All posts by Terrence Nguyen

Financial Modelling Techniques

A financial model though is a model restricted to a particular business type, should be in a clear format that is understandable by and for all. A businessman who is unable to make one of this type would definitely fail to understand the exact findings of the model because it would not have taken the real and exact understanding and perceptions of the others and the one that does not do or fulfill this is definitely not considered a good financial model. So what essentially should a financial model have in store for the onlookers?

  • Realistic data based on of course assumptions which are reasonable and productive. Something that is built on unrealistic data and numbers is not worth discussing or spending time with.
  • A model that is presented to the others in a clear term, something that does not confuse them instead, give them a clear idea about what the business expects from presenting this to the others.
  • It is something flexible and is possible to be adapted to the various business situations.

Techniques of the financial model

There are few important financial model techniques and none of these are particular to any specific type of business.

Historic data – the assumptions for a business are generally made based on the historical data and performance. So it is important to arrive at the right numbers which would give a realistic approach to the business and its future perspective. So it is important to gather the right information at the right time. It is fine if your accounts do not tally at the end of the year for you can sit and work on them to find the right and the exact numbers.

Assumptions – as specified above, a financial model is something that is based on assumptions. Now, these assumptions need to be very realistic as they form the inputs or drivers for the future plans and designs of the model of the business.

Color coding – this might look a very simple thing when comes to financial models and plans but it shows up as an important and essential thing when everything is looked up at the same time. Yes in such a situation it becomes important and essential for the business to denote its different plans and models with different colors so that it gives a clear idea about what is what and the best part is you or anybody from outside the business would be able to understand the same at just a glance.

Here is a foundation in cryptocurrency for you

You must have often heard the word cryptocurrency. If you are a trader then this term you must be reading in every website that you consider for trading. Do you clearly understand what it implies?

In the year 2012, the US Senator, Thomas Carper said at a banking conclave that virtual currencies a la Bitcoins have very well captured the imagination of the some of the great minds, while it has been able to strike fear among the others and capably confused the heck out of the rest of them.

It is possible that a lot of people are still using the term even without fully able to understand the term and since they do not understand it really too well, they are not in a position to appreciate it either or even the role that they play in the markets.

So, let us break it down into bite-size pieces so that it is easier to understand:

Bitcoin – the king of all crypto-currencies:

Bitcoin has not only been the pioneer in the field of crypto-currencies but it has also been widely regarded as the king of all crypto-currencies. It has been the forerunner of thousands of spawns that have developed once the concept of cryptocurrency became a hit. Satoshi Nakamoto, a computer hacker still unknown in identity is the person who is attributed with the invention of the bitcoin. The irony is that he never really intended to make a currency!

In a website in 2009, Nakamoto introduced his cryptocurrency bitcoin as a peer to peer electronic cash system. In a way, it was the precursor to the digital cash era that has rung in with the millennium.

How is cryptocurrency different from the normal currency?

When normal currency is transferred it has to pass through a centralized authority like a bank or a financial institution which entails double spending while cryptocurrency can totally prevent this double spending by doing away with any server or central authority. Therefore, it is right to say that it is completely decentralized currency.

However, confirmation by the peers is crucial for the transfer:

Since the currency is a peer to peer transaction called the blockchain, every peer’s confirmation in the chain is extremely important in order that the transaction is completed and set in stone. As long as the confirmation is pending by even a single peer in the blockchain it can be forgeable and therefore not immutable. The peers who confirm the transactions are called miners. They are responsible for confirming the transaction, stamping it as legit and spread in the network.

Mutual funds based on the time period

Many of us are so comfortable with banking investments vehicles that we never try to look at opportunities that are out of this world. The interest and returns in the bank are though low, we feel a sense of safety in the bank.

But, a larger part of Americans is never dependent on banks unlike in Asian countries. They seek out investments in the markets, which offer them lucrative returns and also gives safety to their invested amount.

Investing in markets has too many options, like stocks alone, mutual funds, debt to other companies, bonds, investing in commodities and so on. But, what is one thing that suits the majority of the population? It’s Mutual Funds!! The reason is that it starts from as low as 100$ and can go up to thousands and lakhs.

