mysmp.com - Day Trading & Stock Trading Strategies

Annual Report

admin — Mon, 09 Nov 2009 18:45:01 -0600

The company annual report is the most commonly employed means for publicly-held companies to communicate financial and other information to their shareholders. The term annual report is used to refer both to the Annual Report to Shareholders, required when new directors are elected at the annual meeting, and to Form 10-K, a detailed reporting of financial information provided on an annual basis to the SEC and shareholders. Both types of annual financial report are required by SEC regulations; some companies combine the two, including the Form 10-K information within the Annual Report to Shareholders itself.

Annual Report to Shareholders

The Annual Report to Shareholders is often glossy and slickly produced to promote the company and its performance for the benefit of current and prospective shareholders. The attractive, easy-to-understand brochure typically offers generalized information and includes pictures and summary reports rather than a substantial amount of raw financial data. Magazine-style paper, numerous photographs, and charts offer visual interest.

Form 10-K

This SEC-required financial annual report includes a detailed accounting of company transactions and significant operational events. The most significant parts of the Form 10-K are the income statement, cash flow statement, and balance sheet.

• The income statement, also known as the profit and loss statement, is an in-depth explanation of how the company’s annual net income was derived, often including revenues received, costs and expenses incurred, write-offs, depreciations, and amortizations, and tax liabilities over the preceding year. A simple method of deriving an income statement is simply to subtract total expenses from total revenues; this, however, can produce less accurate results. In most cases, companies subtract yearly operating expenses from the total amount of gross profit and then figure in other revenues and expenses including taxes to derive a final income statement figure.

• The cash flow statement provides an overview of the company’s operating, investing, and financing activities over the preceding year, giving investors insight into the current liquidity and ability to meet present and upcoming financial obligations. It is intended to provide information about the ready cash available for company use, and as such does not include information on long-term assets or real property.

• The balance sheet is one of the oldest accounting reports in existence, and for good reason. It summarizes all available financial information and provides an accurate and complete picture of the company’s fiscal health and viability. By listing assets, liabilities, and ownership equity at a specific point in time, the balance sheet offers a quick, at-a-glance overview of the company’s financial condition.

Form 10-K typically features a financial analysis and forecast for projected earnings as well. Since it is a required public company annual report, Form 10-K is considered a public document and is available for review online at the SEC website.

The annual company report offers the chance for businesses to promote themselves within the marketplace through carefully designed materials intended to highlight the positive aspects of the company’s performance. Form 10-K is especially important, since it provides the documentation for claims made in the Annual Report to Shareholders regarding the company’s current performance and potential for growth in upcoming years.

Accretion

admin — Mon, 09 Nov 2009 18:29:38 -0600

Accretion Definition

While accretion is used to refer to a number of processes within the financial world, the most common accretion definition is the straight-line accumulation of value over time in discount bonds to be redeemed at full maturity. A more general accretion definition is the value created by a specific transaction; this is usually too vague to be useful, however. The term accretion is also used to refer to the increase in earnings per share after a merger or acquisition has been completed.

Accretive Earnings

The term accretive earnings is generally applied to the change in value of a discount bond as it nears its maturity date. Essentially, because discount bonds are bought at a price below their stated face value and increase over time due to accrued interest until they reach face value at maturity, they become more valuable as time passes. The stated face value is referred to as par value; because discount bonds are sold on the open market throughout their existence, they are generally increasing in value until they reach par value. The amount of increase between purchase price and current value is referred to as the bond’s accretive earnings.

Accretion Expenses

Just as accretive earnings apply to increases in the value of securities, accretion expenses refer to the increase in financial obligations as an asset nears the date of its scheduled removal and retirement. As the time nears for the retirement of a corporate asset, the fair value of the liability for its removal and replacement becomes greater until the actual retirement, at which time the liability comes to maturity and is fully due by the company. Accretion expenses are generally offset against increases in the liability account, allowing the company to fully amortize the cost of the asset retirement in advance of the requirement for those funds. The same principle is applied to financial instruments conveying a future financial obligation. As the date of maturity nears, the accretion expense increases until it is eventually equal to the sum required less the amount initially received in return for that instrument.

Accretive Acquisitions and Mergers

An accretive acquisition or merger is one that is perceived by shareholders and financial experts as likely to add to the earnings per share of the acquiring company. During a bear market, this perception must often be reinforced by supporting evidence that the acquisition will add more in value to shares than its initial cost in order to attract shareholder support. As a rule, in order to qualify as an accretive acquisition or merger the earnings per share of the acquiring company must increase after the costs of acquisition or merge are figured into those earnings. If the earnings per share decline after the merger or acquisition, then the result is referred to as a dilutive acquisition or merger since it has diluted the potential for earnings on the part of the acquiring company’s shareholders.

