This feature provides a complete leverage trading experience without requiring users to leave the Dopamine app, increasing convenience and daily engagement. The feature offers a complete leverage trading experience without requiring users to leave the Dopamine app. This not only makes it more convenient for traders to conduct their activities from a single platform, but also increases the chances of daily engagement and further exploration of other exciting Dopamine App trading features. It also enables access to multiple order types and different margin modes to suit different trader profiles. With Dopamine Leverage Trading users can also access multiple order types i.e. market, limit, stop limit etc. and different margin modes to suit different trader profiles.

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Typically, Leverage is a feature that allows traders to open positions larger than their current account balance. Essentially, the exchange lends money to the trader based on the multiplier they choose to use.

For instance, if a trader has $100 in their account, they can open a BTC/USDT position valued at $10,000. It's important to exercise caution when using leverage, though. While it may provide the possibility to make more profits, it's also highly risky as even a slight 1% move in the opposite direction of the trade can lead to losing the margin posted or even result in the liquidation of the entire account if using cross margin. As a rule of thumb, it's recommended not to use leverage higher than 5x to minimize risks.

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The debt-service coverage ratio applies to corporate, government, and personal finance. In the context of corporate finance, the debt-service coverage ratio (DSCR) is a measurement of a firm's available cash flow to pay current debt obligations. The DSCR shows investors whether a company has enough income to pay its debts.Understanding Debt-Service Coverage Ratio (DSCR)

Debt-service coverage ratio is a widely used indicator of a company's financial health, especially those who are highly levered and carrying a lot of debt. The ratio compares a company's total debt obligations (including principal repayments and some capital lease agreements) to its operating income.

Different lenders, stakeholders, and partners will target different DSCR metrics. In addition, a company's history, industry, product pipeline, and prior relationships with lenders. External parties may also be more considerate during seasonal operation when a company's income is flexible, though DSCR terms are often included in loan agreements.

Formula and Calculation of DSCR

DSCR Formula and Calculation

The formula for the debt-service coverage ratio requires net operating income and the total debt servicing for the entity. Net operating income is a company's revenue minus certain operating expenses (COE), not including taxes and interest payments. It is often considered the equivalent of earnings before interest and tax (EBIT).

\begin{aligned} &\text{DSCR} = \frac{ \text{Net Operating Income} }{ \text{Total Debt Service} } \\ &\textbf{where:} \\ &\text{Net Operating Income} = \text{Revenue} - \text{COE} \\ &\text{COE} = \text{Certain operating expenses} \\ &\text{Total Debt Service} = \text{Current debt obligations} \\ \end{aligned}​DSCR=Total Debt ServiceNet Operating Income​where:Net Operating Income=Revenue−COECOE=Certain operating expensesTotal Debt Service=Current debt obligations​

Some calculations include non-operating income in EBIT. As a lender or investor comparing different companies' creditworthiness—or a manager comparing different years or quarters—it is important to apply consistent criteria when calculating DSCR. As a borrower, it is important to realize that lenders may calculate DSCR in slightly different ways.

Total debt service refers to current debt obligations, meaning any interest, principal, sinking fund, and lease payments that are due in the coming year. On a balance sheet, this will include short-term debt and the current portion of long-term debt.

Income taxes complicate DSCR calculations because interest payments are tax deductible, while principal repayments are not. A more accurate way to calculate total debt service is, therefore, to compute the following:

\begin{aligned} &\text{TDS} = ( \text{Interest} \times ( 1 - \text{Tax Rate} ) ) + \text{Principal} \\ &\textbf{where:} \\ &\text{TDS} = \text{Total debt service} \\ \end{aligned}​TDS=(Interest×(1−Tax Rate))+Principalwhere:TDS=Total debt service​ Calculating DSCR Using Excel

To create a dynamic DSCR formula in Excel, you cannot simply run an equation that divides net operating income by debt service. Rather, you would title two successive cells, such as A2 and A3, "net operating income" and "debt service." Then, adjacent to those cells, in B2 and B3, you would place the respective figures from the income statement.

In a separate cell, enter a formula for DSCR that uses the B2 and B3 cells rather than actual numeric values (e.g., B2 / B3).

Even for a calculation this simple, it is best to use a dynamic formula that can be adjusted and recalculated automatically. One of the primary reasons to calculate DSCR is to compare it to other firms in the industry, and these comparisons are easier to run if you can simply plug in the numbers.

