EMPOWERING FINANCIAL IQ

What Are Rental Vacancy Rates?

admin — Sun, 18 Mar 2012 15:57:39 +0000

The American Housing Survey (AHS) is the most comprehensive national housing survey in the United States. The AHS survey is sponsored by the Department of Housing and Urban Development (HUD) and conducted by the U.S. Census Bureau. National data are collected every 2 years from a sample of housing units. The national survey, which began in 1973, has sampled the same units since 1985.

Total housing units was 130,112,000 in 2011. 35,378,000 were occupied rental properties resulting in 27.2% of the market. There were an estimated 4,018,000 rental vacancies with an average rental vacancy rate of 10.1%.

Total of 16,015,000 second homes in the united states, or 12.3% of the entire housing market.

Heres the breakdown of second homes in the US according to the AHS survey.

Extra units . . . . . . . . . . . . . . . . . . . . . .7,840,000

Previous usual residence . . . . . . . . . . . 861,000

Used for recreational purposes . . . . . . . 4,054,000

Investment purposes . . . . . . . . . . . . . . . 755,000

Unable to sell property . . . . . . . . . . . . . 100,000

Inherited property . . . . . . . . . . . . . . . . . 504,000

Other reasons . . . . . . . . . . . . . . . . . . . . 1,150,000

Not reported . . . . . . . . . . . . . . . . . . . . 751,000

My 2012 goal on this Zempower blog is to provide empowering financial IQ more specifically focused on landlords and realtors. Zadpad.com is the zero vacancy rental solution for landlords and realtors. Info@zadpad.com. Luxetree.com has figured a way to provide free advertising for landlords, loan officers, and realtors through a new virtual currency in “bad credit” turndowns. Sales@luxetree.com.

How To Prepare a Statement of Cash Flows?

admin — Wed, 14 Sep 2011 00:22:21 +0000

GAAP allows the use of the direct method and the indirect method to convert accrual revenues and expenses to a cash basis. The FASB suggests using the direct method but the majority of companies use the indirect method. The indirect method starts with income reported on the income statement and adjusts for items that did not affect cash. The direct method reports cash receipts (inflows) and cash disbursements ( outflows) from operating activities in detail.

STEPS FOR THE INDIRECT METHOD

Step 1: Determine the change in cash. Subtract the beginning cash balance for the period being reported from the ending balance on the last balance sheet.

Step 2: Determine cash flows from operating activities. Eliminate all non-cash transactions that did not increase or decrease cash from operating activities. Increases in current assets or decrease in current liabilities indicate use of cash, and decreases in current assets or increases in current liabilities show sources of cash.

Step 3: Determine the cash flows from investing activities. Compare the beginning and ending balances of long-term assets.

Step 4: Determine the cash flows from financing activities. Compare beginning and ending balances for long-term liabilities and stockholders equity. An increase in a stockholder’s equity account is a source of cash and a decrease is a use of cash.

Step 5: Prepare the statement of cash flows.

This Zempower blog focuses on increasing your Financial IQ. Mr. Taniguchi works with businesses to provide merchant cash advance loans within five to seven days based on credit card revenue receipts. He holds the position of Chief Financial Officer with several companies and also does bookkeeping, corporate valuations, financial consulting, and prepares merger & acquisitions packages for other businesses on the side. If you’d like to get updated blogs, please “Like” facebook.com/zempower.

Will The Euro Collapse?

admin — Sun, 28 Aug 2011 09:29:28 +0000

EFSF (European Financial Stability Fund) includes 27 members of the European Union and was created on May 9, 2010. EFSF works closely with Germany to issue bonds on behalf of the insolvent European nations such as Greece, Spain, and Italy.

On July 11, 2011, the EFSF role expanded regarding the solvency responsibilities. The Greek example shows that the EFSF has bailed out the banks more than they’ve bailed out the country. Greece participated in IMF bailouts and was able to avoid high interest rate penalties; however, this luxury does not extend to Spain or Italy because they yet to receive any bailout money.

