it is wished to avoid Creating a matrix under these headings enables a variety of approaches One can begin with resources and consider the threats they are exposed to and the consequences of each Alternatively one can start with the threats and examine which resources they would affect, or one can begin with the consequences and determine which combination of threats and resources would be involved to bring them about edit Assessment Once risks have been identified, they must then be assessed as to their potential severity of loss and to the probability of occurrence These quantities can be either simple to measure, in the case of the value of a lost building, or impossible to know for sure in the case of the probability of an unlikely event occurring Therefore, in the assessment process it is critical to make the best educated guesses possible in order to properly prioritize the implementation of the risk management plan The fundamental difficulty in risk assessment is determining the rate of occurrence since statistical information is not available on all kinds of past incidents Furthermore, evaluating the severity of the consequences impact is often quite difficult for immaterial assets Asset valuation is another question that needs to be addressed Thus, best educated opinio ns and available statistics are the primary sources of information Nevertheless, risk assessment should produce such information for the management of the organization that the primary risks are easy to understand and that the risk management decisions may be prioritized Thus, there have been several theories and attempts to quantify risks Numerous different risk formulae exist, but perhaps the most widely accepted formula for risk quantification is Rate of occurrence multiplied by the impact of the event equals risk Later research has shown that the financial benefits of risk management are less dependent on the formula used but are more dependent on the frequency and how risk assessment is performed In business it is imperative to be able to present the findings of risk assessments in financial terms Robert Courtney Jr IBM, 1970 proposed a formula for 178 presenting risks in financial terms The Courtney formula was accepted as the official risk analysis method for the US governmental agencies The formula proposes calculation of ALE annualised loss expectancy and compares the expected loss value to the security control implementation costs cost-benefit analysis edit Potential risk treatments Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories 2 Avoidance eliminate Reduction mitigate Transfer outsource or insure Retention accept and budget Ideal use of these strategies may not be possible Some of them may involve tradeoffs that are not acceptable to the organization or person making the risk management decisions Another source, from the US Department of Defense, Defense Acquisition University, calls these categories ACAT, for Avoid, Control, Accept, or Transfer This use of the ACAT acronym is reminiscent of another ACAT for Acquisition Category used in US Defense industry procurements, in which Risk Management figures prominently in decision making and planning edit Risk avoidance Inclu des not performing an activity that could carry risk An example would be not buying a property or business in order to not take on the liability that comes with it Another would be not flying in order to not take the risk that the airplane were to be hijacked Avoidance may seem the answer to all risks, but avoiding risks also means losing out on the potential gain that accepting retaining the risk may have allowed Not entering a business to avoid the risk of loss also avoids the possibility of earning profits edit Risk reduction Involves methods that reduce the severity of the loss or the likelihood of the loss from occurring For example, sprinklers are designed to put out a fire to reduce the risk of loss by fire This method may cause a greater loss by water damage and 179 therefore may not be suitable Halon fire suppression systems may mitigate that risk, but the cost may be prohibitive as a strategy Modern software development methodologies reduce risk by developing and delivering s oftware incrementally Early methodologies suffered from the fact that they only delivered software in the final phase of development any problems encountered in earlier phases meant costly rework and often jeopardized the whole project By developing in iterations, software projects can limit effort wasted to a single iteration Outsourcing could be an example of risk reduction if the outsourcer can demonstrate higher capability at managing or reducing risks 3 In this case companies outsource only some of their departmental needs For example, a company may outsource only its software development, the manufacturing of hard goods, or customer support needs to another company, while handling the business management itself This way, the company can concentrate more on business development without having to worry as much about the manufacturing process, managing the development team, or finding a physical location for a call center edit Risk retention Involves accepting the loss when it occur s True self insurance falls in this category Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained All risks that are not avoided or transferred are retained by default This includes risks that are so large or catastrophic that they either cannot be insured against or the premiums would be infeasible War is an example since most property and risks are not insured against war, so the loss