What DSCR Can Tell You

Whether the context is corporate finance, government finance, or personal finance, the debt-service coverage ratio reflects the ability to service debt given a particular level of income. The ratio states net operating income as a multiple of debt obligations due within one year, including interest, principal, sinking funds, and lease payments.

Lender Considerations

In the context of government finance, the DSCR is the amount of export earnings needed by a country to meet annual interest and principal payments on its external debt. In the context of personal finance, it is a ratio used by bank loan officers to determine income property loans.

The minimum DSCR a lender will demand can depend on macroeconomic conditions. If the economy is growing, credit is more readily available, and lenders may be more forgiving of lower ratios. A tendency to lend to less-qualified borrowers can, in turn, affect the economy's stability.

This was arguably the case leading up to the 2008 financial crisis. Subprime borrowers were able to obtain credit, particularly mortgages, with little scrutiny. When these borrowers began to default en masse, the financial institutions that had financed them collapsed.1

Evaluating DSCR Outcomes

Lenders will routinely assess a borrower's DSCR before making a loan. A DSCR of less than 1 means negative cash flow, which means that the borrower will be unable to cover or pay current debt obligations without drawing on outside sources—in essence, borrowing more.

For example, a DSCR of 0.95 means that there is only sufficient net operating income to cover 95% of annual debt payments. In the context of personal finance, this would mean that the borrower would have to delve into their personal funds every month to keep the project afloat. In general, lenders frown on negative cash flow, but some allow it if the borrower has strong resources in addition to their income.

If the debt-service coverage ratio is too close to 1, for example, 1.1, the entity is vulnerable, and a minor decline in cash flow could render it unable to service its debt. Lenders may, in some cases, require that the borrower maintain a certain minimum DSCR while the loan is outstanding.

Some agreements will consider a borrower who falls below that minimum to be in default. Typically, a DSCR greater than 1 means the entity—whether an individual, company, or government—has sufficient income to pay its current debt obligations.

A unit investment trust (UIT) is an investment company that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income. Unit investment trusts, along with mutual funds and closed-end funds, are defined as investment companies.

KEY TAKEAWAYS

• A unit investment trust (UIT) is a U.S. financial company that buys or holds a group of securities, such as stocks or bonds, and makes them available to investors as redeemable units.

• UITS are similar to both open-ended and closed-end mutual funds in that they all consist of collective investments in which many investors combine their funds to be managed by a portfolio manager.

• Like open-ended mutual funds, UITs are bought and sold directly from the company that issues them, although sometimes they can be bought on the secondary market; like closed-end funds, UITs are issued via an initial public offering (IPO). 

• Unlike mutual funds, UITs have a stated expiration date based on what investments are held in its portfolio; when the portfolio terminates, investors get their cut of the UIT's net assets.

• Also unlike mutual funds, UITs aren't actively-traded, meaning securities aren't bought or sold unless there's a change in the underlying investment, such as a corporate merger or bankruptcy.

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Unit Investment Trust (UIT)

Understanding Unit Investment Trust (UIT)

Investment companies offer individuals the opportunity to invest in a diversified portfolio of securities with a low initial investment requirement. UITs are sold by investment advisors and an owner can redeem the units to the fund or trust, rather than placing a trade in the secondary market. A UIT is either a regulated investment corporation (RIC) or a grantor trust. A RIC is a corporation in which the investors are joint owners, and a grantor trust grants investors proportional ownership in the UIT's underlying securities.

How Investments Are Sold

Investors can redeem mutual fund shares or UIT units at net asset value (NAV) to the fund or trust either directly or with the help of an investment advisor. NAV is defined as the total value of the portfolio divided by the number of shares or units outstanding and the NAV is calculated each business day. On the other hand, closed-end funds are not redeemable and are sold in the secondary market at the current market price. The market price of a closed-end fund is based on investor demand and not as a calculation of net asset value.

4,840

The number of unit investment trusts (UITs) outstanding in the United States, with a market value of $74.84 billion, according to the latest statistics from the Investment Company Institute (ICI).

The Differences Between UITs and Mutual Funds

Mutual funds are open-ended funds, meaning that the portfolio manager can buy and sell securities in the portfolio. The investment objective of each mutual fund is to outperform a particular benchmark, and the portfolio manager trades securities to meet that objective. A stock mutual fund, for example, may have an objective to outperform the Standard & Poor’s 500 index of large-cap stocks.