Cash Asset Ratio

admin — Sun, 08 Nov 2009 16:56:53 -0600

The cash asset ratio of a company is defined as the current market value of its liquid assets, usually in the form of securities and cash on hand, divided by its current outstanding liabilities. It is generally used in determining a company’s financial health and short-term ability to meet its obligations. While the value of money remains constant for purposes of the cash asset ratio, the value of securities may fluctuate and must be determined as of the time of calculation to ensure accurate figures.

Cash Asset Ratio Formula

The cash asset ratio formula is relatively straightforward, and is derived by adding together all available cash on hand and market securities available for sale and then dividing that figure by the total short-term financial liabilities and obligations the company has incurred. Thus:

• ((total cash on hand) + (total marketable securities)) / (total short-term liabilities) = cash asset ratio

The cash asset ratio formula may vary slightly depending on a number of factors, including which liabilities are deemed short-term and which marketable securities are considered of sufficient liquidity to be included in the cash asset ratio calculation. Essentially, if there is a reasonable expectation that a security will be converted into cash during the course of the next year, it is considered sufficiently liquid to be included in cash asset ratio calculations. Likewise, if financial obligations are expected to come due within the course of the upcoming year, they are considered short-term and may be applied to the cash asset ratio calculation.

Cash Asset Ratio Example

A company which holds $10,000 in liquid marketable securities and has $40,000 cash in hand would have total current assets of $50,000 for purposes of the cash asset ratio calculation. If the company has $40,000 in short-term liabilities for the upcoming year, then the cash asset ratio calculation would appear as follows:

• (($40,000 in cash) + ($10,000 in securities) / ($40,000 in short-term debt))
• $50,000 / $40,000 = 1.25

This would produce a cash asset ratio of 1.25. Ratios over 1.0 are considered a positive indicator of a company’s ability to meet current obligations and continue operations, while ratios under 1.0 are viewed negatively by financial analysts and lenders. However, if the ratio is too far above 1.0, this exceptionally high cash asset ratio may be indicative of a lack of investment in the core business and a lessened ability to grow and expand.

Cash Asset Ratio Calculation

A few key points should be noted regarding the method of calculation for cash asset ratios. The value of market securities is often highly volatile; rarely does it exactly correspond to the amount paid for those securities at the time of purchase. It’s essential to obtain the most current market figures available at the time of calculation in order to reflect the actual value of market securities. Additionally, assets other than cash on hand and marketable securities should not be included in the figures, even if they are expected to be sold in the upcoming year. The cash asset ratio is, as its name suggests, intended to reflect only the value of cash and cash-based assets for the company, not equipment or real property.

EBITDAR

admin — Wed, 04 Nov 2009 18:38:48 -0600

EBITDAR Definition

Earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) is a financial term used in calculating a company’s financial performance; it is sometimes referred to as operating cash flow. The accepted EBITDAR definition can also include reference to restructuring costs; in this usage, rent is replaced by restructuring in the term. Regardless of which EBITDAR definition is referred to, EBITDAR is a common element of Generally Accepted Accounting Principles (GAAP) that govern how financial reports are constructed and compiled. GAAP ensures the consistency of these financial reports and provides a methodology to allow fair and equitable comparison of the performance of various companies. EBITDAR is used in a number of calculations in order to determine the financial health of an institution.

EBITDAR Calculation

Generally, EBITDAR is calculated exactly as its name would indicate. Gross earnings are determined without inclusion of interest, taxes, depreciation, amortization, or rent (or in some cases, restructuring fees). EBITDAR is used in a number of other financial equations in order to determine the fiscal health of an institution; because it factors in only expenses directly tied to the day-to-day operation of the business in question, EBITDAR may provide a more accurate measure of the company’s operating health.

Debt EBITDAR

Accountants use the debt EBITDAR ratio in order to ascertain the ability of a company to pay its debts. Essentially, this ratio compares the gross income of a business against its outstanding debts to derive a rough estimate of its financial health. The debt EBITDAR calculation is derived by dividing the existing debt by the annual EBITDAR. The resultant figure is used to produce a credit rating for the company that can affect its overall ability to obtain credit and take on debt in the future. A high ratio is considered less desirable and may trigger higher interest rates on loans; a lower ratio corresponds to a higher corporate credit rating and more favorable terms for credit arrangements.