attributed by war is retained by the insured Also any amounts of potential loss risk over the amount insured is retained risk This may also be acceptable if the chance of a very large loss is small or if the cost to insure for greater coverage amounts is so great it would hinder the goals of the organization too much edit Risk transfer In the terminology of practitioners and scholars alike, the purchase of an insurance contract is often described as a transfer of risk However, technically speaking, the buyer of the contract generally retains legal responsibility for the losses transferred , meaning that insurance may be described more accurately as a postevent compensatory mechanism For example, a personal injuries insurance policy 180 does not transfer the risk of a car accident to the insurance company The risk still lies with the policy holder namely the person who has been in the accident The insurance policy simply provides that if an accident the event occurs involving the policy holder then some compensation may be payable to the policy holder that is commensurate to the suffering damage Some ways of managing risk fall into multiple categories Risk retention pools are technically retaining the risk for the group, but spreading it over the whole group involves transfer among individual members of the group This is different from traditional insurance, in that no premium is exchanged between members of the group up front, but instead losses are assessed to all members of the gro up edit Create a risk-management plan Select appropriate controls or countermeasures to measure each risk Risk mitigation needs to be approved by the appropriate level of management For example, a risk concerning the image of the organization should have top management decision behind it whereas IT management would have the authority to decide on computer virus risks The risk management plan should propose applicable and effective security controls for managing the risks For example, an observed high risk of computer viruses could be mitigated by acquiring and implementing antivirus software A good risk management plan should contain a schedule for control implementation and responsible persons for those actions According to ISO IEC 27001, the stage immediately after completion of the Risk Assessment phase consists of preparing a Risk Treatment Plan, which should document the decisions about how each of the identified risks should be handled Mitigation of risks often means selection of security controls, which should be documented in a Statement of Applicability, which identifies which particular control objectives and controls from the standard have been selected, and why edit Implementation Follow all of the planned methods for mitigating the effect of the risks Purchase insurance policies for the risks that have been decided to be transferred to an insurer, avoid all risks that can be avoided without sacrificing the entity s goals, reduce others, and retain the rest edit Review and evaluation of the plan 181 Initial risk management plans will never be perfect Practice, experience, and actual loss results will necessitate changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced Risk analysis results and management plans should be updated periodically There are two primary reasons for this 1 to evaluate whether the previously selected security controls are still applicable and effective, a nd 2 to evaluate the possible risk level changes in the business environment For example, information risks are a good example of rapidly changing business environment edit Limitations If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur Spending too much time assessing and managing unlikely risks can divert resources that could be used more profitably Unlikely events do occur but if the risk is unlikely enough to occur it may be better to simply retain the risk and deal with the result if the loss does in fact occur Prioritizing too highly the risk management processes could keep an organization from ever completing a project or even getting started This is especially true if other work is suspended until the risk management process is considered complete It is also important to keep in mind the distinction between risk and uncertainty Risk can be measured by impacts x probability edit Areas of risk management As applied to corporate finance, risk management is the technique for measuring, monitoring and controlling the financial or operational risk on a firm s balance sheet See value at risk The Basel II framework breaks risks into market risk price risk , credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components edit Enterprise risk management Main article Enterprise Risk Management 182 In enterprise risk management, a risk is defined as a possible event or circumstance that can have negative influences on the enterprise in question Its impact can be on the very existence, the resources human and capital , the products and services, or the customers of the enterprise, as well as external impacts on society, markets, or the environment In a financial institution, enterprise risk management is normally thought of as the combination of credit risk, interest rate risk or asset liability management, market risk, and operationa l risk In the more general case, every probable risk can have a pre-formulated plan to deal with its possible consequences to ensure contingency if the risk becomes a liability From the information above and the average cost per employee over time, or cost accrual ratio, a project manager can estimate the cost associated