How to Interpret the Financial Statement of a Company

HOW TO INTERPRET THE FINANCIAL STATEMENTS OF A COMPANY

The recent global financial crisis and its attendant effect, calls for a deeper understanding of the financial statement of companies before investing your hard earned money with them. I have always advised that there is no better time to invest in the stock market than now. However, while embarking on such investments, there are certain fundamental analyses of company’s results which you should be independently familiar with. This does not however suggest that you should ignore the advice of an expert in investment matters. Once you purchase the shares of a company, you are by law a shareholder of the company and as such entitled to all benefits and privileges accruing to members of the company. As a shareholder, you are entitled to your opinion in the decision making process of the company. Access to financial information of the company cannot be restricted to you.

It has been observed that as a result of people’s inability to analyze a company’s financial statement; they more often than not ‘invest blindly’. In effect, people buy into companies not knowing its going concern ability. This is largely due to poor understanding and interpretation of financial records. In most cases also, people that can analyze financial statements do not take the pain to do the necessary home work before investing. They use various techniques which cannot be proved to take investment decisions. Sometimes, people loose their monies as a result of bad investment decision.

The financial statement of a company usually comprises of the balance sheet and profit & loss account. The balance sheet is technically defined as a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. It is a snapshot of what a company owns and owes at any point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. It follows therefore that the two sides of a balance sheet must balance out. This is so because a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity). Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. It is set out in a number of possible standard formats.
Balance Sheet Formula:

Assets = Liabilities + Shareholders' Equity
Assets – They re assets owned by the company. It is divided into Fixed and Current Assets.

Fixed Assets such as buildings, machinery and equipments are the assets that generate wealth for the business over time.

Current Assets are the assets that are used up in generating daily revenues for the business. They are assets that could be turned into cash in the short period.
Liabilities – This is what the business owes. It is divided into:

Long-term and short-term liabilities depending on the payment period. The creditors due within one year (short-term liabilities) must be paid within, in most cases, one year while creditors due after more than one year (long-term liabilities) e.g. mortgage loan, takes a longer period.

On the other hand, the Profit & Loss Account (P&L) is a report of the company's profit on the sale of their goods or the provision of their service over a trading period, normally one year. It shows at a glance the income (sales) and cost of sales (expenses incurred) for a particular period, usually one year. It is made up of the following three parts:

1. The Trading Account – This records the money received (revenue) and costs of the business as a result of the business trading activities, i.e. buying and selling. It might be buying raw materials and selling finished goods etc.

2. The Profit and Loss Account – Ordinarily, it starts with the Gross Profit derived from the Trading Account. Other revenues and expenses are added and deducted appropriately. Thereafter, a Net profit is or loss is obtained.

3. The Appropriation Account – This shows how the profit is appropriated or divided during a particular period.

It is advisable to obtain the financial statements (audited accounts of a company) for the previous 5 years so as to arrive at an objective investment decision. In arriving at the decision it is necessary to understand the computation of the following:

Return on Capital Employed (ROCE) – This is a measure of the efficiency of the use of resources.
= Profit before Interest and Taxation X 100
Capital Employed

Current Ratio – This ratio gives a measure of the short-term safety of the firm. The current assets are those that could be turned into cash in a short period of time and the current liabilities are those liabilities which might have to be repaid at short notice. Therefore, the higher the level of current assets in relation to current liabilities the less likely it is that the firm will be unable to meet its short-term liabilities.
= Current Assets
Current Liabilities

Acid Test Ratio – It is also called Quick ratio. It is the ratio of current assets less inventories, accruals, and prepaid items to current liabilities.
= Current Assets – Stock
Current Liabilities

Usually, liquidity is measured by current and acid test ratios which reflect the ability of the company to meet its current liabilities as at when due. A current ratio of 2:1 and acid test ratio of 1:1 is generally considered healthy in most instances.
Net Assets Turnover = Sales
Net Assets

Fixed Assets Turnover – This is a ratio that measures the efficiency of the firm. The higher the level of sales generated by each 'unit' of fixed assets the more efficient the firm might be thought to be.
= Sales
Fixed Assets

Debtors Collection Period = Average Debtors X 365
Credit Sales

Stock Turnover = Cost of Sales
Average Stock


Gearing Ratio – This is also referred to as leverage ratio. It shows the relative amounts of capital provided by shareholders (equity) and those lending money to the firm in the form of credit of one type or another (debt). Ordinarily, firm is said to be highly geared it has a high level of debt and a relatively low level of equity. Conversely, if a firm has low gearing it will have financed its assets mainly from equity and will only have a little debt. As debt is usually cheaper than equity, it is profitable to have some debt in the firm as this means that the funds required can be raised a little more cheaply. Therefore, low gearing ratios could mean that the firm is paying too much for the money it is raising to finance its assets. Maybe it should be borrowing some 'cheap' debt to purchase assets rather than use more expensive equity. However, high gearing ratios mean that the firm has a lot of debt. In this case, if interest rates rise and profits fall the firm might not make enough money to pay its interest payments. Thus, high gearing is seen as being somewhat risky. Also, the risk of defaulting on interest payments increases as gearing rises.