EBITDAR Margin

Another ratio of importance to financial analysts, a company’s EBITDAR margin indicates the extent to which revenue is offset by operating expenses. It falls into the general category of profit margin calculations, and is derived by dividing EBITDAR by the total revenue generated by the company. This EBITDAR ratio is used to estimate the company’s ongoing financial health.

EBITDAR Applications

Because a company’s EBITDAR figure is a reasonably accurate indicator of the health of its operating cash flow, it has immediate and far-reaching effects on the company’s risk and credit rating. Generally, EBITDAR is most useful as a comparative tool for larger corporations with a great many fixed assets that are subject to depreciation and amortization; by eliminating these factors from consideration, EBITDAR allows a more direct comparison of earnings from company to company.

Variants of EBITDAR

While most references to EBITDAR are intended to exclude rental costs for companies where these constitute a major expense, in some cases the acronym refers to exclusion of restructuring costs. These are regarded as one-time expenses and have usually been accounted for in overall budgeting; because restructuring costs are less common than rental expenses, the term should generally be regarded as referring to rent rather than restructuring unless otherwise specified.

Accumulated Earnings

admin — Wed, 04 Nov 2009 18:27:31 -0600

Accumulated earnings, also known as retained earnings, are profits produced by a company that are not distributed to shareholders as dividends. Essentially, they are company earnings that are reinvested in the company or used to pay off outstanding debt. By wisely investing these accumulated retained earnings, companies can improve their position for future earnings and an improved bottom line financially. Of course, a certain amount of reinvestment of accumulated earnings is necessary in order to continue company operations; these expenditures are referred to as retention funds, because they are essential for retaining the ability to carry on normal operations.

Because shareholders do not receive immediate returns on accumulated earnings, short-term investors may fail to achieve expected profit levels. However, accumulated earnings offer the potential for higher earnings in the future; by reducing debt and investing in necessary equipment, companies can achieve better financial performance and ensure the company’s stability into the future. Most long-term investors understand the necessity for accumulated retained earnings in order to maximize future returns. Paying down debt is especially useful for the company’s overall health, since it eliminates costly interest payments while improving the company’s bottom line profitability directly.

Accumulated Earnings and Profits

The term accumulated earnings and profits refers to a company’s net profits for the year less the disbursements paid as dividends to its shareholders. This figure is used to give an accurate snapshot of the company’s current profitability; it is calculated for tax purposes as well.

Accumulated Earnings Tax

The benefits of accumulated earnings do not come without cost. Corporations who retain dividends for investment or debt reduction are subject to an additional tax, known as the accumulated earnings tax. While this tax is assessed at the lower capital gains rate, it can still represent a significant deterrent to reinvestment of company profits at times. Because investors are often required to pay dividend taxes, upon occasion an influential group of shareholders may put pressure on a company to reinvest accumulated earnings rather than distributing dividends, thus deferring their tax liability. The accumulated earnings tax is also intended to provide an incentive for companies to pay dividends, rather than constantly reinvesting profits back into the company and avoiding the tax due on such dividends.

If the company instead loses money, it may incur what are known as accumulated losses. Since losses are never distributed among shareholders directly, these losses are instead offset against accumulated earnings profits to lessen the tax burden on the corporation. Shareholders feel the effects of accumulated losses in a lessened equity value for their stocks, not through payments or fees.

Statement of Retained Earnings

Companies that reinvest accumulated earnings or pay down corporate debt with them are generally expected to include a Statement of Retained Earnings within their annual financial report. Accumulated earnings are reported as part of the Stockholder’s Equity disclosures. Investments and disbursements other than dividends are explained and any changes or irregularities are justified to the stockholders. The retained earnings balance is calculated by adding net yearly income to the retained earnings carried over from the previous year, and then subtracting any dividends paid to shareholders.

After Tax Income

admin — Wed, 04 Nov 2009 18:16:13 -0600

After tax income is defined as the sum of money an individual or company receives after all applicable taxes have been deducted. This includes federal, state, and withholding taxes. After tax income is sometimes referred to as disposable income, since it is the amount that a company or individual has left over to dispose of as desired. For this reason, after tax income is sometimes referred to as consumable income. Most investments are acquired with after tax income; the rate for dividends is determined based on this figure as well.