With so much spoken about mutual funds, let’s highlight on the various types of funds that are available so that you can learn the type that suits your budget and meets your financial objective at the end.

Mutual funds are mainly classified into 2 categories, 1 based on the time frame; and the other based on the financial objective. We shall talk about the time-frame based funds here.

The time -frame based funds:

Open-ended scheme:

This kind of a fund is the most sought after, as the name suggests that the fund is open for subscription and redemption anytime, there is no time-frame to gain entry and exit. This kind of fund gives you a liquidity anytime you need to redeem back your shares for money. It’s the best mode when you don’t have any other spare cash to rely on.

Close-ended scheme:

This one as the name says is a close-ended fund that has a maturity period and an entry date fixed. You can’t subscribe at any point in time, however good and great the scheme is! These funds are available for subscription only for a few days’ time, at the time of launching and have some lock-in period.

Interval scheme:

This one has an interval to enter and exit from the fund. It’s a combination of both open and close-ended funds. Here, the entry and exit can be done only at a specified interval, as specified by the scheme.

So, you get the allotments in NAV. NAV is the Net Asset Value is a term coined by the Asset Management company to let you know how much units you hold in that particular scheme or fund.

 

 

 

 

Principles Of Hedging

Trading in stock market is like a high school topic for all and so are the terms like currency, share market, stock trading, equity etc. There is one term that brings in a slight confusion and different angles of representing. That is hedging, a comparatively less touched upon the aspect of stock trading, primarily due to its first look at being a very advanced investment. However, in reality, the principles and strategies of hedging are quite simple and is different from hedge funds.

Hedging is acceptable and a part of your routine life

You may have abruptly cut calls from insurance companies or agents, but still know that in this world of uncertainties, having an insurance cover always adds to your security. Let it be your vehicle, your home, your job, health, your family’s future or your well-being; insurance now covers almost all aspects of human life. You transport your household furniture with the security of insurance, and you purchase a travel ticket having an option of getting insured. If so, why should you consider investing in hedging as an inappropriate concept? It is a kind of lifeline in the share market, which is a risky business in itself. Hedging is also a kind of insurance that gives protection against possible heavy losses in share market investments. That is, it reduces the risk factor associated with these kinds of investments and also helps in increasing the earnings.

Hedging Examples

Pairs trading is a type of hedging in which you can surpass industry risk by simultaneously investing in two industries of the same sector and exercise two different options. In this way, the loss you can incur due to volatility in the sector market can be compensated by the two ends of the investments.

Take the example of branded textile manufacturing industry. You invest in one company having an excellent history and present performance that makes cotton clothes. Here you go for a long option and invest in a company manufacturing synthetic clothes by going short. The demand for branded clothes depends on the higher income groups, seasons and taxation policies.

Both the companies might be making high profits giving you good leverages but a sudden inflation, economic slowdown or peace violation might result in the mass loss of high-end jobs. This result in reduced takers of branded clothes and the entire industry take a hit. The loss you make by going long in the cotton textile company may be compensated by the income you make by going short in the synthetic textile company. This is how hedging saves your day.

Safe Investments In Stocks

 

It is fact that everybody knows that investments in stocks and bonds are a good and advisable way to make long-term profits and income. It is like any other investment option that becomes one of the best options to diversify the investments. Of course, we have the bank accounts like the savings account and fixed deposits but the returns that we can expect from them is not very high especially when compared to the investments in stocks and bonds. So when comes to such decisions, it is always important and essential that we take even the stock and bonds as an option into consideration and apportion a small part of our investments in these.

First-time investors

When we make a decision to take up stocks and bonds for our investments, it is necessary to look into many factors. Now, this is even more important for the first time investors. There are a lot of options when comes to selection for investments amongst the various assets and stocks. This is, of course, a very time-consuming process but it is an essential step for all the investors. When a person buys stocks or shares for a company, it is like he is buying a small portion of the company and hence he becomes responsible to keep them active and high. So it is equally important to the examination or an initial analysis that is conducted before starting a business.

Components of a safe investment

It is not just about the investments that we make but it is about how safe we make this for there are hidden perils in every investment and making the best choice from them is mandatory. It should be a safe and a smart investment. Now below are few important things that determine the safety of a stock.

