Understand All About IPO News

October 5, 2016 Finance Tips

If you are wondering about the stock market and recent IPO news, you have come to the right spot! We want to help you understand IPO information a little better and get you prepared for the stock market. Being in the know-how of an IPO company and the news surrounding it can help you make better decisions with the stock market.

What is IPO News Exactly?

Initial Public Offerings (IPOs) are essentially when a company “goes public” for the first time and opens its stocks up to the public. This could mean several different things, but for companies looking to do this, it means they are looking for more capital to continue to grow.

IPO Benefits for CEOs

If a CEO puts up their recently priced initial public offerings, it usually means that they are looking to grow their capital. When they are able to put their product on the stock market, it usually means that it has gotten too big to be able to sustain itself from the inside. So investors look at the CEO to outsource its funding source through the use of IPOs.

When a CEO goes public, they often control a large percentage of the stocks because they want to remain in control of the company. They are then able to convince others — like executives — to come join them without offering much salary, rather offering the IPO stocks which will be much more in value than getting a pay check once they are able to sell these stocks.

For most companies, this is the only option left to continue their growth process.

IPO Disadvantages for CEOs

For a CEO who just went released their IPO news, they are likely going to be under a lot more scrunity than if they were privately operated. They don’t have to release all of their information if they are private. However, once a person employes an IPO company and gets the process started, they have to release all information related with their business to the public.

This is the only way that people who are buying stocks from the company, can assure that they will get more money on their return than anything else. So for a company looking to keep their business strategies and techniques a secret, going public is not a good idea.

In addition, after getting IPO service and getting most of the stocks, CEOs can’t sell off their stocks and really cash in on those because it will look bad on the company. It can also make a CEO lose majority hold over his company and force the control into another persons’ hand. This is something every CEO fears and is why most won’t sell their stocks.

Advantages for Stockholders

When the initial IPO news is broken, you have the opportunity to buy them immediately. If you purchase the IPO stocks within the first day, you are guaranteed to usually get an investment return within a month. Most IPOs skyrocket in the first few months because the growth of the company becomes so transparent.

Although you have to wait 30 days after the release of IPO news to sell the stocks, which can cause prices to drop dramatically, this is still a good option, especially for people first looking to invest in the stock.

Read Up On Each Company First

It’s important to learn about a company first before deciding to purchase stocks from them during the break of their IPO news. Although going public is usually a good sign for a company, it doesn’t mean they will thrive and you could potentially lose all the money you made on your stocks.

Hiring a person to help you understand IPO news and how you can manage yourself through it is advisable. As a beginner, you don’t need to be troubled with how the market works. Your focus should be on understanding the essentials of trading and how you can be a success in the bond market. Get help with your financial future with an IPO company that cares.

How Can I Pay Off My Student Loan Debt?

September 28, 2016 Finance Tips

Are you interested in cash for your structured settlement? If you’re not sure what a lump sum payment is or how it works, you may want to continue reading below. More and more Americans are struggling with debt nowadays — from medical bills to student loans, the various factors that can sink you into thousands of lost dollars seem never-ending. With a structured settlement annuity you can see your debt gradually paid off over a fixed period of time with minimal interest and fuss, allowing you to get back to your life sooner than you thought possible. Let’s take a look at how this process works and whether or not it’d be right for you.

What Are The Most Common Forms Of Debt?

While debt can occur from many different situations, there are a few that are becoming increasingly common for the average American. Nearly one in five Americans under the age of 24 describe themselves as being in ‘debt hardship’, after all, so it stands to reason this is becoming a foundation everyone can relate to. Over 70% of Americans believe the greatest debt stigma concerns underpaid credit and debit cards. Medical bills, student loans and home payments are also common sources of debt hardship for many.

How Do People Generally Pay Off Their Debt?

Some choose to save up their money gradually, while others attempt to use whatever resources are at their disposal to shave away at stubborn debt. The average American household with debt carries over $15,000 in credit card debt and a whopping $129,000 in total debt — although household income has grown by 25% in the past 12 years, the cost of living has nearly doubled. Even now one of the most effective and popular methods of getting rid of excess bills and fees is getting cash for your structured settlement.

