More Details About Debt Consolidation

by Zane Hamlin
(from Goarticles.com)

Debt Consolidation is a service that allows you to take a low interest rate loan to pay off your accumulative debt.It is the best option to get rid of your debts.Debt consolidation services helps to relieve the burden of high monthly payments on credit cards and other types of unsecured debt.Most of people discover that higher balances direct to higher interest rates until they can no longer pay for the debt they have mounted up.Debt Consolidation can be said as a credit creation facility that is utilized to pay off earlier debts of the borrower along with interest.In this type of service,borrower indeed borrows a loan,to pay off all previous loans and debts.

The borrower returns the consolidation loan together with interest.Because of multiple loan borrowing like car loan and a home loan,many a times the borrower is in debt to several lenders.The borrower is not obliged and loaded by many loans for a very long time in order that the consolidation loan is used to pay off all these multiple borrowings. The debt consolidation loan can be secured or non secured loan.Borrower has to pledge some precious asset to the lender in case of a secured loan. Usually,many lenders like better to secure debt consolidation loan with an asset.There is very rare case of non secured consolidation loan. If this case occurs,they have to secure source of high income or is supported by a guarantee.It is very tough to come by the debt consolidation loan. Before availing this facility,many strict laws,rules and regulations are followed by the banking and finance organizations.

Very few lenders like to compute the total cost of previous debts and the interests charged on them.After that,the lenders calculate the amount of credit that they are willing to offer and then quote the amount along with the interest to the applicant.The credit history of the applicant is examined by the lenders at the time of the process of sanctioning.They will also keep information about applicant's bank and credit card companies.The first relative's credit history is also taken into consideration,if the applicant is married or has children.In such case,the rate of interest is low and time period will be long,which helps the borrower to repay the loan.
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Advertising Sales Ratio

Definition

1) Total advertising expenditure divided by total sale over some time period. Useful for evaluating how effective the company's advertising campaigns have been at generating sales; all other things being equal, the lower the ratio, the better.

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Calculating Return on Sales

GETTING STARTED

Although return on sales (ROS) is another tool used to analyze profitability, it is perhaps a better indication of efficiency. In some business environments, it is also called margin on sales percentage, or net margin.

What It Measures
A company’s operating profit or loss as a percentage of total sales for a given period, typically a year.

Why It Is Important
ROS shows how efficiently management uses the sales dollar, thus reflecting its ability to manage costs and overhead and operate efficiently. It also indicates a company’s ability to withstand adverse conditions such as falling prices, rising costs, or declining sales. The higher the figure, the better a company is able to endure price wars and falling prices. Return on sales can be useful in assessing the annual performances of cyclical companies that may have no earnings during particular months, and of companies whose business requires a huge capital investment and thus incurs substantial amounts of depreciation.

How It Works in Practice
The calculation is very basic:
operating profit / total sales × 100 = percentage return on sales.

So, if a company earns $30 on sales of $400, its return on sales is:

30 / 400 = 0.075 × 100 = 7.5%

Tricks of the Trade

• While easy to grasp, return on sales has its limits, since it sheds no light on the overall cost of sales or the four factors that contribute to it: materials, labor, production overhead, and administrative and selling overhead.

• Some calculations use operating profit before subtracting interest and taxes; others use after-tax income. Either figure is acceptable as long as ROS comparisons are consistent. Obviously, using income before interest and taxes will produce a higher ratio.

• The ratio’s operating profit figure may also include special allowances and extraordinary non-recurring items, which, in turn, can inflate the percentage and be misleading.

• The ratio varies widely by industry. The supermarket business, for example, is heavily dependent on volume and usually has a low return on sales.

• Return on sales remains of special importance to retail sales organizations, which

can compare their respective ratios with those of competitors and industry norms.

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COMMON MISTAKES of SWOT ANALYSIS

Focusing just on a few issues
Don’t just focus on the large, obvious issues, such as a major competitor encroaching on
your business. You need to consider all issues carefully, such as whether your Internet
system provides everything you need or whether your staffing levels are as they should
be.

Completing your SWOT analysis on your own
Do take advantage of other people’s contribution when you’re completing your SWOT analysis; don’t try and do it alone. Other people’s perspectives can be very useful, particularly as they may not be as close to the business as you are. This distance can often help them see answers to thorny questions more easily, or to be more innovative: we all get stuck in a rut at points.

Using your analysis for the next ten years
Don’t do a SWOT analysis once and then never repeat the exercise. Your business environment will be constantly changing, so use SWOT as an ongoing business analysis practice.