Many investors prefer to use mutual funds for stock investing so that the portfolio can be traded. If an investor is interested in buying and holding a portfolio of bonds and earning interest, that individual may purchase a UIT or closed-end fund with a fixed portfolio. A UIT, for example, pays the interest income on the bonds and holds the portfolio until a specific end date when the bonds are sold and the principal amount is returned to the owners. A bond investor can own a diversified portfolio of bonds in a UIT, rather than manage interest payments and bond redemptions in a personal brokerage account.

There are stock and bond UITs, but bond UITs are typically more popular than their stock counterparts, as they offer predictable income and are less likely to suffer losses.

Example of a UIT

Guggenheim's Global 100 Dividend Strategy Portfolio Series 14 (CGONNX) was founded on March 15, 2018, with the intent to provide dividend income. It contains 100 diversified positions: 45.16% is invested in large-cap stocks, 26.94% in mid-caps and 27.90% in small caps. Roughly half of the securities are invested in U.S. stocks, with the balance invested in many other countries. Allocation reflects many sectors as well. Each company it holds represents roughly 1% of the portfolio.  

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The United Nations, commonly referred to as the U.N., is an international nonprofit organization formed in 1945 to increase political and economic cooperation among its member countries. 

KEY TAKEAWAYS

• The United Nations is an international governing body formed in 1945 to increase political and economic cooperation among its member countries.

• The U.N. grew out of the League of Nations following World War II; now, nearly every country in the world is a member.

• It has five principal component parts, including the U.N. Economic and Social Council, which coordinates the work of 15 specialized agencies.

Purpose of the United Nations

The United Nations was formed in 1945 in the wake of World War II as a way to reduce international tensions, promote human rights, and decrease the possibility of other large-scale conflicts. It is a successor to the League of Nations, a body devoted to international cooperation that was formed in 1920 after World War I but found itself unable to prevent the outbreak of war in Europe and Asia in the 1930s. The U.S. never joined the League of Nations.12

Today, almost every country in the world is represented in the U.N., including the United States (U.N. headquarters is located in New York City). A few states lack U.N. membership, though some of these exercise de facto sovereignty. In some cases, this is because most of the international community does not recognize them as independent (e.g., Tibet, Somaliland, Abkhazia).3 In other cases, it is because one or more powerful member states have blocked their admittance (e.g., Taiwan, Kosovo).45

There are five permanent U.N. members: the U.S., Russia, France, the U.K., and China. When a new state applies to join the U.N., it only takes one permanent member to veto the application.6

Structure of the UN

The U.N. is made up of five principal bodies: the U.N. General Assembly, the U.N. Secretariat, the International Court of Justice, the U.N. Security Council, and the U.N. Economic and Social Council. A sixth, the U.N. Trusteeship Council, has been inactive since 1994.7

UN General Assembly

This is the U.N.'s main deliberative body, in which all members have equal representation. It is headquartered in New York City, and its responsibilities include setting the U.N.'s budget, appointing rotating members to the Security Council, and passing non-binding resolutions that express the opinions of the international community.8

UN Secretariat

The U.N. Secretariat is the executive wing of the U.N., charged with implementing policies set by its deliberative bodies. Its head, the Secretary-General, is the U.N.'s top official. The Secretariat, which is based in New York City, includes the Department of Peacekeeping Operations, which dispatches U.N. soldiers—known as "blue helmets"—on missions authorized by the Security Council.9

International Court of Justice

The International Court of Justice is based in The Hague and has two main functions: to settle disputes submitted by member states according to international law and to issue advisory opinions on legal questions submitted by U.N. agencies. There are 15 judges, and the court's official languages are French and English. Appeals are not allowed, making the judgments final.10

UN Security Council

The U.N. Security Council is charged with maintaining international security. It authorizes peacekeeping missions, accepts new U.N. members, and approves changes to the U.N. charter.11 The Security Council's structure allows a few powerful member states to dominate the U.N.: Russia, the U.K., France, China, and the U.S. hold permanent seats on the council and enjoy veto power. The Security Council's other 10 seats rotate on a staggered two-year schedule; as of 2021, they are occupied by Estonia, India, Ireland, Kenya, Mexico, Niger, Norway, Saint Vincent and the Grenadines, Tunisia, and Vietnam.12

UN Economic and Social Council

The U.N. Economic and Social Council coordinates the activities of the U.N.'s 15 specialized agencies. These include the Food and Agriculture Organization (FAO), which leads efforts to improve food security; the International Labour Organization (ILO), which promotes workers' interests; and the World Bank and the International Monetary Fund (IMF), two of the Bretton Woods institutions, which were founded to shore up international financial stability.13

Which Countries Are Not Members of the United Nations?