What Is A Cash For Settlement Payment?

Also known as a structured settlement annuity, selling a structured settlement is an incredibly effective way of tackling debt in a gradual manner. The average structured settlement payout in the United States is around $324,000, with over $6 million paid each year to fund new structured settlements. In fact, it’s been found that consumers vastly underestimate or overestimate how much debt they have — as of 2013 lender-reported credit card debt was a stunning 155% greater than overall borrower-reported balances.

What Is A Lump Sum?

Similar to a structured settlement annuity, a lump sum is a fixed payment you can receive to help pay off your bills. More than 37,000 Americans use structured settlement money on a yearly basis and over 90% of claimants who sell their structured settlement are ‘very satisfied’ with their decision. When the average American household pays a total of $6,000 in interest every year, it helps to have something you can rely on to reduce your day-to-day stress.

What Is An Annuity?

Compared to the one-time payment of a lump sum, an annuity is paid over a period of time. Selling off an annuity can surrender charges of around 10%, but the trade-off is a more feasible way of tackling your debt. Structured settlement payouts can reach over a $100,000, which is perfect for when medical bills and student loans are getting too high. If you want to get started on the right track to getting cash for settlements, look below for some simple tips.

How Can I Get Started?

Consumers have a wide variety of options for reducing pain and eliminating credit card debt, according to financial experts. Since a low credit score can impact your ability to apply for loans or buy a home, one of the first things you want to do is go to the source — a survey conducted by CreditCards.com found that people were able to successfully waive fees 80% of the time when meeting with credit card companies, allowing them to eventually balance out their score. Personal loan rates can be as low as 5% if you have a good credit score, giving you convenient monthly payments with accessible interest. Debt isn’t forever — with a structured settlement annuity, your goals can be realized in good time.

Three Ways Professional Debt Management Services Help

September 25, 2016 Finance Tips

Today, debt is an easy trap for anyone to fall into, and it has become inevitable for many people. The average household in U.S carries about carries $15,355 in credit debt. If you have been hit by a debt snag, and it is really twisting you, then it may be time to get some help. You can get the help of a professional debt management service before the who thing impacts your credit score. There are several ways these services can relieve the burden of a debt by focussing on debt negotiations, financial planning, and payment distribution.

1. Debt and Credit Counseling

First, it is important to understanding the financial situation of a debtor. This is the essence of debt counseling. It strives to highlight the details of the debt and the different expenditures a person has. By outlining the current budget of the debtor, a debt management firm helps to identify options and ways the person can use to reduce their debt.

Normally, one has a contract that stipulates the details of the debt management process and the timespan for the process. Throughout the term, the debtor needs to seek counseling to find more ways to cut the debt.

2. Payment Distribution

With a professional debt management service, you don’t need to keep track of the due debts and minimum payments. The service handles all the bill payments, paperwork, and phone calls, so you can have peace of mind. Throughout the contract period, the service maintains contact with the creditors to see that the debt is settled in full.

Still, this should not be a reason not to monitor your debt. It is necessary to continue keeping a close eye on your debt to see that the company is on track. This also helps to understand what areas affect your financial life and how the can be handled.

3. Professional Negotiation

Working alone on debt management can be quite a tricky process, especially when you have to deal with several creditors. With a professional debt management company, you get to enjoy the power of negotiation. In situations where the debtor has failed to pay a loan for a particular period, the interest continues to accumulate making it even more difficult.

With a debt settlement help, you can enjoy reduced interest rates, payments or even a lower total amount if your case is reasonable. However, it is important to note that creditors are not obligated to reduce the fees and the debtor is still expected to pay taxes on the loan amount even if the debt is forgiven.

Debt management is a lengthy process and the time depends on the amount of the loan a debtor is expected to pay. The other important aspect is the dedication of the debtor and the money sources that should cover the debt. Therefore, careful planning and commitment are essential to ensure the whole debt is sufficiently paid. With a debt management professional, the whole process is simplified to allow the debtor to focus on rebuilding their lives and planning their financial situation.