= Long Term Debts
Shareholder’s Equity

The above analysis of the company’s financial statements notwithstanding, it is also necessary and advisable to consider the opinion expressed by the External Auditors of the company, usually contained as part of the financial statement, as to the going concern ability of the company. A going concern concept assumes that the business unit will operate in perpetuity, i.e. the business is not expected to be liquidated in the foreseeable future. The business is capable of earning a reasonable net income and there is no intention or threat from any source to curtail significantly its line of business in the foreseeable future.

Common Mistakes to Avoid by Entrepreneurs

The road to starting a business is not always paved with gold but laden with many mistakes that can bug down entrepreneurs especially when the fear of failure lingers on in their memories. Common start-up mistakes seem obvious to entrepreneurs who often think they are well too prepared to succeed. Many businesses had failed even before they took off due to those mistakes many supposed confident entrepreneurs make.

Unless you proceed slowly and carefully, taking the time to do plenty of research before starting a business, even the most prepared businessman would run into problems. Common start-up mistakes destroy an entrepreneur’s chances of having a successful start-up and the sooner they are avoided the better.

Not having a clear vision is one pitfall many people slip into adding that lack of vision amounts to sailing in troubled waters without a compass. If you cannot have a vision of where you want the business to be in some years, then, you may not succeed. Having a vision involves planning and this comes with a basic business plan, but in that plan, do not just think now, but think as far down the road as possible.

Common mistake that a potential entrepreneur can make surrounding yourself with people who do not believe in your ideas, whether by accident or because they are family members. Surrounding yourself with people who do not believe you will succeed is bad, especially when they discourage you on the idea without actually giving their opinion. You need to be around positive feedback all the time because it makes you more determined. Allowing the negative disposition of those around you to bring you down would affect your dreams of starting your business. One of the most common mistakes of start-up is to underestimate the amount of money required to start your business, adding that business plans are there to help you determine what you want to do, how you would do it and how much it would cost to do it. Entrepreneurs should be careful of over spending and under spending. You should be weary of spending your precious start-up capital unnecessarily. This will help guide against over spending. It is also a mistake to be too stingy with your cash adding that frugality should not get in the way of efficiency. This would help guide against under spending.

Buy decent equipment when it is clear you would get your money’s worth. You do not have to overspend on fancy furniture, but get functional furniture that helps you be more productive. It takes time to develop the wisdom to know when you are being too tight or too loose with your cash, so, if you are just starting out, get a second opinion; if you cannot justify the expenditure to someone you respect, it is probably a mistake. There are situations where it is hard to justify not spending the cash.

Another common start-up mistake is doing it alone and not seeking the help of mentors and more experienced entrepreneurs. Trying to do it all by yourself and not asking for help is also one of the reasons why people find it hard to start a business. Start-up entrepreneurs should look for more matured and successful business men to help them through the challenges of starting a venture. Having a much more experienced entrepreneur that can give you some valuable advice is so important especially when you are a young and ambitious person with so many challenges to meet on the way to success. Creating a successful business will take a lot of time, effort, patience, dedication, a clear plan and vision. Having a mentor will help you through.
Another common start-up mistake is not to market your business, expecting that people will naturally start patronizing you. Serious marketing is needed to keep the business up and running.Losing momentum is yet another start-up mistake. Entrepreneur should constantly improve products and services by researching the changing market and competition. This will promote innovation and sustain the business.

Other common start-ups mistakes that should be avoided include but not limited to the following: Starting a business without really understanding the market; failing to focus on value creation, and not knowing your strengths and weaknesses as an entrepreneur.

In all, with determination, prayers and God’s guidance, success is guaranteed for all entrepreneurs. You can make it if you believe that you can make it.

How to Cure Poverty

Poverty will never be eradicated. No wonder the Bible says “The poor you will always have with you”. Matt. 26:11, Mark 14.7. Poverty can be reduced, but total eradication is a dream. Poverty is like corruption, attempts by various nations to eradicate it, has not been successful but the good news is that it can be reduced to its bearable minimum.

The root cause of being poor, is an acronym that’s derived from the word poor itself। POOR – Passing Over Opportunities रेपेअतेद्ली. A man/woman is poor not because of his/her background, not because of a deformity, not because of location, not because of his/her background, where he/she grew up or his/her family. A man or woman is poor because he or she passes over opportunities repeatedly.