  • There is a constant growth factor in the stock option selected for investment. This is something that every investor would expect the stock to do for him increasing his value in the share.
  • Stocks that have a good reputation and status in the market. It is expected that investors go for such stocks when they think of making investments in the stock market.
  • The prices are fair and are kept open for all types of investors. Such options would make it simple and comfortable for the investors to manage their financial commitments easily without foregoing their interests in shares and stocks.
  • Shares of the company that would pay a part of its profits as dividends.

Here is why Fintech matters to the business world

First of all, what is Fintech?

A tech guru was heard saying at a university conference that while a lot of people love throwing in the word ‘Fintech’ in their conversation to sound upmarket and educated, he realized that not many people understood the meaning of it and while the meaning itself is so inconspicuous, it is difficult to say that people, governments, and entrepreneurs even understand the implication that Fintech has on the business, society, life and on the nation as an entity!

So, the task of defining the term:

Jens munch, a famous financial honcho says that Fintech is the term that is usually applied to the segment of the technology and its start ups which is now in the process of disrupting existent sectors such as payments made through smart devices, transfers effected online, granting of online loans, fundraising done through the virtual world and asset management done via the internet and most of the time the transactions are done in real time bridging the gap between finance processes that took longer time and technology that makes it as easy as click of button.

How Fintech has taken the business world by a storm:

If you have even noticed that today it is not just cheaper for people to set up their own businesses but it is also the best of times to expand it. The businessman today is spoilt for choice. He does not necessarily have to turn to only his local bank or the random investors for setting up his shop or for expanding. He has so many other options in his kitty. Have you heard of crowd-sourcing, group-funding, and mobile payments?

No doubt that Fintech has absolutely revolutionized the way the companies do/can do business today.

Let me explain crowdsourcing to you:

Traditionally, a businessman who had the great idea would approach a bank for loans to aid his capital or pull out the issue for investors to pool money. These are long-term processes that can take months and even years to materialize.

Today, if an entrepreneur has a Eureka moment, he needs to only pitch it on the internet. If his idea rocks and catches the fantasy of people on the internet, and he possesses the Midas touch, he can receive funding from people all across the world that bank on his idea and have never even seen him! Such is the power of using the internet that many businesses have reached the pinnacle of their success only because someone or some people sitting across the globe thought that this startup with a brilliant idea is a good place to put his money. And it was!

IPO UPS and DOWNS!!

 

IPO that abbreviates for Initial Public Offering is one of the ways of a company to fund their new project or raise funds for improvements by offering some shares to the common public. We have heard a lot of many companies go in for it and the stock values and prices go high and high with every passing time, while few of them may fluctuate.

So, why should you subscribe to an IPO? Is it all worth your money and time? Well, read here to know about the good, up and downside of IPO’s.

The first and basic advantage is the company gets fund and enough capital to continue its growth and invest in any other necessities of business. Here is the list of other advantages:

 

Access to Huge capital:

Any company can’t take loans beyond capability, through its performing great, simply because it may be out of rules and also may be people are not interested. But, by authorizing the IPO, a company gets access to a huge number of potential investors and each one can invest up to their potential.

Rather than depending only on a certain number of people, opening an offering to the large public is always the best idea, and has proved from time to time that it’s the best option to raise big fund.

 

Stock and Company Value:

By opening an IPO, you give the general public a share or unit in your company holdings and with that, your company stock value to increases. In general, without a company being listed in the market, no one can gain access to the stocks. By opening an IPO, you can reward your employees with these stocks which will improve your value in the market and if you are already performing great, you will see that your IPO listing itself will add more value to existing one.

 

High Image in the market:

Once a company goes in for IPO, the value of it amongst their clients, customers, and general public goes high. The logic behind is that, when you are listed, you are thoroughly checked by the organization authorizing the markets and gives a strong message to the public that they may rely on the company proceedings and park their investments in the company stock. As more investors seek investment, the stock value to increases, automatically adding value to your company.

Now, let’s see the downside:

  • The hefty fee to be paid as a company to be listed in the market.
  • IPO listing can go undersubscribed if the public is not aware and underestimate the company.
  • May lose some valuable information to the competitors.

 

 

 

 

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