The Basics Of Initial Public Offerings

September 8, 2016 Finance Tips

Initial public offerings are about more than business decisions. An IPO represents the moment when a company transitions from being small-time to running with the big leagues. Certainly, it can be frightening for any business owner. But it also opens up companies to new and exciting opportunities that would be otherwise impossible to even imagine. Still, there are business decisions to be made, and plenty of tasks to handle — from quarterly snapshots to secondary offerings. There’s a big difference between running your company’s daily tasks to making it public. This is why many business owners choose to hire professional help when opening their company to the public. In this case, they’ll often end up looking into an IPO firm. IPO firms employ prime brokers, and can therefore offer prime brokerage services. As exciting as IPOs are, however, they also make or break the future of some companies. Below, we’ll look into the basics of IPOs — what they are, how a business can ensure a better possible outcome for their IPO, and much more. You would be amazed by how much a difference small details can make. The information attained from a quarterly snapshot could completely change the way you plan your IPO.

The Basics Of An IPO

It’s not as if you can simply open your company up to the public and hope for the best. There are plenty of things you need to do when conducting an IPO. There are quarterly snapshots to consider, as well as the all-important lock-up period. The lock-up period is a legally binding contract between the underwriters and the insiders of a company. This prohibits them from selling any stock for a specified period of time. Depending on what they agree upon, this period of time could last anywhere from three to 24 months. Another thing to take into consideration is how much of the company is going to be offered up in an IPO. This could be another thing judged in part based off of a quarterly snapshot. Usually, an IPO involves offering up about 10% to 15% of the company. This ensures that the owners still have enough stock to exert the control that they need to over how the company is run. The prices of an IPO will be, on average, 13% to 15% less than the trading price. Now, there is no way of looking into the future and knowing how an IPO will turn out. But there are ways in which you can make a good prediction.

Understanding The Probability Of Your IPO’s Outcome

Think about how the market is going before you take your company public. Typically, an IPO will go well if the markets are going well. If you have reason to believe that the SandP 500 is going to reach double digits next year, the IPO will likely outperform that benchmark. Think too about those who benefit from IPOs. They usually benefit institutional investors willing to buy large amounts of stock before the company’s debut. They can provide companies triple-digit gains on their first day of trading. One of the simplest ways of understanding how your company is going to do following an IPO is by looking at how similar companies have fared following their IPOs.

Looking Into The Outcomes Of Other IPOs

In recent years, many strong private companies have gone public. For example, the makers of Fitbit offered 36 million shares at a public offering valued at $741 billion. Their stock has since risen by 50%. Fitbit is proof that you can value your company with a strong estimate and succeed. Other top-performing companies include Etsy Inc., which opened up 94% from its indicated price and Shopify Inc. which opened up 52%. If your company falls into this sector, you can take cues from these companies. If it doesn’t, however, you should look to past IPOs from companies that do fall into your sector for guidance.

Who, What, Why and How of Settlement Payments

September 2, 2016 Finance Tips

If you have recently won a settlement or inherited a large sum of money, you know the annuity and lump sum differences. You have several payout options when getting a lot of money and you shouldn’t feel limited to simply abiding by what you’ve been told you should do. Here are a few considerations to think about.

Why Selling a Structured Settlement Helps
This will be the first choice you have to make. Annuity and lump sum differences basically come down to this: Annuity gives you the payments over time, be it monthly or annually. Lump sum gives you the money all it once. How you decide to get the money really depends on what you want to do with it. If you don’t think that you can handle having all that money and are afraid you wouldn’t use it wisely, then you don’t have to sell your annuity payments. However, if you want to purchase a house or travel or go to college or pay off debt, then getting the money as a lump sum might benefit you a little more. If you got the amounts annually or even monthly, you would likely have to save up to do any of the above mentioned things just like you would if you were making a regular income.

What the Annuity and Lump Sum Differences Are
Now, keep in mind that just because you have decided to sell your payments does not mean that it will not come without it’s own set of disadvantages. There is a good side and a bad side to both options. The problem with getting a lump sum is that overall, it might actually give you less money than if you got the amounts incrementally. However, you probably wouldn’t even notice because you’d never have all your money at one time getting it through annuity anyway.