with the risk if it arises, estimated by multiplying employee costs per unit time by the estimated time lost cost impact, C where C cost accrual ratio S the probable increase in time associated with a risk schedule variance due to risk, Rs where Rs P S o Sorting on this value puts the highest risks to the schedule first This is intended to cause the greatest risks to the project to be attempted first so that risk is minimized as quickly as possible o This is slightly misleading as schedule variances with a large P and small S and vice versa are not equivalent The risk of the RMS Titanic sinking vs the passengers meals being served at slightly the wrong time the probabl e increase in cost associated with a risk cost variance due to risk, Rc where Rc P C P CAR S P S CAR o sorting on this value puts the highest risks to the budget first o see concerns about schedule variance as this is a function of it, as illustrated in the equation above Risk in a project or process can be due either to Special Cause Variation or Common Cause Variation and requires appropriate treatment That is to re-iterate the concern about extremal cases not being equivalent in the list immediately above 183 edit Risk-management activities as applied to project management In project management, risk management includes the following activities Planning how risk will be managed in the particular project Plan should include risk management tasks, responsibilities, activities and budget Assigning a risk officer - a team member other than a project manager who is responsible for foreseeing potential project problems Typical characteristic of risk officer is a healthy skepticism Maintai ning live project risk database Each risk should have the following attributes opening date, title, short description, probability and importance Optionally a risk may have an assigned person responsible for its resolution and a date by which the risk must be resolved Creating anonymous risk reporting channel Each team member should have possibility to report risk that he foresees in the project Preparing mitigation plans for risks that are chosen to be mitigated The purpose of the mitigation plan is to describe how this particular risk will be handled what, when, by who and how will it be done to avoid it or minimize consequences if it becomes a liability Summarizing planned and faced risks, effectiveness of mitigation activities, and effort spent for the risk management edit Risk management and business continuity Risk management is simply a practice of systematically selecting cost effective approaches for minimising the effect of threat realization to the organization All risks can never be fully avoided or mitigated simply because of financial and practical limitations Therefore all organizations have to accept some level of residual risks Whereas risk management tends to be preemptive, business continuity planning BCP was invented to deal with the consequences of realised residual risks The necessity to have BCP in place arises because even very unlikely events will occur if given enough time Risk management and BCP are often mistakenly seen as rivals or overlapping practices In fact these processes are so tightly tied together that such separation seems artificial For example, the risk management process creates important inputs for the BCP assets, impact assessments, cost estimates etc Risk management also proposes applicable controls for the observed risks 184 Therefore, risk management covers several areas that are vital for the BCP process However, the BCP process goes beyond risk management s preemptive approach and moves on from the assumption that the disaster will realize at some point edit References 1 Committee Draft of ISO 31000 Risk management PDF , International Organization for Standardization 2 Dorfman, Mark S 2007 Introduction to Risk Management and Insurance 9th Edition Englewood Cliffs, N J Prentice Hall ISBN 0-13224227-3 3 Roehrig, P 2006 Bet On Governance To Manage Outsourcing Risk Business Trends Quarterly General references ISO IEC Guide 73 2002 2002 Risk management -- Vocabulary - Guidelines for use in standards International Organization for Standardization ISO DIS 31000 2009 Risk management -- Principles and guidelines on implementation International Organization for Standardization csnumber 43170 Crockford, Neil 1986 An Introduction to Risk Management 2nd ed Woodhead-Faulkner ISBN 0-85941-332-2 edit Further reading Alberts, Christopher Audrey Dorofee, Lisa Marino March 2008 Mission Diagnostic Protocol, Version 1 0 A Risk-Based Approach for Assessing the Potential for Success Software Engineering Institute Retrieved on 200805-26 Alexander, Carol and Sheedy, Elizabeth 2005 The Professional Risk Managers Handbook A Comprehensive Guide to Current Theory and Best Practices PRMIA Publications ISBN 0-9766097-0-3 Borodzicz, Edward 2005 Risk, Crisis and Security Management New York Wiley ISBN 0-470-86704-3 185 Flyvbjerg, Bent August 2006 From Nobel Prize to Project Management Getting Risks Right PDF Project Management Journal Project Management Institute 37 3 5 15 Retrieved on 26 May 2008 Gorrod, Martin 2004 Risk Management Systems Technology Trends Finance and Capital Markets Basingstoke Palgrave Macmillan ISBN 14039-1617-9 Stoneburner, Gary Goguen, Alice and Feringa, Alexis July 2002 PDF Risk Management Guide for Information Technology Systems Gaithersburg, MD National Institute of Standards and Technology Ward, Dan Quaid, Chris March April 2007 The Pursuit of Courage, Judgment and Luck PDF Defense AT L Defense Acquisition University 28 30 Retrieved