“The euro is breaking down,” Mr. Greenspan said last week. “The reason we’re so sluggish is the level of uncertainty.”

Since Germany remains the key player in the EFSF, it risks its own AAA credit rating if it participates in the backing new bond issuances to restructure the high interest Spain and Italy debts. If Germany does not participate in these financial restructurings, these sovereign debts will become insolvent and wreak havoc on the already fragile world markets. It would crash the Euro and cause the next Great Depression.

The financial world is teetering on the edge. For those that think the worse is behind us, think again. The worse is yet to come.

Understanding Short-Term Securities and Liabilities

admin — Sat, 27 Aug 2011 00:14:32 +0000

Trading Securities. Debt and equity securities purchased with excessive cash for the purpose of resale in the near term. As such, they are current assets. They are reported at fair market value using the mark-to-market method. The accountant will make adjustments for unrealized market gains or losses (profit resulting from holding on to an asset versus the cashing out of it) and these are included on the current income statement.

Held-To-Maturity Securities. Debt (and not equity) securities that a company intends to hold till maturity. They are reported at cost less any impairment including amortized costs plus any accrued interest and classified as a non-current asset. Unrealized gains or losses are not recognized.

Available-For-Sale Securities. Debt and equity securities held for an indefinite period of time without the intention of selling before maturity. An accountant will value them using its fair market value, but the unrealized gains and losses are excluded from earnings on the current income statement. They are reported under Unrealized Gain/Loss – Other Comprehensive Income on the balance sheet and classified as a non-current asset unless the company decides to sell them within a year.

Investment in Equity Securities With A Controlling Influence. A controlling influence is defined by Financial Accounting Standard Board (FASB) guidelines as holding between 20 to 50 percent of the financial policies of an investee. An accountant will use the equity method, which records the initial investment at cost and reports a proportional share of the investee’s income on its income statement each period. This shows up on the balance sheet as a non-current asset.

Are We Experiencing A 10-Year Depression?

admin — Thu, 25 Aug 2011 09:05:37 +0000

The eight year bull market from 1921 to 1929 resulted in a three year bear market from 1929 to 1932, which was a 33% bear market drop. Due to Fed intervention, we’ve seen a thirty three year bull market from 1974 to 2007. History hints at the possibility of a ten to eleven year bear market, or 33% bear market declines when compared to the bull market periods. In the future, the economic scholars may look at monetary intervention as a failed experiment. Could we only delay the inevitable natural market corrections?

The Dow Theory looks for “sell-signals” that indicate the start of a long-term bearish trend. In Dow Theory terms, we experienced a Phase I correction in 2008 and 2009, and historical the Phase II corrections have always been more severe. I started writing this Zempower blog back in January 2011 and the first posts forecasted some major market crashes. The markets took some severe hits in August and amazingly I’ve been surprised that this blog called out the triggers (such as the credit downgrade of the US government and the Greek sovereign debt crisis). The worse is yet to come and the triggers will be a current account deficit correction, challenges to the US dollar as the international currency, and a halting crash to the Chinese economy.

My outlook on real estate has been very dim and would stay out of those markets maybe for another 5 to 7 years. I forecast dropping another 25 to 40% before it rebounds. For those holding long positions in stocks, be extremely careful and vigilant. A lot of people have already sustained major loses and more retirement accounts will continue to lose their value.

How To Depreciate Long-Term Assets?

admin — Mon, 25 Jul 2011 10:09:25 +0000

Land. Includes purchase price, real estate commissions, closing costs, attorney fees, recording fees, land use due diligence, clearing, grading, filling, landscaping, special assessments (pavement and sewer). Improvements with limited lifespans such as fences and parking would go under Land Improvements and not under Land.

Buildings. Includes purchase price of a finished building, real estate commissions, closing costs, attorney’s fees, recording fees, architectural fees, building permits, other professional fees, excavation costs, and construction costs.

Equipment. Includes net purchase price, sales tax and permits, freight or delivery costs, insurance in transit, normal assembling and installation costs, test runs, interest to finance the purchase of long-term assets. Training costs for learning how to operate the new plant or equipment are not included in acquisition costs.