Another difference is that by getting annuity, you deal only with your lawyer and their lawyer and the courts. If you decide to sell then you will be adding in a third party to the decision making process. Keep in mind, however, that they are only around until you receive your funds and then you don’t have to deal with them again.

How to Make the Right Decision
The best thing that you can do for yourself is get a financial adviser. You could even take it one step further at hire someone to completely manage your finances for you. This way, you could sell your payments, get the lump sum and not be afraid that you are going to use it unwisely. The only catch here is that you need to listen to your money manager or adviser. Realize that you hired them for a reason and if they advise you against making a certain decision then you need to abide by what they say. They are not going to force you to make the right decisions. The money still does belong to you and you have the final say but the reason they are there is because they know how to deal with money and they even know how to make it, make you more money.

Who Not to Listen to
It’s common for people coming into a lot of money to hire a money adviser but then spend all their time getting advise from family and friends. Unless your family and friends have as much money as you now do, they will not be able to give sound advise. Loved ones are well meaning and want to help but unless they have the experience, they might be leading you in the wrong direction.

When You Should Make the Decision
You are probably on a time limit with the courts. Speak with your lawyer about when you need to decide how you’ll receive your payments. Keep in mind that if you do decide to sell your payments, then it might take somewhat longer to receive it because the buying company has to have a little back and forth with you and a judge in order to make sure everything is done properly and in your favor.

The bottom line here is, listen to your lawyer and your financial adviser regarding annuity and lump sum differences and you can’t go wrong.

Smart Investment Tactics — Investing in Real Estate Investment Companies

August 31, 2016 Finance Tips

If you have done for yourself in life and consider yourself financially well off and independent, there are quite a few things you can do to ensure that your money keeps growing and does not sit idle. For the relatively wealthy, astute and smart investment is a great way to maximize the potential of wealth and get solid returns on carefully thought out investments. If you are in a situation where you are wondering about a possibly viable investment option where you can put your money to work, considering real estate investment companies might well be a smart choice.

So, what is the real estate investing model like? What exactly do real estate investment firms do? These firms are actively on the lookout for real estate projects. Projects might include high value development projects, or scenarios where a pre-existing property or land can be purchased, knocked down and higher value property can be built in its place. Real estate investment companies scout these projects, and when they see something viable, they call in expert investors to invest in these projects. The investors fund the project and get commensurate returns from out the any revenue that the project might bring in the future.

If you have now understood the basics of investing in real estate, you might also want to know more about the kind of prospects that could possibly be waiting for you down the line if you decide to go down this route. For that, it is necessary to take a look at certain statistical data. Facts indicate that the real estate investment business plan is something of a boom market currently, with almost 40% of high value investors actively planning to increase their holdings in the next calendar year.

Income levels can also be surmised from the fact that over a third of real estate investors have an annual income in excess of $75,000 a year. From these data, it is possible to comprehend the lucrative nature of the real estate investment model, and if you are convinced, you can start looking at real estate investment companies to find the right people to invest with.

One of the few proven smart ways to invest in real estate is to look for a company which adeptly managed dual responsibilities, that of real estate investment fund managers and real estate developers as well. With both responsibilities residing within the same company, a lot of outside and middleman costs can be avoided, and projects can quite easily turn out to be more profitable, which means better returns for investors. Finding such a company might take some research and a little street smartness, but the efforts are likely to be worth it. With the right company to invest in, your money can quite possibly grow at a faster rate than many other traditional investment options and their rates of return.

When you are looking at real estate investment companies to find the right one for your needs, one of the things that you need to do is take a look at the past projects of the companies you are trying to assess. A quick look at the kinds of projects a company has undertaken in the past and the kind of returns they have brought to the table is a sure way to determining which particular company can be the most productive to do business with. Other considerations can also include geographic affinities, as certain parts of the country are more in the middle of the real estate boom than others, and competency in both investment fund management and development.

Finding the right company among the real estate investment companies you consider can provide a serious boost to your investment portfolio. Not only does this provide your portfolio with a level of diversification, but it also opens the doors to the world of real estate investment for you — a thrilling and potential-filled market that you can explore to your heart’s content and enjoy the rewards.