on 26 May 2008 United States Environmental Protection Agency April 2004 General Risk Management Program Guidance United State Environmental Protection Agency Standards Association of Australia 1999 Risk management North Sydney, N S W Standards Association of Australia ISBN 0-7337-2647-X IRM AIRMIC ALARM 2002 A Risk Management Standard London Institute of Risk Management edit See also Benefit risk Insurance Risk homeostasis Business continuity planning International Risk Governance Council Risk Management Agency Chief Risk Officer ISDA Corporate Risk Management Authority 186 governance Legal Risk Cost overrun List of finance topics Cost risk Critical chain List of project management topics Earned management value Megaprojects Enterprise Management Risk Megaprojects risk Occupational Health and Safety Operational management Optimism bias Outsourcing Precautionary principle Process Safety Management Project management Public Entity Risk Institute Reference forecasting Risk Risk analysis engineering Environmental Risk Management Authority Ev ent methodology chain Financial management risk Futures Studies Hazard prevention Hazop and risk class edit External links Risk management at the Open Directory Project Annotated Bibliography on Risk Management 187 Risk Management Information Systems Risk Management Research Programme Risk register Roy s safety-first criterion Timeboxing Social Management Substantial equivalence Uncertainty Value at risk Viable Model Vulnerability assessment Risk System Risk Management contains several pages of information on risk management and links to publicly available technical reports and presentations on risk, all published by the Software Engineering Institute The Institute of Operational Risk The institute provides professional recognition and enables members to maintain competency in the discipline of operational risk Risk Management magazine, a publication of the Risk and Insurance Management Society Retrieved from Categories Risk Actuarial science Management Project management Risk analysis Security Hidden categories Articles with unsourced statements since July 2007 All articles with unsourced statements Wikipedia articles containing buzzwords Articles containing how-to sections This page was last modified on 18 January 2009, at 00 32 All text is available under the terms of the GNU Free Documentation License See Copyrights for details Wikipedia is a registered trademark of the Wikimedia Foundation, Inc a U S registered 501 c 3 tax-deductible nonprofit charity Privacy policy About Wikipedia Disclaimers 188 show v d e Global warming and climate change show Temperatures show Causes Aviation Carbon dioxide Climate sensitivity Global dimming Global warming potential Greenhouse effect Greenhouse gases Keeling Curve Land use and forestry Urban heat island Anthropogenic 189 Albedo Bond events Cloud forcing Glaciation Global cooling Ocean variability AMO ENSO IOD PDO Orbital variations Orbital forcing Radiative forcing Solar variation Volcanism Natural Scientific opinion Scient ists and opposing the mainstream assessment Climate change denial Opinion controversy show Models and politics Models Global climate model Politics United Nations Framework Convention on Climate Change UNFCCC FCCC Intergovernmental Panel on Climate Change IPCC show Potential effects and issues General Climate change and agriculture Drought Economics of global warming Glacier retreat Mass extinction Ozone depletion Ocean acidification Sea level 190 rise Season creep Shutdown of thermohaline circulation By country Australia India United States show Mitigation Kyoto Protocol Clean Development Mechanism Joint Implementation Bali roadmap Governmental European Climate Change Programme United Kingdom Climate Change Programme Oil phase-out in Sweden Schemes Emissions trading Personal carbon trading Carbon tax Carbon offset Carbon credit Carbon dioxide sink carbon sequestration Cap and Share Energy conservation Efficient energy use Renewable energy Renewable energy commercialization Renewable e nergy development Soft energy path Other G8 Climate Change Roundtable Individual and political action on climate change Climate change mitigation scenarios show 191 Proposed adaptations Damming glacial lakes Drought tolerance Irrigation investment Rainwater storage Sustainable development Weather control Avoiding Dangerous Climate Change Land Allocation Decision Support System Programmes Retrieved from Categories Energy conservation Energy policy Climate change Industrial ecology 192 View Full Document. This note was uploaded on 07 05 2016 for the course BCOM 33 taught by Professor during the Fall 13 term at University of Nairobi. Click to edit the document details. Share this link with a friend. Most Popular Documents for BCOM 33.University of Nairobi. BCOM 33 - Fall 2013.Surname 1 Name Instructor Course Date Assignment for law Introduction The Uniform. University of Nairobi. BCOM 33 - Fall 2013.Date Open High Low Close Volume Adj Close 11 30 2015 117 99 119 41 117 75 118 3 37658.University of Nairobi. BCOM 33 - Fall 2013.FC 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 3920 39.University of Nairobi. BCOM 33 - Fall 2013.1 Present vs Future Values a A firm is expected to earn 100,000 per year forever. University of Nairobi. BCOM 33 - Fall 2013.ANSWERS Why did the company repurchase a substantial fraction of its outstanding comm. Excel Project - Tasty Time. University of Nairobi. BCOM 33 - Fall 2013.Excel Project Due Date, April 22, 2015 email to me by midnight Tasty Time Cafeteria. Excel Project - Tasty Time.
No comments:
Post a Comment