Relying on SWOT to provide all the answersUse SWOT as part of an overall strategy to analyze your business and its potential. It is a useful guide, not a major decision-making tool so don’t base major decisions on this analysis and nothing else.

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Analyzing Your Business’s Strengths, Weaknesses, Opportunities, and Threats

GETTING STARTED

SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is a method of assessing a business, its resources, and its environment. Doing an analysis of this type is a good way to better understand a business and its markets, and can also show potential investors that all options open to, or affecting a business at a given time have been thought about thoroughly.

The essence of the SWOT analysis is to discover what you do well; how you could improve; whether you are making the most of the opportunities around you; and whether there are any changes in your market—such as technological developments, mergers of businesses, or unreliability of suppliers—that may require corresponding changes in your business. This actionlist will introduce you to the ideas behind the SWOT analysis, and give suggestions as to how you might carry out one of your own.

FAQS

What is the SWOT process?

The SWOT process focuses on the internal strengths and weaknesses of you, your staff, your products, and your business. At the same time, it looks at the external opportunities and threats that may have an impact on your business, such as market and consumer trends, changes in technology, legislation, and financial issues. What is the best way to complete the analysis?

The traditional approach to completing SWOT is to produce a blank grid of four columns— one each for strengths, weaknesses, opportunities, and weaknesses—and then list relevant factors beneath the appropriate heading. Don’t worry if some factors appear in more than one box and remember that a factor that appears to be a threat could also represent a potential opportunity. A rush of competitors into your area could easily represent a major threat to your business. However, competitors could boost customer numbers in your area, some of whom may well visit your business.

What is the point of completing a SWOT analysis?

Completing a SWOT analysis will enable you to pinpoint your core activities and identify
what you do well, and why. It will also point you towards where your greatest opportunities lie, and highlight areas where changes need to be made to make the most of your business.

MAKING IT HAPPEN

Know Your Strengths

Take some time to consider what you believe are the strengths of your business. These could be seen in terms of your staff, products, customer loyalty, processes, or location. Evaluate what your business does well; it could be your marketing expertise, your environmentally-friendly packaging, or your excellent customer service. It’s important to try to evaluate your strengths in terms of how they compare to those of your competitors. For example, if you and your competitors provide the same prompt delivery time, then this cannot be listed as a strength. However, if your delivery staff is extremely polite and helpful, and your competitor’s staff has very few customer-friendly attributes, then you should consider listing your delivery staff’s attitude as a strength. It is very important to be totally honest and realistic. Try to include some personal strengths and characteristics of your staff as individuals, and the management team as individuals. Whatever you do, you must be totally honest and realistic: there’s no point creating a useless work of fiction!

Recognize Your Weaknesses

Try to take an objective look at every aspect of your business. Ask yourself whether your products and services could be improved. Think about how reliable your customer service is, or whether your supplier always delivers exactly what you want, when you want it. Try to identify any area of expertise that is lacking in the business. as you can then take steps to improve that aspect. For example, you might realize that you need some more sales staff, or financial help and guidance. Don’t forget to think about your business’s location and whether it really does suit your purpose. Is there enough parking, or enough opportunities to attract passing trade?

Your main objective during this exercise is to be as honest as you can in listing weaknesses. Don’t just make a list of mistakes that have been made, such as an occasion when a customer was not called back promptly. Try to see the broader picture instead and learn from what happened. It may be that your systems or processes could be improved so that customers are contacted at the right time, so work on boosting your systems and making that change happen rather than looking about for someone to blame.

It’s a good idea to get an outside viewpoint on what your weaknesses are as your own

perceptions may not always marry up to reality. You may strongly believe that your years

of experience in a sector reflect your business’s thorough grounding and knowledge of all

of your customers’ needs. Your customers, on the other hand, may perceive this wealth of

experience as an old-fashioned approach that shows an unwillingness to change and work

with new ideas. Be prepared to hear things you may not like, but which, ultimately, may

be extremely helpful.

Spot the Opportunities

The next step is to analyze your opportunities, and this can be tackled in several ways. External opportunities can include the misfortune of competitors who are not performing well, providing you with the opportunity to do better. There may be technological developments that you could benefit from, such as broadband arriving in your area, or a new process enhancing your products. There may be some legislative changes affecting your customers, offering you an opportunity to provide advice, support, or added services. Changes in market trends and consumer buying habits may provide the development of a niche market, of which you could take advantage before your competitors, if you are quick enough to take action.

Another good idea is to consider your weaknesses more carefully, and work out ways of addressing the problems, turning them around in order to create an opportunity. For example, the pressing issue of a supplier who continually lets you down could be turned into an opportunity by sourcing another supplier who is more reliable and who may even offer you a better deal. If a member of staff leaves, you have an opportunity to reevaluate duties more efficiently or to recruit a new member of staff who brings additional experience and skills with them.