With these considerations, it should be easier for you to take your first steps into the world of investing in real estate with the right real estate investment company.

Are You Looking for a Way to Improve the Accuracy and Speed of Your Company’s Payroll Process

August 24, 2016 Finance Tips

The summer is winding down and employers around the country are looking for workers to fill the spots of college students who are returning to college. And while filling these open jobs is one task, another task is the variety of services the payroll provider must complete to bring new employee on board. Cutting the last paychecks for summer workers, gathering the necessary tax information from new employees, and sending the trial information for new paychecks for new employees.
For many companies, both large and small, outsourcing to a payroll provider is the best solution for meeting the demands of a new work force starting at the end of a summer staffed by college students. All new employee hires require extra work by payroll providers, but major transitions like those that happen at the end of a summer can create even more work.
Is Your Business Looking for a More Efficient Way to Process Payroll and Employee Benefits?
There was a time when the biggest decisions an employer had to make was how much they were going to an hour and how often they would cut checks. In those much simpler days the checks could be cut and handed out on the same day. Whether the checks came once a month or once a day, the entire process was pretty simple. This is not the case any more.
With complicated tax tables and pretax deductions, the process of payroll for small companies, as well as large companies, can be complicated. And while companies can purchase their own software to determine taxes and other deductions, the accuracy demands that the software is updated every time there is a tax code change.
For many companies, the decision to outsource to a payroll provider is any easy one to make. In fact, more than 85% of certified public accountants recommend that even small businesses employ professional payroll providers. These providers can make quick work of the most complicated payroll services, including overtime pay for exempt employees.
Companies that make the decision to find a payroll outsourcing provider only have a single report to approve and only one invoice to pay. In addition to receiving payroll services, these outsourced companies can also provide offer Human Relations Management, Employment Standards Association (ESA), and Occupational Health and Safety (OHSA) compliance, and government remittances. Complications that can add hours to the tasks that would need to be completed by in house bookkeeping staff.
What Is the Purpose of the Company That You Own?
Do you own a family operated dry cleaning company? Does your business offer home design plans to new home buyers? Maybe your business installs fencing, deck, and other backyard additions. In all of these cases, and the majority of other businesses, payroll is not the main function. Why then should your company continue to spend so much of its time on payroll services?
One of the main reasons that businesses decide to outsource their payroll is so they can instead focus on the primary goal of their business, be it dry cleaning, architecture, fencing, or a variety of other services. In addition to allowing companies to do what they do best, outsourcing payroll tasks limits mistakes that can happen. For instance, business owners who manage their payroll themselves are tasked with responsibilities of totaling hours, performing gross-to-net calculations for each employee, calculating and depositing payroll taxes, and preparing and filing tax returns. All of this, of course, has to be both accurate and timely. Even a small mistake can be complex and expensive. Rather than taking on these risks, some business owners simply hire someone else to complete the payroll tasks.
The end of summer and the beginning of college classes is just one time that businesses and employers find themselves looking for new workers. Other times that require additional, and often temporary, hiring is the holiday season. The large task of submitting all of the necessary tax forms for these new employees can be very time consuming and costly. Rather than having to constantly update the necessary payroll information themselves, many businesses make the decision to hire a payroll provider service, avoiding the risk of costly mistakes.

Top 7 Benefits to Using a Currency Sorter Machine

August 9, 2016 Finance Tips

There are countless ways in which advances in technology is improving our lives and at our places of business. In 1980, the first fully electronic cash counter machine was introduced in Great Britain. Currency counter machines can count paper money or batches of coins. These machines are really a combination of a money counter machines with a business scanner.

How Using Cash Counter Machines Can Help Your Business.