There are 193 members of the U.N., all of them sovereign nations. A special category allows so-called observer states to participate in General Assembly meetings, but they cannot vote. The two observer states are the Holy See and Palestine. The Holy See, with the pope at its head, was granted the status of a permanent observer in 1964. Palestine officially applied to join the U.N. in 2011, but the U.N. Security Council has not voted on the application. In 2012, the State of Palestine was officially recognized as a non-member state. Certain other states, including Kosovo and the Republic of China, or Taiwan, are not members because they're not recognized by all members of the U.N.14

Who Founded the United Nations?

In April 1945, as World War II was coming to a close, representatives of 50 war-weary countries gathered in San Francisco, Calif., for the United Nations Conference on International Organization. For two months, the group worked on drafting and then signing the U.N. Charter, creating the United Nations, an international organization that all hoped would help prevent another world war. The charter was ratified by China, France, the Soviet Union, the United Kingdom, the U.S., and other nations, and the U.N. got off the ground officially on Oct. 24, 1945.2

Who Is the Secretary-General of the UN?

The ninth secretary-general of the U.N., António Guterres, took office on Jan. 1, 2017. The Portugal native was recently sworn in to a second five-year term, which begins in January 2022.15

What Are the Agencies Inside the United Nations?

The U.N. has a number of specialized agencies that are actually autonomous organizations working inside the United Nations. Some pre-date World War I, while others were associated with the League of Nations or arose when the U.N. was created or even later. Some of the best known of these agencies, which are headquartered all over the world, include the Food and Agriculture Organization (FAO), which fights hunger; the World Health Organization (WHO), which is the authority on international health at the U.N.; the International Monetary Fund (IMF), which helps foster economic growth; the International Labor Organization (ILO), which sets international labor standards; the United Nations Educational, Scientific, and Cultural Organization (UNESCO), which helps protect important cultural and historic sites across the globe; and the World Bank, which aims to reduce poverty and raise living standards around the world.16

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Universal life (UL) insurance is permanent life insurance (lasting the lifetime of the insured) that has an investment savings element and low premiums similar to those of term life insurance. Most UL insurance policies contain a flexible-premium option. but some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).

KEY TAKEAWAYS

• Universal life (UL) insurance is a form of permanent life insurance with an investment savings element plus low premiums.

• The price tag on universal life (UL) insurance is the minimum amount of a premium payment required to keep the policy.

• There are no tax implications for policyholders who borrow against the accumulated cash value of their UL insurance policy.

• Unlike term life insurance, a UL insurance policy can accumulate cash value.

• You can borrow from any accumulated cash value in your policy.

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What's Universal Life Insurance?

How Universal Life (UL) Insurance Works

A UL insurance option provides more flexibility than whole life insurance. Policyholders can adjust their premiums and death benefits. UL insurance premiums consist of two components: a cost of insurance (COI) amount and a saving component, known as the cash value.1

As the name implies, the COI is the minimum amount of a premium payment required to keep the policy active. It consists of several items rolled together into one payment. COI includes the charges for mortality, policy administration, and other directly associated expenses to keeping the policy in force. COI will vary by policy based on the policyholder’s age, insurability, and the insured risk amount.

Collected premiums in excess of the cost of UL insurance accumulate within the cash value portion of the policy. Over time the cost of insurance will increase as the insured ages. However, if sufficient, the accumulated cash value will cover the increases in the COI.

Investopedia / Ellen Lindner.

Advantages and Disadvantages of Universal Life (UL) Insurance

Much like a savings account, a UL insurance policy can accumulate cash value. In a UL insurance policy, the cash value earns interest based on the current market or minimum interest rate, whichever is greater. As cash value accumulates, policyholders may access a portion of the cash value without affecting the guaranteed death benefit. However, the withdrawals will be taxed.