Calculating After Tax Income for Cash Flow Analysis

For most corporations, cash flow is based on after tax income. Typically companies make use of an after tax income calculator that figures in all applicable taxes; this allows a more accurate calculation of the company’s available funds and provides a basis for fiscally responsible investments and distributions. For businesses, after tax income is calculated by subtracting estimated tax liabilities (or, for past years, actual tax outlays) from the gross income figure. Deriving an after tax income estimate can be challenging, since the local, state, and federal tax codes are considered to be some of the most intricate and convoluted legal regulations.

After Tax Income vs EBITDA and EBITDAR

Many measures of corporate productivity are based on earnings before interest, taxes, depreciation and amortization (EBITDA) or earnings before interest, taxes, depreciation, amortization and rent (EBITDAR). EBITDA and EBITDAR are used primarily to determine the basic profitability of the company’s operations; however, they do not provide a clear picture of the overall financial situation. A company whose EBITDAR reflects a slight profit may actually be operating in the red after estimated taxes are deducted from its earnings. EBITDA and EBITDAR are useful benchmarks for comparing performance between one company and another, but do not offer an accurate measure of the company’s actual financial status.

Taxable and After Tax Contributions to Retirement Funds

For individuals, understanding after tax income is essential for retirement planning. Contributions can be made to retirement accounts on a pre-tax basis or after taxes have already been paid. Since retirement benefits typically cannot be taxed twice, after tax contributions are available in their entirety for use at the time of withdrawal; by contrast, withdrawals from retirement accounts composed of pre-tax contributions accrue tax and are treated as income when they are processed and received. For accounts containing both after-tax and pre-tax contributions, several options are available to participants. The after-tax portion can be taken as a lump sum distribution and retained by the individual immediately. It can alternatively be rolled into a qualifying traditional IRA, which would consist solely of after-tax contributions For some individuals, a process known as Roth IRA conversion is feasible; however, this is a complex undertaking and generally requires the advice and assistance of a qualified financial advisor.

Advantages of After Tax Income Distribution during Retirement

Some investment advisors recommend making all retirement contributions on a pre-tax basis; the theory is that income generally drops during the retirement years, and the resultant tax liability will fall into a lower tax bracket than is likely during the prime earning years. However, most experts note that tax rates tend to increase over time, and focus on the guaranteed level of income provided by after tax income distribution during retirement. Because taxes have already been paid, retirees will not experience unexpected deductions from their retirement income. Additionally, calculating the after tax income distribution amount is far simpler from an accounting standpoint. For individuals planning for retirement, this can be a significant advantage.

Cash Accounting

admin — Mon, 02 Nov 2009 20:12:41 -0600

Cash Accounting Definition

The accepted cash accounting definition is an accounting method wherein sales are recorded at the time of payment and expenses are recorded at the time they are paid. Only when cash actually changes hands is the payment or expense recorded; this is in contrast to accrual basis accounting, which records credits when they are earned, rather than received, and debits when they are owed, rather than when they are actually paid.

The cash accounting method can significantly reduce bookkeeping costs, since it is simpler and less time-consuming than accrual methods. Additionally, companies that utilize a cash accounting system can easily determine their current profitability. By keeping a current cash accounting balance sheet, corporate finance managers can assess the company’s financial situation at a glance.

Advantages to the Cash Accounting Method

For tax purposes, there are definite advantages to the cash accounting basis for accounting. Cash accounting ensures that taxes are not paid on monies that have not yet been received; this improves cash flow and ensures that funds are available for tax expenditures. This can be especially important for individuals and small businesses where cash flow may be restricted at certain times. For companies that do a great deal of cash business and do not maintain large inventories, cash accounting is a convenient and reliable way of tracking expenses and profits without necessitating a great deal of bookkeeping.

Disadvantages to Cash Accounting

Because cash accounting is so simple, it does not allow for tracking the actual dates of sales and purchases. Additionally, it usually does not provide a means of matching these transactions to specific items of inventory. There are no accounts receivable or accounts payable records; this can create difficulties for businesses that do not receive payment for goods immediately, or have outstanding bills that have yet to be paid. Additionally, since partial payments are not recorded as such in a cash accounting system, the cash accounting balance sheet may not reflect all monies due. If meticulous records are not kept of these outstanding balances due or owing, then companies may not receive or make payments in a timely fashion, if at all.