It will save you time. When your employees count the money they receive, they do it an average of three times. They also do it a lot slower than money counter machines can do it. Currency counter machines can count a lot of cash in just a few seconds. When you take the longer counting time that is required when people are responsible for counting cash, then you multiply that by three, you can see just how much time is saved by using a cash counting machine.
It will improve the customer service that you provide. When your staff no longer has to deal with counting and recounting the cash that you receive, your employees can spend that time providing your customers with better service. They can also help more people because they are not wasting their time counting and recounting all that cash that your business handles.
Currency counting machines are much more accurate. Even when people count and then recount and repeat that, mistakes are very possible. Anything can distract a person during the counting process and then have to start it all over again, elongating the process and taking up more valuable time that they could spend doing other things. By contrast a currency counter with a business scanner can take a pile of banknotes and collection of coins and count them accurately. They have an accuracy rate of 100%. Many machines can give you a breakdown of what denominations of the bank notes and the coins have been counted. You can set the machine to give only the full amount or a breakdown of all the different denominations that were received.
Currency sorting machines and business scanners can find counterfeit money. Counterfeit currency is huge problem for a lot of businesses, especially businesses that work a lot with customers and clients from different countries. Nations like to switch up their currencies fairly often to prevent counterfeiting. It can be hard to keep your employees up to date on all of the changes that are made to different currencies. The money counter can be programmed to spot bad bank notes and coins instantly. This takes a lot of pressure off your staff and can save you a lot of money. Taking counterfeit money can cost your business a lot.
Cash counting machine are very easy and simple to use. Some companies worry that the technology of the currency counting machine will be too hard to use and that their staff will need a lot of specialized training. This could not be further from the truth. Today’s currency counting machines have automated start and stop systems. Once the notes and coins are inserted into the machine, it will start counting automatically and then when it is complete, the machine stops and displays the final amount. Many currency machines have large and easy to read LED displays to show the amount of money. These machines could not be easier.
These machines can tell you whey they are broken. Today’s currency counter machines have software that can alert you when there is a problem with the machine or the software it used. This can make it easier to trust the machine’s accuracy.
Cash counting machies are convenient. You can get a portable cash counter if you need that. This can be useful if you need to take in money at a location away from your main business address. They come with back up power sources so that they can continue to work when you experience a power failure.

Any business that handles a lot of cash, whether it is one currency or money from multiple countries, can benefit from using a currency counter with a business scanner. They save time, money and will improve your bottom line.

If Your Business Handles Paper Cash and Coins, You Need a Currency Counting Machine

August 8, 2016 Finance Tips

If your business handles cash and coins and you do it by hand, you know how much work that is. Many businesses use currency sorting machines to handle paper money and coins. These machines have been in use since 1980 when they were first introduced in Great Britain. The cash and coin sorter and counter machines can be very useful for a number of reasons.

Using these machines prevents counterfeited money from being used at your business. If you have a lot of people coming from different parts of the globe, it can be hard to rely on staff to catch counterfeited money as it passes through. To cut down on counterfeiting, countries change up their currency all of the time. Even the most dedicated employees may have a hard time keeping up with all of the changes. Currency counter machines can detect counterfeit currency much easier and can be programmed for a number of different currencies. This will take the pressure off of your staff and cut down on your losses due to fake money getting into your system.
A cash and coin sorter and counter will save you time. When your employees are responsible for counting all of the paper money and coins, it takes a long time. Part of this is because it just takes longer for a human to count currency than a machine. Much of the delay is caused because people will double and triple check their work. No one wants to make a mistake so they count cash money and coins at least three times The longer process is multiplied by three and time they could spend helping your other customers is lost to this time consuming process. The cash and coin sorter and counter machine will count everything, then display the final amount on a large and easy to read LED screen. By using a machine to count the paper money and coins, your employees will no longer have to stay late and that will reduce your labor costs. This is just another benefit to using these machines.
Currency sorter machines are more accurate. When you have a cash and coin sorter and counter, it will be far more accurate that your staff at counting paper money and coins . When you are counting large amounts of cash and coins, it is entirely too easy to make a mistake. This is why people redo their work so many times. The machine can do it all very quickly and with a degree of accuracy that people cannot match. You get your cash and coins counted right the first time. There is no need to recount. Remember that mistakes caused by human error can end up being very costly for your business. They end up hurting your bottom line. Having a machine do your counting and sorting will increase your profit margin.
Your employees’ hands will stay cleaner. You have no idea where all that cash and those coins have been but you can see how dirty they make your employees hands. Coins are especially dirty. Anyone who has ever played the slots at a casino can tell you how dirty the coins get. We live in a time when infectious diseases are everywhere. From the Zika virus to a host of others, you can protect your employees from dangerous pathogens and just keep them cleaner by using a cash and coin sorter and counter. They will thank you for it later for sure.
Theft from employees will be reduced. No one likes to think that their employees are stealing from them but it happens all too often. This can potentially be a big cause of any loses your business suffers and anything you can do to cut down on it will have a positive impact on your bottom line. Using an electric cash counter makes it a lot harder for your staff to steal cash because they are no longer counting it. It is pretty easy to steal cash when you are counting it.

