Investing in Bonds » General Information

Welcome to Investing in Bonds

admin — Mon, 14 Apr 2008 08:00:53 +0000

A bond is a debt security that is sold to the public in set nominal values. Basically, it is interest-bearing money people lend to institutions such as the government or private firms. The interest rate is usually fixed, which means that no matter who holds the bond, the amount of income will remain the same. A bond is objectified by a piece of paper stating the principal amount that was borrowed, the agreed-upon rate of interest, and the term/maturity of the bond.

Bond investing operates on a simple basis. By purchasing a bond from the government, the bond bearer lends them money in exchange for receiving a fixed monthly income equivalent to the rate of interest times the principal amount. The bond bearer continues to receive interest until the bond matures, wherein he/she will get back the face value, or principal amount. (more…)

Pretax Profit Margin

admin — Mon, 14 Apr 2008 07:59:04 +0000

A good number of investment analysts for bonds investing lean towards using a pretax income number for reasons that are almost the same as that of operating income.

The difference is that in this case, a company is allowed a number of different tax-management techniques. This allows for the manipulation of the timing and extent of the income that is taxable.

Operating Profit Margin

admin — Mon, 14 Apr 2008 07:58:50 +0000

Operating Income is taken when the SG&A, or selling, general, and administrative, is subtracted as expenses from a company’s gross profit number. The management usually has some more control over operating expenses as opposed to its cost of sales. This is why investors require the careful scrutiny of operating profit margins. Both positive and negative trends for this kind of ratio are mostly derived from the decisions of the management.

The operating income figure of a company is usually the favored measure, as it is more reliable. Preferred by investment analysts, this figure is usually chosen over its net income figure as it creates financial projections and inter-company comparisons.

Net Profit Margin

admin — Mon, 14 Apr 2008 07:58:32 +0000

Net profit margin is more popularly known as the profit margin of a company. This is vital in bonds investments as the bottom line is quite often the main topic of discussion with regards to a company’s capacity to produce profit.

With regards to investing in bonds, this is a crucial number. But given that, investors can quickly see from a comprehensive profit margin analysis that there are a few income and expense operating elements within an income statement. These elements determine what is called the net profit margin. It allows investors to be able to actually see a company’s profit margins on an organized basis.

Investing Investopedia

admin — Thu, 27 Mar 2008 11:43:22 +0000

Investopedia as the name implies is basically the wikipedia of all things concerning investing, though suffice it to say, Investopedia is much more detailed, complete and accurate, being under the Forbes group of media companies . Navigation is easy; It has a functional organizing and archiving interface, which are divided into many categories and subsets.

Investopedia has everything one needs to know about money, finance and investing. Like most information websites, Investopedia aims to promote good business sense, successful investments, and the importance of street-smarts in a numbers and statistics driven world.

Navigating Investopedia is simple. Don’t know a meaning of “junk bonds?” There’s a dictionary that can be consulted when faced with technical business jargon.

Want to know the latest activity in the stock market or how the new oil hikes are affecting the economy? It has regularly updated news articles regarding economy and business globally, nationally and locally.

Don’t know where to start or looking for some refresher courses? It has a wide selection of detailed tutorials and faq (frequently asked questions) for investing amateurs and beginners.

Sure you know enough? Right after tutorials, you can test your knowledge with the exam preparation section, though this may also be used by those taking up MBAs or Executive MBAs (Masters in Business Administration).

Seeking answers to questions you’ve never seen asked anywhere else? It has forums and help desks that encourage discussion about the business world at large.

Want to see if stocks is the right investment for you without actually risking anything first? It has stock simulators that may be used to gain hands-on understanding of stocks and bonds investments.

Want to belong to an organized group of individuals making their own investments? It has a stock community where members can rank their most successful stock investments, and receive tips and information.

Finally, if you’re looking for ideas and visual representations of figures, they have the stock ideas, which feature all sorts of advice– from charts to reports.

Investopedia is your one stop shop for all those investment queries. Don’t invest without consulting it first!

Fixed Income Risk Management

admin — Mon, 24 Mar 2008 12:02:58 +0000

The term fixed income risk management is loaded with several concepts. Fixed income refers to a steady stream of money coming in at a regular interval, while risk management is the process of facilitating risks involved in money or asset investments. For example, in any market, the conventional way of making money is to sell particular investments for a price higher than its buying price. The problem is, even with economic experts and several charts of market progression, there is still no telling how the future course of markets goes. Even for people with a knack for accurate guessing (with regards to predicting market trends), no investor can ever have a monopoly on beating the market odds consecutively.

The key to becoming a long-term successful investor as opposed to someone with a temporary good run is the attitude towards risk. Risk and the measure of controlling are key elements in making successful investment management. It is with risk control that investors find the means to survive or adapt to difficult times, and rise again when the tides turn. It ensures that investors will not lose everything,

The best kind of investment is one that generates a fixed income, ensuring that the investor gets money back regularly. This may come in the form of bonds. Bonds are one of the better, lower-risk forms of fixed income investments, as they are generally more stable than stocks, and thrive on the rising turns of the economy (whereas stocks thrive when the economy drops). Bonds minimize downside risks, and have set interest rates for that steady income.