Also, depending on when the policy and premium payments are made, earnings will be available as either last in, first out (LIFO) or first in, first out (FIFO) funds. Upon the death of the insured, the insurance company will retain any remaining cash value, with beneficiaries only receiving the policy’s death benefit.

Universal life policyholders may borrow against the accumulated cash value without tax implications. However, if they do, interest will be calculated on the loan amount, and there will be a cash surrender fee. Unpaid loans will reduce the death benefit by the outstanding amount, with unpaid interest on the loan deducted from the remaining cash value.2

Unlike whole life insurance policies, which have fixed premiums over the life of the policy, a UL insurance policy can have flexible premiums. Policyholders can make payments that are more than the COI. The excess premium is added to the cash value and accumulates interest. If there is enough cash value, policyholders may skip payments without the threat of a policy lapse.3

That said, policyholders must be attentive to the rising cost of insurance as they age. Depending on the credited interest, there may not be enough cash value to keep the policy in force, thus requiring them to pay higher premiums. Missed payments must be paid within a specific time frame for the policy to remain in force.

Pros

• You may borrow from your cash value.

• Lasts your lifetime

• Provides both a death benefit and a cash value account

Cons

• Withdrawals of cash value component are taxed.

• When a policy holder dies, the company keeps the account's cash value.

• You must pay back a policy loan with interest.

Universal Life Insurance vs. Term Life Insurance vs. Whole Life insurance

Universal life, a form of permanent life insurance provides policyholders with flexibility on paying premiums, a cash savings component, and a death benefit. Premium costs may change with interest rates and as the policyholder grows older.

Universal life insurance allows you to borrow against or cash in their savings portion, which grows, tax-deferred over your lifetime. Term life provides coverage, often through an employer, for a set number of years, generally, 20 or 30, and expires once the term is up. Term life is usually affordable, with low premiums, but there is not a cash component to borrow from or cash in, and the death benefit is null and void if you die after the term is up.

Whole life insurance is also a form of permanent life insurance, with a cash value savings component. Another important difference between universal and whole life insurance is that universal life insurance has more flexibility in where you can invest your policy's cash value account. Whole life insurance premiums are locked in for the life of the policy, whereas universal premiums are flexible.

What Is Universal Life Insurance and How Does It Work?

UL insurance policies are a form of permanent life insurance with flexible premiums. Unlike term life, can accumulate interest-bearing funds like a savings account. Also, policyholders can adjust their premiums and death benefits, and holders paying extra toward their premium receive interest on that excess.

What Is the Disadvantage of Universal Life Insurance?

A big disadvantage is that holders must keep their eyes on fees. They will be taxed on cash withdrawals, and interest is charged on loans. Holders should also pay attention to rising premiums as they age because there's a chance enough cash may not be available to keep the policy active, and the holder will be forced to pay higher premiums.

Which Is Better Whole Life or Universal?

Both whole life and universal life are forms of permanent life insurance and provide a cash value savings component that policyholders may borrow from or cash out. Whole life offers fixed premiums, universal premiums, may start out lower, but they are flexible and may increase as you age. Depending on the amount of coverage and flexibility you want in a permanent policy, either form may be a good choice, depending on your situation.

What Is the Difference Between Universal Life Insurance and Whole Life Insurance?

Whole life insurance is more stable because the death benefit will never go down if you pay our premiums, which are fixed monthly amounts. Universal life insurance offers more flexibility, but your death benefit is not guaranteed. If you borrow too much against the policy, the benefit will decrease, but you can design your coverage for many years or your lifetime. You can increase or decrease your death benefit and the amount you spend on premiums.

Can I Cash Out My Universal Life Insurance Policy?

You can sell your universal life insurance policy, or you can liquidate the cash value component and cancel the policy, but you will have to pay a surrender fee.

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A t-test is a type of inferential statistic used to determine if there is a significant difference between the means of two groups, which may be related in certain features. It is mostly used when the data sets, like the data set recorded as the outcome from flipping a coin 100 times, would follow a normal distribution and may have unknown variances. A t-test is used as a hypothesis testing tool, which allows testing of an assumption applicable to a population. 

A t-test looks at the t-statistic, the t-distribution values, and the degrees of freedom to determine the statistical significance. To conduct a test with three or more means, one must use an analysis of variance.