Depreciable Base. The cost of the asset less its salvage value.

Carrying Value/Net Book Value. The historical cost of the asset less its accumulated depreciation.

Straight-Line Depreciation. Measures depreciation as a function of time rather than as a function of usage and is the most widely used.

Units-of-Output Depreciation Method. Measures depreciation as a function of usage based on units instead of as a function of time.

Declining Balance Method. Assumes that an asset should be depreciated more in the first few years (when it has the most productivity and least amount of repairs and maintenance) than in later years. The double declining balance method utilizes the declining book value of an asset and takes twice the straight-line rate to compute the annual depreciation expense where the ending book value equals the salvage value. The sum-of-the-years’-digits depreciation method accelerates the depreciation using the expected life of the asset and requires a fraction to be computed each year.

The rules for depreciation in tax law are usually completely different than the rules for GAAP financial reporting. Typically, companies use an accelerated depreciation method for tax purposes, but use a straight-line depreciation method for GAAP financial reporting.

Understanding Basic Cost Accounting

admin — Sun, 03 Jul 2011 20:28:42 +0000

In accounting terms, the term cost does not equate to the meaning of expense. A cost item requires the expenditure of resources to generate revenue during a specific period of time.

Asset Costs/Unexpired Cost. Expending resources or incurring liabilities to acquire assets. A capitalized cost equals the present value of a uniform series of periodic costs for a long time.

Inventoriable Costs. All costs related to the purchasing or manufacturing of inventory. Product costs specifically define costs incurred by a company to manufacture a product and include raw materials, direct labor, and manufacturing overhead.

Manufacturing Costs. All of the costs inside of the factory are product costs including direct and indirect materials and labor. Period expenses would include non-manufacturing costs such as selling expenses, marketing expenses, administrative expenses, and research and development.

Cost Object. Costs may be moved around (aggregated and re-aggregated) for different purposes and the cost object helps to identify how much something costs for a specific product, operation, activity, specific contract or service. Direct costs are directly traceable to the cost object, whereas indirect costs are not.

Conversion Costs. The costs to convert a raw material put into production into a finished product.

Cost Drivers. The measure of an activity that causes the total variable costs to change. The relevant range defines the relationship between cost and volume.

Differential Costs. A incremental costs or revenues that equals the difference between two alternative choices.

Opportunity Costs. The potential benefit (cost savings or profit) that is foregone by selecting one alternative over another.

Sunk Costs. When comparing alternative choices, these are the costs that have already been incurred and not relevant to the future financial activity. To calculate for sunk costs, an accountant will take the book value of an asset and subtract the accumulated depreciation from the cost of the asset.

How To Calculate WACC?

admin — Sat, 25 Jun 2011 12:49:12 +0000

The weight average cost of capital calculates the return necessary to satisfy the bondholders and stockholders (relates to the risk/return ratios).

Equity Market Capitalization. Use the market value and not the book value for equity portion of the WACC calculation. The build-up approach factors the risk-free rate plus risk premiums for size, liquidity, sector risk, and other risk factors and can be used as an alternative way besides CAPM to calculate the cost of equity. Refer to my blog post on June 14, 2011 to learn how to use CAPM and beta to calculate the cost of equity.

Book Value For Debt. The short-term and long-term debt on the balance sheet should suffice for the value for the cost of debt. Because interest is tax deductible, you must add tax back into the debt portion of the WACC equation. For long-term debts, calculate the yield to maturity on the company’s bonds and for privately held companies use the Moody’s bond rating to estimate the bond yields.

Enterprise Value. Don’t forget that the WACC calcuations use the enterprise value (which includes the market capitalization plus the debts) and not just the market capitalization value.

What It All Means? If a company creates a return on invested capital far exceeding its weight average cost of capital, it means that a company is financially managed well and generating significant value.