Watch Out for Threats

Analyzing the threats to your business requires some guesswork, and this is where your analysis can be overly subjective. Some threats are tangible, such as a new competitor moving into your area, but others may be only intuitive guesses that result in nothing. Having said that, it’s much better to be vigilant because if potential threat does become a real one, you’ll be able to react much quicker: you’ll have considered your options already and hopefully also put some contingency planning into place. Think about the worst things that could realistically happen, such as losing your customers to your major competitor, or the development of a new product far superior to your own. Listing your threats in your SWOT analysis will provide ways for you to plan to deal with the threats, if they ever actually start to affect your business.

Use Your Analysis

After completing your SWOT analysis, it’s vital that you learn from the information you

have gathered. You should now plan to build on your strengths, using them to their full

potential, and also plan to reduce your weaknesses, either by minimizing the risk they

represent, or making changes to overcome them. Now that you understand where your

opportunities lie, make the most of them and aim to capitalize on every opportunity in

front of you. Try to turn threats into opportunities. Try to be proactive, and put plans into

place to counter any threats as they arise.

To help you in planning ahead, you could combine some of the areas you have highlighted in the boxes; for example, if you see an external opportunity of a new market growing, you will be able to check whether your internal strengths will be able to make the most of the opportunity. For example, do you have enough trained staff in place, and can your phone system cope with extra customer orders? If you have a weakness that undermines an opportunity, it provides a good insight as to how you might develop your internal strengths and weaknesses to maximize your opportunities and minimize your threats.

The basic SWOT process is to fill in the four boxes, but the real benefit is to take an overview of everything in each box, in relation to all the other boxes. This comparative analysis will then provide an evaluation that links external and internal forces to help your business prosper.

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The Long-term Effect of Marketing Strategy on Brand Performance

M. Berk Ataman, Tilburg University
Harald J. van Heerde, Tilburg University
Carl F. Mela, Duke University1

Abstract

Recently, increased attention has been devoted to the long-term role that advertising and pricing strategy plays in shaping brand performance. The authors supplement this research by considering the entire marketing mix (pricing, promotion, product, and place) over a large number of categories. To do this, the authors combine five years of advertising and weekly storelevel scanner data for 25 product categories and 70 brands in 184 stores in France. Using a multivariate dynamic linear transfer function model, the authors find that most variation in brands’ quantity premiums (a brand’s incremental sales relative to brands that are priced and promoted the same way) can be ascribed to advertising and discounting. In contrast, most variation in brands’ margin premiums (the inverse of the absolute price elasticity) can be apportioned to distribution and product. Overall, they find that discounts are deleterious for brands while product innovation is beneficial. The authors conclude with recommendations regarding long-term strategies for managing brands.

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The Detection of Earnings Manipulation

Messod D. Beneish
(corrected July 2003)

Presented are a profile of a sample of earnings manipulators, their distinguishing characteristics, and a suggested model for detecting manipulation. The model’s variables are designed to capture either the financial statement distortions that can result from manipulation or preconditions that might prompt companies to engage in such activity. The results suggest a systematic relationship between the probability of manipulation and some financial statement variables. This evidence is consistent with the usefulness of accounting data in detecting manipulation and assessing the reliability of reported earnings. The model identifiesapproximately half of the companies involved in earnings manipulation prior to public discovery. Because companies that are discovered manipulating earnings see their stocks plummet in value, the model can be a useful screening device for investment professionals. The screening results, however, require determination of whether the distortions in the financial statement numbers result from earnings manipulation or have another structural root.

The extent to which earnings are manipulated has long been of interest to analysts, regulators, researchers, and other investment professionals. The U.S. SEC’s recent commitment to vigorous investigation of earnings manipulation (see Levitt 1998) has sparked renewed interest in the area, but the academic and professional literature contains little discussion of the detection of earnings manipulation. This article presents a model to distinguish manipulated from nonmanipulated reporting.1 Earnings manipulation is defined as an instance in which a company’s managers violate generally accepted accounting principles (GAAP) to favorably represent the company’s financial performance. To develop the model, I used financial statement data to construct variables that would capture the effects of manipulation and preconditions that might prompt companies to engage in such activity.