Same and equal opportunities come to us all. We all get equal chance. What however determines whether our opportunity will cascade into a defining moment for us, is whether we utilize them or not. A poor man does not see opportunities when they come, or he sees them, but does not count them as such. Have you ever tried hard to convince a dear friend about a good idea that you believe would be useful to him, and he couldn’t just see it? Have you ever tried to talk to a colleague about an opportunity you stumbled on and rather than seeing the opportunity he/she immediately sees a problem? The ultimately poor man or woman, is the one that has gone through life passing over opportunities repeatedly. A few opportunities passed do not make a man poor, but when the habit is formed, he is stuck.

The cure of poverty is good news. Information is power. Good information is more powerful Know that you are just one decision away from your next breakthrough. To migrate from poverty to wealth, feed on good information. Know who you can be. See the opportunities around you. Know that nothing is impossible to one that believes, know that whatever you want to do is achievable. Know you are just one decision away from your next breakthrough. Know that you can be all you dream to be. Feed on good information, and watch yourself gradually transform. Do not do it alone. No man is an island. The people you know or the company you keep will, to a large extent, determine how far you will go in life. Live responsibly. No knowledge is a waste. Form a team or join one. Ask questions from those that have gone through the process.

People quit on their dreams because they have forgotten why they wanted their dream in the first instance. Once you stop focusing on the "why," you start focusing on your obstacles, then get discouraged, and finally quit. The key to becoming self motivated is to find your why and to constantly focus on it. If you do that, discouragement can't get a foothold in your life and you will not quit.

Many people set goals without having a clear, compelling reason for them. You need to have strong "why's" to back up your goals. A powerful "why" is what separates a goal setter from a goal achiever. The "why" becomes the driving force that gets you into action. The "why" is the motivation. But it is up to you to become the starter, the spark plug, if you will, for your "why". Once you get the ""why"" going and the "why" will get you going.

The best way to effectively use your "why" to become unstoppable is to create a "why" card written specifically for you. You will read your why card every morning and evening with power, passion, and conviction over and over for some minutes. That's how you "jump start" your why. If you do this every day, your why will automatically drive you to take massive action in the pursuit of your dream.

Fear of failure keeps most people from realizing their dreams. Reading your why card will give you the courage to take action in spite of your fear because if your why is big enough, the facts don't count.

Write your why card in the present tense, it needs to be filled with action verbs, and it needs to make you feel empowered and strong. If it doesn't, you are not dreaming big enough. Your dream needs to take your breath away. If the though of your dream doesn't make you get up at a different time, make you read the books, listen to the tapes, and hang around different people, it's not big enough.

Your why will empower you to act differently. To motivate yourself. To carry yourself differently. To do things radically different from the normal way. It will change you. It will make you better. That's why your dream needs to be bigger than you currently are. It has to make you grow. The dream gives your life a purpose.

Stop focusing on your past. Start focusing on your why. Remember, you have enormous God-given power to make your dream a reality. You just have to believe that you were created to make your dream a reality. Do yourself a favour. Step out in faith, write and use your why card, so you can build and create a better life. Use your why card to make you relentless in the pursuit of your dreams

15 Ways to be a Smart and Intelligent Stock Trader

Like in all investments, remember that the higher the return, the higher the risk. Above all, remember to invest what you can afford to lose. Remember also the advice of Brain Tracy “the future belongs to the competent”. The future belongs to those men and women who are very good at what they do. Pat Riley says in his book - The Winner Within - “If you are not committed to getting better at what you are doing, you are bound to get worse”.

Many investors only look at the profit side of investments forgetting that a sword has two edges. While there are lots of benefits derivable from stocks investment, there are risks involved. That is why it is very necessary for investors to understand the risk before staking their funds in the stock market. However, experts believe that what is highly risky to one individual may be no problem to another.


If you have decided to be a smart and intelligent stock trader, the following tips may be of assistance to you:

1. Make a Plan – Before you invest any money, make an investment plan and stick to it at all times. This will help you become disciplined and will also help you organise your time and investments. Keeping things simple will result in less stress. Your plan should consist of the investments you are going to make and why and how much you are investing in stocks. It should also include your exit point and also the time you want to allocate for your investments each day.

2. Money – This is not just the money that is sitting in your bank account. It is not the money that you use to pay for your rent, your car or your food. Penny stocks can be extremely unpredictable and although you might make a great deal of money it is also true that you may lose everything. So it is important especially when you are starting out with penny stocks that you only use money that you can afford to lose. After you have built up a nice profit, you can re-invest your profits from past trades which will snowball your earnings.

3. Knowledge – This is without a doubt the single most important factor in determining whether your budding career as a penny stocks investor will be a spectacular triumph or a dismal failure. If you are a new comer to stock investing of any kind, there are various guides you can buy and it is a good idea to read several of these before spending any money. These are all good and although they will not help you with specific decisions such as whether to buy a particular penny stock, or when to sell, they give you a good background on how it all works and are invaluable in building a good knowledge base.