Of course, bonds still carry a certain degree of risk, and that is where risk management comes in. Good investors are those who don’t avoid risk, and rather accept it as part of business. However, this doesn’t mean that they should ignore risk altogether, as all investments have the potential to dissolve quite quickly should things get awry. Effective risk management is not only knowing the risks, but also having the capacity to gauge and quantify it.

Bond Market, Stock Market

admin — Wed, 19 Mar 2008 08:01:05 +0000

Bond markets and stock markets are both forms of investment, though the way the operate are very different. Those who make bond investments are cautious investors, always looking out for suspect bonds and taking as little risk as possible. The bond market has significantly lower potential gain than the stock market, but the upshot is, they have lower potential losses. Furthermore, bonds would guarantee at least an interest payment, and some bonds are backed by the full credibility of the whole government, which thus make them virtually fail safe.
Stock markets on the other hand, are more prone to losses, have more risks, and are generally undertaken by people who feel lucky or optimistic. Stocks are more erratic, and are all about future growth and estimated earnings. Stocks, unlike bonds, can only be backed by CEOs, who are fallible unlike the government.

With this disparity, it’s quite normal for pro-bond and pro-stock people to have a disconnected view on their craft. However, when it comes down to it, both markets look at the economy the same way, in the sense that everything depends on it. If the economy is doing well, stock prices will go up, while the prices of bonds will fall. When the economy is suffering some trouble, the prices of bonds will rise and stocks will fall. Their successes are inversely proportional.

Despite their polarized success functionalities, stocks and bonds continue to be a permanent presence in the world of economics and finance, and a veritable source of income for those who thrive on investments.

Introduction To Profitability Indicator Ratios

admin — Wed, 19 Mar 2008 08:00:50 +0000

There are a few different measures of corporate profitability and financial performance. The ratios used here, which are pretty much like the operational performance ratios, allow its users a better understanding of how well a company manages and uses its resources in creating profit and value for its shareholders.

A company’s long-term profitability is important for both the survivability of the company and for the benefit received by shareholders. These ratios are key to allowing users to foresee and anticipate valuable profits.

There are four important profit margins, which show the amount of profit that one company is able to generate on its sales at the different stages of an income statement. It is also vital to know how to calculate the effective tax rate of a company. The effectiveness of a company at generating income from its own resources may also be detected with three ratios, which are Return on Assets, Return on Equity, and Return on Capital Employed.

Profit Margin Analysis

admin — Wed, 19 Mar 2008 07:59:37 +0000

There are four levels of profit or profit margins in an income statement. These four are called gross profit, operating profit, pretax profit, and net profit. The term “margin” can be applied to a give profit level’s absolute number. The same can be applied to the number as a percentage of net sales/revenues. The profit margin analysis uses the percentage calculation in order to give a detailed measure of the profitability of a company with regards to its 3-5 year history and when compared to similar companies and other standard-bearers of the industry.

Generally, it is the amount of profit, either at the gross, operating, pretax, or net income level, that is generated by the company as a percent of the sales that it generates. Margin analysis aims to pinpoint consistency or positive and negative trends in a company’s generated earnings. Positive profit margin is also allows for positive investment quality. To a broader extent, it is the earnings of a company’s quality and growth that determines its stock price.

Cash Ratio

admin — Fri, 14 Mar 2008 08:08:34 +0000

The cash ratio is used to indicate the liquidity of a company, further refining both the current ration and the quick ratio. This is possible through the measurement of the amount of cash, cash equivalents, or invested funds that are there in current assets to cover current liabilities.

The cash ratio is considered the most rigorous and cautious of all the three short-term liquidity ratios. The cash ratio also only checks which are the most liquid short-term assets of the company. These short-term assets are the ones that are easiest to use as payments for one’s current obligations. It also overlooks inventory and receivables, which is intentional as there is no assurance that both accounts can be easily converted to cash during instances where it matters and when situations arise where there is a need to meet current liabilities.

Not a lot of companies are able to give out enough cash and cash equivalents in order to be able to fully handle current liabilities. This is not always a negative, however, so do not focus on this ratio being above 1:1.

Financial reports rarely use the cash ratio system, and also rarely used too by analysts in a company’s fundamental analysis. It is not really possible for a company to intentionally maintain very high levels of cash assets to cover their current liabilities. This is due to the fact that it is often interpreted as poor asset utilization for one company to keep large amounts of cash on its balance sheet, as the money could come back to shareholders or even used somewhere else in order to create higher returns. The cash ratio’s flexibility to be utilized is quite limited, although it does provide an interesting view on liquidity.