Cash Accounting System Applications

For companies that are paid in advance for their services and must pay for their inventory at the time of delivery, cash accounting systems are sufficient and provide enough detail for accurate recordkeeping. For instance, a tanning salon provides services to the public, for which it expects payment in advance. Its expenses include tanning oil, which is purchased on a cash basis, and utilities, which are also due upon receipt of the bills. A cash accounting basis would be suitable for the tanning salon, since all of its financial income and outlays are already transacted on a cash basis.

By contrast, most large companies carry balances with their suppliers and must wait for payment for their deliveries. An accrual basis method is more suited to this situation, since it allows for better control of delayed payments and receipts, and provides tracking for partial payments, accounts receivable, and accounts payable, even when no cash has yet changed hands for the transaction. While some large companies still employ a cash accounting system for tax purposes, this is usually supplemented by an accrual system in order to maintain better control over expenses and revenues and to allow more complete and accurate financial reports for shareholders.

Capital Assets

admin — Mon, 02 Nov 2009 19:56:29 -0600

Capital Asset Definition

A capital asset is defined in the financial world as any asset used in the course of making money. For this purpose, machinery, factories, and manufacturing equipment are obviously capital assets; however, stocks, bonds, and other securities are also capital assets, since they are primarily used as investments in order to make money. For tax purposes, the capital asset definition is somewhat different, and applies to almost all personal property; however, for investors, the economic definition is more applicable and is the one under discussion here.

Capital Asset Ratio

For material capital assets, such as the aforementioned machinery, factories, and equipment, it is necessary to ascertain the actual income produced by these capital assets over their useful life in order to decide if they constitute a profitable investment of corporate funds. By applying the capital asset ratio test to capital investments, companies can determine the profitability of capital assets and ensure that corporate funds are used to best advantage. The capital asset ratio divides the sales produced by the individual piece of equipment by the cost of the equipment over a period of time, usually the estimated life of the asset. The term capital asset ratio is also sometimes used to refer to the equity held in an asset divided by the current value of an asset; this provides a quick method of deriving an estimate of the company’s investment in the asset in question. This is especially helpful when estimating probable return on investment of volatile capital assets with quickly changing values.

Capital Asset Pricing Model

Since capital assets are intended to produce income, the capital asset pricing model is used to determine an appropriate initial investment by estimating its risk and reward probabilities. This method is generally applied to securities, such as stocks and bonds, and compares the risk of financial loss with the likelihood of profit and the amount of such profit to determine the appropriate purchase price for those securities. While the capital asset pricing model is fairly complex, it essentially compares the risk of a specific security or portfolio with the expected reward; lower risk or higher reward increases the value of the capital asset or assets under consideration.

Capital Asset Protection

In order to protect against losses, many companies practice capital asset protection when purchasing securities, offsetting risky positions with safer ones in order to minimize the possibility of loss. This is known as a hedge position, since it is essentially hedging one’s bets about the likely returns on capital assets. Financial managers who practice capital asset protection invest in a variety of different financial outcomes to protect the company from overwhelming losses. By investing in some securities that offer guaranteed returns in a bear market and others that depend on a bullish economic outlook, companies can offset losses and ensure a measure of security for capital assets.

Capital Asset Management

Capital asset management comprises a number of elements, but is basically concerned with obtaining maximum profitability from corporate investments, regardless of whether those investments are material assets or securities. By determining the return on investment for capital assets of all types, capital asset management teams can offer accurate advice for future investments while ensuring that current assets create earnings up to their full potential.

Capital Appreciation

admin — Mon, 02 Nov 2009 19:42:45 -0600

Capital Appreciation Definition

Capital appreciation is defined as an increase in an asset’s value due to an increase in its market price. In simpler terms, the asset is worth more than its original purchase price, and can be resold at a profit if desired. Capital appreciation can be demonstrable, as in the case of stocks which can be sold for a higher amount than their purchase price at a given point in time. Projected capital appreciation is the theoretical ability of an asset to increase in value over the course of months or years. Capital appreciation refers only to the resale worth of the asset, not its ability to produce interest or dividends for its owners.

Capital Appreciation Bonds

Capital appreciation bonds are financial securities that have a defined value at maturity, but pay no interest to the owner until maturity. Also known as zero-coupon bonds or accrual bonds, these securities are bought at a fraction of their face value. Interest earned on the initial investment is reinvested, compounding the interest until the face value of the bond is met. Fixed interest rates guarantee a return on the initial investment, but will not increase if overall interest rates rise. This makes investment in capital appreciation bonds a bearish strategy, since the investor is essentially betting that the interest rate will remain steady or fall, rather than rise beyond the interest rate available at the time of purchase. As a result, these bonds are among the most volatile securities on the market, fluctuating in value inversely with the general economic forecast.