4. What is the Best Trader? –They control their emotions; do not allow fear and greed affect on their decisions. They understand the market, they know it is impossible to be winner in all trades but try to improve the winning per losing trade’s ratio. They stay in the present and view events truthfully, they are not regretful, review the past only to improve their performance in the future. There are many characteristics, but it does not mean that you must have all of them to become a successful trader.

5. Mistakes to Avoid –. Successful traders act without emotions and they have a strategy and follow the principles of their strategy. To succeed in the stock market, you should avoid some mistakes and learn some investment tips. A good way is to summarize investment advice in a list of rules.

6. Lack of Strategy – Having a strategy in the stock market is very important. You should know when to buy a stock, what the selling price is and how long you will hold the share. When you choose a strategy, follow its principles and do not change your strategy every day.

7. Waiting for Market – Many traders when they lose in a stock do not sell but stay till the stock price return to the price they have bought. This is one of the greatest mistakes that new traders make because they may lose much more money and time by holding a fail position.

8. Not Taking Profit – When a reasonable profit has already been made, overcome greed and sell the stock for profit.

9. Over-Trading – Many traders especially day traders feel the need to hold positions in the market at all times on every trading day. Often they will break their own rules in order to get all of their capital into the market. Sometimes, it is best to stand aside and avoid holding any position in the market at all.

10. Trading with the Money You Cannot Afford to Lose – Do not use money that you really cannot afford to lose. Examples of this would be money that is supposed to be used to pay the mortgage, bills or your child’s tuition. This is causing trading with fear and emotions.

11. Falling in Love with a Stock – Some people stick to a stock because they believe it is a good stock. They refuse to sell even when they lose money.

12. A Way to Get Rich Quickly – People will often expect to get rich in the market overnight, but they fail to realise that trading is like any profession; you must learn how to do it first.

13. Nor Adhering to a `Stop-Loss’ Position – A stop-loss is a predetermined price point at which a loss is accepted and an investor closes the position. Using this investment advice is not easy as much as you think. You must try in a regular way to apply this investment advice on your trading strategy.

14. Apply Investigative Journalism – Warren Buffett has always advised and will continue to advise investors to practice “investigative journalism”. This simply means that you personally take your time to find out all necessary details about a potential stock purchase on your own. No doubt you would have to ask questions, read materials etc. but the truth is that in the stock market, your best friend is yourself. Every other person out there especially brokers is interested in making a killing for themselves. As a matter of fact, brokers are more concerned about the commissions they charge you and as you know, commissions are charged whether you make a loss or profit. Don’t just listen to people who claim to have lost so much money and console yourself for also losing money in the process. Do you know what reason prompted them to invest?

15. Form or Join a Team – The decisions we make with respect to our investment are shaped by our association. Be it an association with a fellow investor friend or some stock analysis report you received in your mail or may be a tip from your stockbroker. You need to form or join a team of like-minds to discuss issues of common interest. Your present team will determine to a large extent the kind of individual you would be or kind of life you would live in years to come.

10 Best Ways to Boost Your Personal Income

The recent global financial crisis is an ill-wind that blows no one any good. Recession comes with it tough survival strategies.

1. Reduce Wastes – Don’t buy things that are not of immediate benefit or use to you. Budget your expenses. This will enable you separate your wants from your needs and desires. Consider the amount spent on buying new festive wears (cloths, shoes, etc). Consider the amount spent on entertaining guests/visitors. Consider the amount spent in organising parties. Calculate annual savings on each of the above.

2. Manage Time – Time is a resource given equally to mankind by God. Are you self-employed or working for a corporation? It does not matter. The amount of time available to everyone is the same. Use your time wisely. Consider working additional hours so as to generate more fund.

3. Get a Job – Find a job that can generate income. If you are already employed, you can get additional job so as to generate more money. Identify places where you can work part-time or short-time. Consider taking your leave from your present employer and getting a holiday paying job during the period.

4. Diversify Your Investment – Consider investing in Bonds, Mutual Funds and Stocks. Do not put all your eggs in one basket, no matter the size of the basket. Invest for long-term benefits. There is also need to maintain a strong cash position.

5. Set Financial Priorities – Setting financial priority involves deciding or determining what is most important aspect of your finances and put that item on top. This involves a list of your basics – water, food and shelter. Determine what it takes to ensure that your basic needs are met. The main ingredient is a source of income to pay the rent or house payment, pay the utilities, and buy the groceries. Remember, having a savings can prevent the use of those dreaded credit cards and help in so many ways.

6. Sell Your Junk – Do you know that one man’s trash is another man’s treasure. Sell off old junks in your house. These junks include old furniture and fitness equipment, collectibles and clothing, old text books, cell phones and computers. Companies like Amazon.com, Craigslist and eBay are great sources for online hawking.