Will The End Of QE2 Trigger The Next Depression?

admin — Thu, 23 Jun 2011 08:56:18 +0000

It’s official. The Fed decided not to renew QE2 and its time to bring back the depression forecasts that I’ve been making all year on this blog. In the Fed Chairman’s speech, Bernanke victoriously claimed an end to the deflationary threat but also indicated that unemployment rates would may remain high for several years to come. Goodbye deflation, hello stagflation. Expect higher inflation levels in the future and slow economic growth.

The world today is broke. The gloomy news includes political unrest in the middle east, inflationary pressures in China and high risk levels for Chinese real estate speculation defaults and a wave of non-performing bank loans, the disaster recovery in Japan, a dangerous sovereign debt crisis in Europe, and a budget crisis in America.

WHERE DOES THE MONEY FLOW IN TODAY’S WORLD OF TURMOIL?

When the stock markets faces seven straight weeks of anxiety, we can expect a strong rally soon and investors will start to take a sigh of relief. The financial media will talk about the market upswing but don’t believe the hype. The European Sovereign Debt Crisis may drive the world off the cliff like it did in the late 1920s. In the chart below, the Great Depression was not caused by one huge crash; instead, we see a pattern of crash and rally but a steady bearish trend throughout of lower highs and lower lows.

DISCLAIMER: The author of this blog is not licensed under Series 6, Series 63, Series 7, and/or Series 82 and the contents of this blog should NOT be interpreted as providing financial or security advise as determined by the 1934 Securities Act. These blogs are educational only in purpose. The author is licensed as a Washington State Business and Real Estate Broker (Lag #55692) which includes the licensing rights in Washington to facilitate the brokering and sale of businesses, commercial real estate and residential real estate.

The major market players have been making huge speculations in the last two weeks and the wall street pros are betting on the failure of the global economy through credit default swaps. If Greece defaults and it will, the entire global banking will teeter on the verge of collapse similar to the Mortgage Crisis of 2008. However, this time the US government will neither have the political will nor the $2 trillion dollars for a bailout. In the short-term, the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) crisis devalues the Euro and causes the US dollar to go up. This temporarily keeps the US stock market from crashing, holds off a current account deficit correction with Japan and China, and keeps commodity prices in check. The Fed will be forced to try to contain the Greek defaults through unpopular bailouts, but the efforts will fail and I will explain why.

The US bailouts will continue until the American government gets downgraded from its AAA bond rating status. Since World War II, the US Treasuries have been the financial pillar for a risk-free investment. However, the world has changed and the financially overextended US government may face a bond rating downgrade from its AAA rating as a result of unsustainable deficits. I forecast that the global economy will double-dip into depression when the rating downgrade occurs.

These are tough times in the world.

How To Prepare Financial Statements Without Quickbooks

admin — Tue, 21 Jun 2011 08:58:12 +0000

The accounting cycle is the process from a when a business transaction occurs all the way to the financial statement preparation process.

Step 1: Identify a business transaction and find the supporting source document such as a receipt or invoice.

Step 2: Determine the amounts to be journalized, whether the accounts should be debited (left side entry) or credited (right side entry), and place into the appropriate journal.

Step 3: Post the journal entries in journal sequence to the appropriate ledger accounts. Accumulated depreciation shows up as an asset offset (deducted from the original cost on the asset side of the balance sheet).

Step 4: Prepare a trial balance (a listing of the current balance of all accounts in the general ledger) and a worksheet at the end of the accounting period. The debits total should equal the credits total. Make adjusting entries to all appropriate accrual and deferred accounts onto the worksheet (where you assemble all of the accounts in one place to make adjustments per the recognition and matching principles) and journalize and post them to the accounts. Prepare and make closing entries to all temporary revenue and expense accounts.

Step 5: Prepare the financial statements.

This Zempower blog focuses on increasing your Financial IQ. Ryland holds the position of chief financial officer for a variety of early growth companies. As a licensed business broker, Ryland also works with investors in buying, selling, and financing $300 k to $10 million dollar businesses and $1 million to $100 million commercial real estate. If you’re interested in selling your company or structuring your company for an acquisition, contact 206.832.9590 for a free business valuation. If you’d like to get updated blogs, please “Like” facebook.com/zempower.