Investing in a currency counter is a good way to cut your loses from theft and counterfeiting and improve your company’s bottom line.

The Challenges of Conducting a Business Valuation for a Bank

August 5, 2016 Finance Tips

Conducting a business valuation for a bank can be particularly difficult. The financial statements of banks are unique and unlike those of other industries. As such, determining the company valuation of a bank takes an unique approach.

The financial statements provide many key inputs to the business valuation process. The two most important statements needed are the income statement and balance sheet. Banks use mark-to-market accounting whereby assets and liabilities are carried at their fair market value. The result of this is that what would be unrealized gains and losses in another industry are actually realized on a bank’s financial statements.

Another key difference between the balance sheets of banks and operating companies is that banks do not distinguish between short and long-term assets and liabilities. Most of a bank’s assets are cash and cash equivalents, including cash kept on-hand in the company vault, deposits held at other banks, and any Fed Funds sold. Other assets may be investments securities or loans. Liabilities, on the other hand, are primarily deposits but may also include any Fed Funds the bank purchased.

A bank’s balance sheet can be particularly confusing because unlike in other industries where cash is the byproduct of selling products or services, for a bank, cash is both the raw material used to generate revenue and the final product. As such, bank balance sheets don’t have items such as inventory, trade receivables or property, plant and equipment. Instead, banks’ balance sheets have items such as loan losses, investments, and trading portfolio.

One method of conducting a business valuation is from the business’s earning power and risk assessment. To determine a bank’s risk assessment, the best place to start is the balance sheet where you can evaluate the loan-to-deposit and loan-to-asset ratios. A high value on either of these ratios signals a bank with higher liquidity risk. A bank with low loan-to-deposit or asset ratios, on the other hand, poses a lower liquidity and credit risk. Keep in mind when using these ratios as a business valuation tool, however, that with lower risk comes lower potential reward. A bank with low loan-to-deposit or asset ratios also has a lower earning power.

Another place to assess risk on the balance sheet is through the bank’s capital. Capital is essentially the “cushion” that will help banks absorb any losses or expand its assets. Banks must abide by certain regulations in terms of the minimum size of this cushion.

In addition to evaluating a business’s earning power and risk assessment, there are two other primary means of business valuation: through a comparison to similar businesses or based on the business in question’s assets. The former is known as the market Approach to business valuation while the latter is simply the asset approach.

Under the market approach, you will need to determine the best banks for comparison. This can be a deceptively hard task. The U.S. has 5,338 commercial banks. These range from large financial institutions to smaller community banks. The best competitor to use as a company valuation tool will depend on a number of factors such as:

The size of the bank
The location of the bank
The bank’s profitability
The bank’s loan composition
The bank’s growth

After applying these criteria, you will ideally have a small pool of banks with similar asset levels and return on equity rations who operate in the same region as your bank and have similar financial statements.

If you opt to use the asset approach to bank business valuation, it’s important to understand how bank’s assets differ from operating companies. As mentioned above, a bank’s assets include cash kept on-hand in the company vault, deposits held at other banks, and any Fed Funds sold. Loans are the primary asset for most banks because they earn more interest than most securities the bank owns and thus provide a better source of revenue. Bank assets also include tangible items which can be sold for cash such as buildings owned by the bank.

Regardless of the business valuation tools you apply, it’s important to start with a solid understanding of the banking industry and how banks differ from operating companies. The unique way in which banks measure their business on their financial statements requires unique business valuation services and methods.

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Author: Finance Tips