7. Sell Your Skills – Are you skilled and talented in a particular area? It may an avenue for you to make money. Can you teach music, art or sewing, arrange a regular dog-walking or baby-sitting, tutor students if you are academically minded, tutor another language or find a flexible translator position. Just re-discover your self, it can fetch you some cash.

8. Manage Your Accommodation – If you are living alone, consider getting a roommate. This could boost your income (and cut some expenses in half). You might consider renting out other spaces, too, such as your garage for storage or your parking space for commuters, if you live close to public transportation.

9. Manage Your Tax Returns – If you received a tax refund last year and your financial situation has not changed much, too much tax is being withheld from your pay cheque. Adjust your tax returns including your withholding tax payment. Consider getting the services of a tax consultant.

10. Track Your Expenses – You need to figure out what happens to all of your money on a monthly basis. There are many ways that you can do this, but probably the easiest is to put a piece of paper in your wallet and try, for a period of one month, to track every money spent during that period of time. You will be amazed, how you have been spending money on frivolities.

How to Use Credit Card and Avoid the Sins of Money

Many people who are deeply in debt and struggling to escape from financial troubles want to see credit cards as the source of the problem. They blame the high interest rates and harsh penalties buried in the fine print of other credit agreements, or the aggressive efforts by card-issuing companies to promote credit even beyond the capacity of some people to manage it. Credit card companies are not blameless for today’s epidemic of uncontrolled debt. But for most people who are in financial trouble, the real danger is not in the card but in themselves. The card is just a piece of plastic, and you can control its use if you are in control of yourself. The trouble comes from deadly emotions that lead people to misuse credit, whether it is in the form of a piece of plastic, an overdraft facility, or a loan from a friend. Financial problems are not always about money, more often, they are about how you think about money and how you use money.

Knowing these money truths will go a long way to save you indebtedness:

Denial – Denial enables you to ignore the reality of your financial situation by refusing to think about a spiralling debt situation, or by compartmentalising the problem so that its impact on your total financial life is neither seen nor felt. Are you keeping financial secrets from the people closest to you? Do you find yourself denying-perhaps with a show of indignation that you have any financial problems at all, even when well-meaning friends or family members offer to help? These can be symptoms that denial is wreaking havoc with your sense of financial reality.

Entitlement – “I deserve it” is the three-word mantra that reveals that emotion’s influence over the way you handle money and credit. A sense of entitlement may be tied to a desire for status, to trying to keep up with the Phillips, to the feeling that you are smarter or better than others, or to a craving for respect and value in the eyes of others. People whose approach to money is distorted by a sense of entitlement rarely realise that hard work is needed to fulfil their desires. Instead, they expect good things to come without effort – a sure sign that they are out of touch with the way the world actually works.

Compensation – For many people, their first overdraft facility or credit card unleashes memories of unfulfilled childhood desires. They remember all the toys, clothing, and other things they could not have while growing up, or that they had to wait until Christmas or their birthday for. Now all those goodies are available just by handing over that little plastic card. Credit enables us to compensate for those early feelings of being deprived by indulging is immediate gratification now. But when this emotion from the past becomes a thoughtless justification for repeated indulgence, so that debts and interest charges build up every month, the deprivation of the past can actually begin to damage your future.

Delusion – Many people succumb to magical thinking about money. It manifests itself most often when young people get their first credit cards and discover they can by thousands of dollars worth of goods, but only have to pay back little monthly. They pay no attention to the interest that is accruing on the outstanding balance, which seems small at first. Lacking self-discipline, they make the minimum payment and then charge the same amount (or more) during the next payment period. The outstanding balance starts that slow-but-sure-creep upward. But the debtors deliberately (sometimes ignorantly) ignore that amount. They only number they see is the minimum payment amount, which lets them maintain the lovely delusion that they are able to afford this debt.

Conformity – This is the “everyone’s doing it, so why shouldn’t I?” mentality. It is strange when it comes to credit, some people who are otherwise level-headed and mature feel that irresponsible behaviour is acceptable because everyone they know has similar problems. Behind this irrational conformity may be a secret belief that other people may have discovered how to get their hands on “free money”. But, as every individual eventually discovers and as our society as a whole will one day learn, the supposedly free money that a credit card provides will have to be repaid, no matter how painful the ultimate price.


Over-Optimism – This smiling devil is the belief that somehow a financial problem will miraculously correct itself. A person saddled with over-optimism often thinks he or she is simply being “positive” about the situation and dismisses other thoughts as being “negative” or “gloomy”. It is a way of denying personal responsibility and absolving oneself of blame for short-sighted financial decisions. If you fall into this trap, you will find your cheery disposition keeping reality exactly where you want it at arm’s length even as your financial situation worsens.

Fear – The sight of rows of numbers makes some people react like a rabbit frozen in the headlights of an on-coming car. Some people suffer from a genuine financial mathematical phobia, more often than not it is affectation or excuse that enables people to run away from their financial duties sure give away.