Conclusion
Some accounting variables can be used to identify companies that are manipulating their reported earnings. I found that, because manipulation typically consists of an artificial inflation of revenues or deflation of expenses, variables that take into account simultaneous bloating in asset accounts have predictive content. I also found that sales growth has discriminatory power: The primary characteristic of sample manipulators was that they had high growth prior to periods during which manipulation was in force. The evidence presented here was based on a sample of companies whose manipulation of earnings was publicly discovered. Such companies probably represent the upper tail of the distribution of companies that seek to influence their reported earnings—successful and undiscovered manipulators undoubtedly exist—so the evidence should be interpreted in that light. Given this caution, evidence has been presented here of a systematic association between earnings manipulation and financial statement data that is of interest to accounting researchers and investment professionals. The evidence suggests that accounting data not only meet the test of providing useful information, but they also enable an assessment of the reliability of the reporting. The explicit classification model described here requires only two years of data (one annual report) to evaluate the likelihood of manipulation and can be inexpensively applied by the SEC, auditors, and investors to screen a large number of companies and identify potential manipulators for further investigation. Although the model is cost-effective relative to a strategy of treating all companies as nonmanipulators, its large rate of classification errors makes further investigation of the screening results important. The model’s variables exploit distortions in financial statement data that might or might not result from manipulation. For example, the distortions could be the result of a material acquisition during the period examined, a material shift in the company’s value-maximizing strategy, or a significant change in the company’s economic environment.

One limitation of the model was that it is estimated using financial information for publicly traded companies. Therefore, it cannot be reliably used to study privately held companies. Another limitation is that the earnings manipulation in the sample involved earnings overstatement rather than understatement; therefore, the model cannot be reliably used to study companies operating in circumstances that are conducive to decreasing earnings.


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Does EVA beat earnings?

( Evidence on associations with stock returns and Þrm values)
Gary C. Biddle!,", Robert M. Bowen!,*, James S. Wallace#

Abstract
This study tests assertions that Economic Value Added (EVAt) is more highly
associated with stock returns and Þrm values than accrual earnings, and evaluates which
components of EVA, if any, contribute to these associations. Relative information
content tests reveal earnings to be more highly associated with returns and Þrm values
than EVA, residual income, or cash ßow from operations. Incremental tests suggest that
EVA components add only marginally to information content beyond earnings. Considered
together, these results do not support claims that EVA dominates earnings in
relative information content, and suggest rather that earnings generally outperforms
EVA. ( 1997 Elsevier Science B.V. All rights reserved.

1. Introduction and motivation
For centuries, economists have reasoned that for a Þrm to create wealth it
must earn more than its cost of debt and equity capital (Hamilton, 1777; Marshall, 1890). In the twentieth century, this concept has been operationalized
under various labels including residual income.1 Residual income has been
recommended as an internal measure of business-unit performance (Solomons,
1965) and as an external performance measure for Þnancial reporting (Anthony,
1973, 1982a,b). General Motors applied this concept in the 1920s and General
Electric coined the term Ôresidual incomeÕ in the 1950s and used it to assess the
performance of its decentralized divisions (Stern Stewart EVA Roundtable,
1994).


More recently, Stern Stewart & Company has advocated that a trademarked
variant of residual income, economic value added (EVAt), be used instead of
earnings or cash from operations as a measure of both internal and external
performance.2 They argue: ªAbandon earnings per shareº (Stewart, 1991) (p. 2).
ªEarnings, earnings per share, and earnings growth are misleading measures of
corporate performanceº (Stewart, 1991), (p. 66). ªThe best practical periodic
performance measure is economic value added (EVA)º (Stewart, 1991 (p. 66).
ªForget EPS, ROE and ROI. EVA is what drives stock pricesº (Stern Stewart
advertisement in Harvard Business Review, NovemberÐDecember, 1995, p. 20).
Stewart (1994) cites in-house research indicating that ªEVA stands well out from
the crowd as the single best measure of wealth creation on a contemporaneous
basisº and ªEVA is almost 50% better than its closest accounting-based competitor
in explaining changes in shareholder wealthº (p. 75).


This study provides independent empirical evidence on the information
content of EVA, residual income, and two mandated performance measures,
earnings and cash ßow from operations. Our inquiry is motivated by: the claims
cited above, interest in EVA in the business press, increasing use of EVA by
Þrms, increasing interest in EVA among academics, and potential interest in
EVA among accounting policy makers. Citations of EVA in the business press
have grown exponentially, rising from 1 in 1989 to 294 in 1996 (Lexis/Nexis
ÔallnewsÕ library). Fortune has touted EVA as ªThe Real Key to Creating
Wealthº (30 September 1993), ªA New Way to Find Bargainsº (9 December
1996), and has begun augmenting its well-known Ô500Õ ranking with an annual ÔPerformance 1000Õ based on data from Stern Stewart (Tully, 1993, 1994; Fisher,
1995; Lieber, 1996; Teitelbaum, 1997).


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