Capital Appreciation Fund

Some mutual funds are designed to produce profits mainly through purchasing securities expected to increase in value; these funds are known as capital appreciation funds or aggressive growth funds. By focusing on the projected capital appreciation of various securities, rather than the likely future dividends, capital appreciation fund managers generally make aggressive, risky investments designed to maximize profits. In contrast to capital appreciation bonds, these funds are considered bullish, since profits increase with upswings in the market overall. Essentially, investors are betting that the value of the securities purchased will go up, creating a profit either in the short-term or over the long run. One attraction of capital appreciation funds is the lessened tax liability they present; capital gains are generally taxed at a lower rate than interest or dividend income in order to encourage economic investment over the long term.

Calculating Capital Appreciation Value

While extremely complex algorithms are used to project the probable capital appreciation of securities, deriving the actual raw capital appreciation value is fairly simple. A typical capital appreciation calculator uses the following equation:

Capital appreciation = (gross rate of return) – (initial investment cost) – (yield).

This derives a raw figure for capital appreciation at the time of sale; it does not include ongoing cost figures or tax liabilities. While capital appreciation generally offers more risk than dividend-based investments, it also offers greater opportunities for profit than dividend income. For investors concerned with maximizing their return on investment, a mix of capital appreciation bonds and funds can offer a diversified portfolio and mitigate some of the risk involved.

Bankruptcy Trustees

admin — Mon, 02 Nov 2009 19:07:10 -0600

When bankruptcy is filed, the United States Trustee appoints a bankruptcy trustee to oversee the proceedings. The bankruptcy trustee serves as the mediator between the debtor and creditors, ensuring that both sides are represented fairly during the proceedings and working to protect the interests of all concerned parties.

Bankruptcy Trustee Duties

In Chapter 7 personal bankruptcy, bankruptcy trustee duties include oversight of the bankruptcy process, liquidation of the debtor’s assets and division of the monies received in an equitable manner among the creditors. The trustee must also be vigilant in guarding against fraud or deception on the part of the debtor and prevent creditors from engaging in abusive behavior toward debtors as well. Bankruptcy trustees are responsible for protecting debtors from unreasonable fees for liquidation and disbursement. They essentially act as good-faith guarantors for the objectivity of the bankruptcy process. Since bankruptcy trustee powers include the ability to refer cases to the prosecutor’s office, they can enforce an honest and fair settlement on both sides.

For Chapter 13 bankruptcies, bankruptcy trustee duties are somewhat different. The debtor typically makes one agreed-upon payment to be divided among all their outstanding debts; this payment is sent directly to the trustee. The bankruptcy trustee payment is then split into the appropriate amounts and sent by the trustee to the individual creditors. This process can be complex; as a result, bankruptcy trustee fees are usually higher for Chapter 13 bankruptcies than for Chapter 7 proceedings.

Debtor In Possession

Corporate bankruptcy cases are generally filed under Chapter 11 provisions and often substitute a debtor in possession for an official bankruptcy trustee. The debtor in possession is charged with bringing creditors together to assist in the reorganization process and constructing an equitable settlement for creditors. The United States Trustee selects a creditors committee that then must approve the final settlement; this usually negates the need for an official trustee, since the debtor in possession exercises the bankruptcy trustee powers on behalf of the corporate entity. If there is reason to believe that the debtor in possession is not dealing honestly with creditors, the United States Trustee may choose to appoint a trustee to continue the proceedings in an equitable manner.

Bankruptcy Trustee Compensation

Title 11, Section 326(a) of the U.S. Bankruptcy code allows for bankruptcy trustee compensation of up to twenty-five percent of the first $5,000 distributed and ten percent of distributions for amounts from $5,000 to $50,000; for larger amounts, bankruptcy trustee fees are restricted to five percent or less. If multiple trustees are involved in the same case, the restrictions apply to them in aggregate; the total amount paid to trustees cannot exceed the limits set forth in Section 326(a).

In cases where either the debtor or the creditors believe there has been bias or inappropriate behavior on the part of the bankruptcy trustee, it is possible to appeal the decisions made and in rare cases have those decisions reversed. Generally, the debtor or creditor must be able to show a violation of statute or a clear-cut case of trustee malfeasance in order to have any decisions overturned or reevaluated. Since trustees are appointed by the United States Trustee, the likelihood of a conflict of interest is lessened considerably, and bias is generally not a factor in bankruptcy proceedings.