Know What You Need To Do – The truth is that many people have a pretty good idea about what they need to do to fix their financial weakness – spend less, earn more, pay off debt, and accumulate savings. Take control of your inward emotional demons today and stop blaming someone or something else.

How To Invest And Accumulate Wealth

Investing in long-term financial vehicles give you the most gains but it also puts your funds at greater risk. There is so much truth to the saying, “there is no gain if there is no risk”. Still you can reduce your chances of losing your hard earned money by researching and taking time to understand what you are buying. Would you purchase a house you have only just seen on the outside? Both of these are serious investments and you need to arm yourself with the basic knowledge about the subject. So what are the differences you need to consider when investing in bonds, stocks or mutual funds?

Before contemplating which of these options is to go for, remember the first advice and basic rule in investment –“ Invest what you can afford to lose”. Remember also that “the higher the return, the higher the risk”. Do not be in a hurry to reap high return in a short period. It pays to do research before investing.

Bonds
When you are investing funds in bonds, you are technically lending your money to a borrower. Who can this be? Some of these are the Federal Government, a State, a Local Municipality or a big company. All these institutions need money to expand, to fund a federal deficit or to finance new ventures. So they borrow funds by issuing bonds. The price you pay for a bond is known as its face value. The issuer promises to pay you back in a particular day, at a fixed rate of interest stated on the coupon itself. You are safely investing in bonds; these bonds give you a yearly income until the maturity date. When the bond matures, the borrower pay you back the principal plus interest. In most cases, investing in bonds is a minimal-risk free decision.

Stocks
A share of stock is a certificate of ownership purchased by individuals who are investing or buying a proportional share of the business. The more stocks you buy, the bigger the share of profits you get and the bigger your financial stake becomes. A stock’s value is affected by the financial situation of the company. Historical trends in stocks have shown that their value rises over time, although there are no sure guarantees. Also with stocks, the only assured return is if it appreciates on the open market. And while it is true that there are companies that give their stockholders dividends, they are not obligated to do so.

Mutual Funds
In this financial scenario, you join a group of investors in investing your funds to buy stocks, bonds, or anything else your fund manager decides is worthwhile. If you do sustain losses, these losses, are subtracted from the fund’s capital gains before the money is distributed to you the shareholder. The fund will not pass out capital gains to shareholders until it has at least earned more in profits than it had lost.

Wealth, however, has been described as “cash flow from other sources”. Wealth accumulation could take any of the following options:

1. Make your Money Work For You – What this means is that, you are not wealthy just because you earn a lot of money. You are only wealthy when your money works for you. To become wealthy, your main job is to acquire money and then put it to work making more money for you.

2. Add Value Continually – The key to creating wealth is simple. It is called “adding value”. Successful people are those who are always looking for ways to add value in some way to a person, a company, a product or a service.

3. Buy It Cheaper Somewhere Else – Another way to add value is to buy something in one place at one price and then make it available in another place for another price. For example, buying a product or service manufactured in Europe or Asia, importing it to the United States and making it available to people to whom it was not available before, is a way of adding value for which you can charge a higher price.

4. Improve The Life or Work of Others – All manufacturing and marketing is based on this principle of added value. All aims to add value. Performing a service that enhances the life or work of another person adds value. An accountant who saves a client’s money on taxes is adding or actually creating value. All financial success, is based on adding value. It is based on the old saying, “Find a need and fill it”.

5. Combine and Recognise the Elements of Value – All successful business is based on someone bringing together the factors of production, such as labour, capital, raw materials and management, and creating a product or service that a customer will pay a price for that is in excess of the cost of producing it.

10 Best Tips on Household Budgeting

1. Keep your financial records organised and your filing up to date.
2. Avoid spending cash, unless you are good at writing down cash expenses in a jotter.
3. Give your children a set allowance.
4. Have a system in place for handling incoming mails and bills.
5. Avoid going to stores where you have had problems overspending in the past.
6. Have a written, long term savings goals.
7. Have a set time each week to review and pay the bills.
8. Pay bills on time so as to avoid unnecessary late fees and charges.
9. Avoid buying items which are not required.
10. Buy items in bulk (except perishable goods) so as to enjoy cash discount.

Food For Thought – The Power of Belief and Commitment
The biggest obstacle between you and anything you want, is your lack of belief that you can have it. Once you truly believe it is possible, once you can see yourself doing it or being it or having it, the rest is just details. With belief, plus the commitment to follow through and do whatever it takes, anything can be yours. Everything you need to get there is available to you, when you believe and when you commit to getting there. Know that you can do it. Nothing can hold you back once you have belief and commitment.

8 Best Investing Advice By Warren Buffett

The 2008 world’s richest person, Warren Buffett, the oracle of Omaha achieved this feet not by luck but by adhering to simple but critical tenets. He would be the first to say his homespun and positive philosophy played a big role in his becoming the richest person in the world until recently.

Despite the downward trend in the stock market coupled with the global financial crisis, Buffett’s investment wisdom remains an insight for successful investing. Some of his simple and psychological lessons are applicable in life outside investing:

1. Be Frugal – If the economic downturn is forcing you live simply, look on the bright side. It is making you more life Buffett. He lives in the same modest house in Omaha, that he bought more than five decades ago. He drives his own car. How does this make him a better investor? First, it gives him more to invest. Second, a frugal investor will demand this quality from managers. Buffett is leery of corporate waste. Excessive executive pay or silly perks are red flags. Third, frugal people do not need fast returns to support extravagant lifestyles. This leaves them free to think more clearly about when to buy and sell stocks, making them much better investors.

2. Wait for the `fat pitch’: Resist the itch to constantly buy or sell stocks. “Lethargy bordering on sloth remains the cornerstone of our investment style”, quipped Buffett in his 1990 annual report to Berkshire Hathaway shareholders. Have the patience to wait a long time until some market turbulence brings the “fat pitch”, as Buffett calls it, or stocks of great companies trading at really cheap valuations.

3. Be a Contrarian: A great way to make money is to go against the crowd. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”. Buffett explained in a 1986 letter to shareholders. So be sceptical of the conventional wisdom. Not because the crowd is always wrong but because the crowd’s wisdom is probably already reflected in market prices.

4. Stick With What You Know: One of Buffett’s basic rules: If you do not understand a company’s product or how it makes money, avoid it. He calls this “staying within your circle of confidence”

5. Do Not Depend on Others to Say You Are Right: If you are in need of constant affirmation about your investment decisions, particularly from the stock market, you will not be able to invest like Buffett. Buffett makes outsized returns by purchasing disliked value stocks that are so beaten down they are often virtually ignored by the talking heads.

6. Buy Companies Cheap: This is the essence of being a value investor. The first step involves calculating what Buffett calls an “intrinsic value” for a business either by examining what similar companies sell for or calculating the present value of all the cash that will be generated by a company in the future. Build in a “margin of safety” by purchasing a stock well below its intrinsic value. Buffett does not pay much attention to earnings per share, a common measure of value. Instead, he likes to see companies with good return on equity, solid operating margins and reasonable or no debt. He also likes to see that companies generate a lot of cash and that they invest it well or return it to shareholders in the form of dividends or buybacks. He looks back over five years or more. He considers a consistent operating history; he is not into start-up companies. He also prefers to gauge how well a company does in different kinds of markets, not just the good times or the latest quarter.

7. Look For Companies with Economic Moats: A key characteristic supporting consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry or a kind of moat that keeps potential competitors at bay. This could be a patent protection on drugs, high costs to get into business or simple brand power.

8. Buy Big, Concentrated Positions; Buffett goes against the crowd here, too. When he finds a company he likes, he piles into it big time.

Food For Thought – The Power of Belief and Commitment
The biggest obstacle between you and anything you want, is your lack of belief that you can have it. Once you truly believe it is possible, once you can see yourself doing it or being it or having it, the rest is just details. With belief, plus the commitment to follow through and do whatever it takes, anything can be yours. Everything you need to get there is available to you, when you believe and when you commit to getting there. Know that you can do it. Nothing can hold you back once you have belief and commitment.

15 Ideas and Secrets to Sucess

1. Idea Starts with You – Ever wondered why whenever you are asked to test a pen, you start with your own name. An idea starts with the individual that is why the word begins with the letter “I”. Every successful entrepreneur is an embodiment of an idea which eventually becomes a strong part of his/her personal identity. An idea is birthed in a person’s womb, but does not end there. Believe in yourself. Believe also in your creativity and continuous innovation. Opportunity is always where you are, never where you were.
   
2. Ideas Move on Time – In order to make a fine steel, you should strike the iron while it is hot. Do not procrastinate. Do not leave for tomorrow what could have been done today. There is always a heavy demand for fresh mediocrity but you should not give in to it. Life’s most important questions can be found in asking the right questions at the right time and place.
   
3. Ideas Need a Host – An idea needs someone to accommodate and initiate it into existence. Without a host, an idea cannot manifest. When an idea unveils itself and you ignore it, it leaves to find another host. Every renowned entrepreneur played host to an idea which in turn made them rich. If you do not decide what is important in your life, someone else will decide for you.
   
4. Ideas Need Someone’s Life to Live – Ideas do not have a life of their own, so they need the life of the host to grow and blossom. This means the host needs to give it attention, dedication, and commitment. That is why you find out that all successful business people are committed to making their business thrive. They are sold out to the business with their lives, and this gives room for the business to soar and succeed. It is better to fail in doing something than to succeed in doing nothing.
   
5. Ideas Need Thick Skin – Ducks have feathers that are tight and their density act like oil – it keeps the duck dry and warm. So when water lands on the back of a duck, it simply rolls off. You must develop the thick feathers of a duck if you want to be successful. Let criticism roll off your back in a similar manner. You cannot be easily offended or hurt if you want to be successful. There will always be people who are jealous or envious or out to bring someone else down. You must develop a way to see past and let it roll off your back, like water off a duck’s back.
   
6. Ideas Become You – Think of Bill Gates and Microsoft flashes in your mind. Warren Buffet is Berkshire Hathaway, and Berkshire Hathaway is Warren Buffet. When people think of that idea, your name must surface, and where your name shows up, the idea must also be seen. You were made on purpose for a purpose. Hold the image of the life you want and make the image become fact.
   
7. Ideas Never Start Big – True greatness consists of being great in little things. Ideas expand overtime and not over night. That is essential, never to downplay the days of small beginnings. To make it big you must start small. Great things are birthed on a small scale. The only way to learn anything thoroughly is by starting at the bottom (except swimming). Small steps are a big idea and you should start where you are.
   
8. Ideas Needs People – People in your business are your greatest assets. Yes, the idea starts with you, but it must grow beyond you too. You need to leverage on people’s expertise if your idea must grow wings and fly high. Sit down with teachers, traders and foremen and they will tell you that people’s skills make the difference between those who succeed and those who do not. All of life’s successes come from initiating relationships with the right people and then strengthening those relationships by using good skills. Proverbs 27:17 says “As iron sharpens iron, so people can improve each other”.
   
9. Ideas Have to Be Pursued – The proof that you believe in an idea is that you are committed to pursuing it till it works. You need to understand that racing to the top won’t occur immediately. So when you pursue the idea, be committed to the plan, and nothing shall be impossible to attain. Your belief is the vital vitamin your idea needs to grow on. The richest man in Africa (according to Forbes), Alhaji Aliko Dangote, discovered this philosophy. He said “my secret to success is hard work and taking up challenges. As a human being, if you set a target for yourself or you get close to it, make sure you achieve it”. Remember, unless you enter the beehive, you cannot take the honey.
   
10. Ideas Need Purpose – Your purpose should be an overriding passion, ideology and a sense of calling for your life and work. You need a plan to bring your idea into reality. To make your idea intelligible to people, you need to draft it, that is, put it to pen and paper. Its not just enough to think it, you must also do well to ink it, because ideas do not come to fruition without embracing the virtue of planning. Break goals down into manageable chunks. Bill Gates said he had a sense of calling that he would be a major player in the age of the personal computer and he pursued it.
    
11. Ideas Feed on Knowledge – Knowledge is power. What you know gives you an edge in life’s centre stage, as a result. Its vital to know everything about your idea. The more intelligent you are, the bigger the idea. Equip your mind, renew your mind, since an idea cannot grow beyond the knowledge you have fed it with. Read, study, and stretch your mind so as to become a resource person in the pursuit of your idea.
    
12. Ideas Move When You Move – Henry Ford’s idea made cars available to all, and Philo Farnsworth’s idea created the television. Think of your ideas can create. Never wait till you have all it takes to get started. You already have what it demands to succeed. Move! Take action. Make it happen. Talk to people who can add and multiply the grandeur of the idea you are carrying within you. Remember, don’t quit after a victory. If at first you succeed, try something harder. Any time you fail, pick something up.
    
13. Ideas Do Not Give Excuses – Comparison is never proof of anything. Find a way of lifting people up and not putting them down. Give thanks and be grateful. There is no excuse for being full of excuses. The secret to living is caring for others, daring for others and sharing with others. Develop an `I can’ attitude.
    
14. Ideas Conquer Fear – Fear is a poor chisel to carve out your tomorrow. Avoid flying into a rage unless you are prepared for a rough landing. Tom Hopkins says that “the single most important difference between champion achievers and average people is their ability to handle rejection and failure”. Thomas Edison says “People are not remembered by how few times they failed, but by how often they succeed”. Louis Boone said “Don’t fear failure so much that you refuse to try new things”. Dale Carnegie wrote “An old man was asked what had robbed him of joy in his life. His reply was, things that never happened”. Release your fear through prayer to God. Remember fear is False Evidence Appearing Real. Joyce Meyer, the Evangelical speaker says “if you are afraid to do it, just do it afraid”. No one will blame you for being fearful, what you will be blamed for is letting that fear immobilize you.
    
15. Ideas Do Not Accept Defeat – Never take no for an answer. Success favours the bold. The world is a book in which those who do not take risks read only one page. Keep on hitting; keep on trying. If your life is ever going to get better, you will have to take risks. Be yourself, be positive, be decisive, be persistent, be excellent. Hold the image of the life you want and make the image become fact. Drop the 3 Ls – Lack, Loss and Limitation from your vocabulary.