KEY TAKEAWAYS

• A t-test is a type of inferential statistic used to determine if there is a significant difference between the means of two groups, which may be related in certain features.

• The t-test is one of many tests used for the purpose of hypothesis testing in statistics.

• Calculating a t-test requires three key data values. They include the difference between the mean values from each data set (called the mean difference), the standard deviation of each group, and the number of data values of each group.

• There are several different types of t-test that can be performed depending on the data and type of analysis required.

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T-Test

Explaining the T-Test

Essentially, a t-test allows us to compare the average values of the two data sets and determine if they came from the same population. In the above examples, if we were to take a sample of students from class A and another sample of students from class B, we would not expect them to have exactly the same mean and standard deviation. Similarly, samples taken from the placebo-fed control group and those taken from the drug prescribed group should have a slightly different mean and standard deviation.

Mathematically, the t-test takes a sample from each of the two sets and establishes the problem statement by assuming a null hypothesis that the two means are equal. Based on the applicable formulas, certain values are calculated and compared against the standard values, and the assumed null hypothesis is accepted or rejected accordingly.

If the null hypothesis qualifies to be rejected, it indicates that data readings are strong and are probably not due to chance.

The t-test is just one of many tests used for this purpose. Statisticians must additionally use tests other than the t-test to examine more variables and tests with larger sample sizes. For a large sample size, statisticians use a z-test. Other testing options include the chi-square test and the f-test.

There are three types of t-tests, and they are categorized as dependent and independent t-tests.

Ambiguous Test Results

Consider that a drug manufacturer wants to test a newly invented medicine. It follows the standard procedure of trying the drug on one group of patients and giving a placebo to another group, called the control group. The placebo given to the control group is a substance of no intended therapeutic value and serves as a benchmark to measure how the other group, which is given the actual drug, responds.

After the drug trial, the members of the placebo-fed control group reported an increase in average life expectancy of three years, while the members of the group who are prescribed the new drug report an increase in average life expectancy of four years. Instant observation may indicate that the drug is indeed working as the results are better for the group using the drug. However, it is also possible that the observation may be due to a chance occurrence, especially a surprising piece of luck. A t-test is useful to conclude if the results are actually correct and applicable to the entire population.

In a school, 100 students in class A scored an average of 85% with a standard deviation of 3%. Another 100 students belonging to class B scored an average of 87% with a standard deviation of 4%. While the average of class B is better than that of class A, it may not be correct to jump to the conclusion that the overall performance of students in class B is better than that of students in class A. This is because there is natural variability in the test scores in both classes, so the difference could be due to chance alone. A t-test can help to determine whether one class fared better than the other.

T-Test Assumptions

1. The first assumption made regarding t-tests concerns the scale of measurement. The assumption for a t-test is that the scale of measurement applied to the data collected follows a continuous or ordinal scale, such as the scores for an IQ test.

2. The second assumption made is that of a simple random sample, that the data is collected from a representative, randomly selected portion of the total population.

3. The third assumption is the data, when plotted, results in a normal distribution, bell-shaped distribution curve.

4. The final assumption is the homogeneity of variance. Homogeneous, or equal, variance exists when the standard deviations of samples are approximately equal.

Calculating T-Tests

Calculating a t-test requires three key data values. They include the difference between the mean values from each data set (called the mean difference), the standard deviation of each group, and the number of data values of each group.

The outcome of the t-test produces the t-value. This calculated t-value is then compared against a value obtained from a critical value table (called the T-Distribution Table). This comparison helps to determine the effect of chance alone on the difference, and whether the difference is outside that chance range. The t-test questions whether the difference between the groups represents a true difference in the study or if it is possibly a meaningless random difference.

T-Distribution Tables

The T-Distribution Table is available in one-tail and two-tails formats. The former is used for assessing cases which have a fixed value or range with a clear direction (positive or negative). For instance, what is the probability of output value remaining below -3, or getting more than seven when rolling a pair of dice? The latter is used for range bound analysis, such as asking if the coordinates fall between -2 and +2.

The calculations can be performed with standard software programs that support the necessary statistical functions, like those found in MS Excel.

T-Values and Degrees of Freedom

The t-test produces two values as its output: t-value and degrees of freedom. The t-value is a ratio of the difference between the mean of the two sample sets and the variation that exists within the sample sets. While the numerator value (the difference between the mean of the two sample sets) is straightforward to calculate, the denominator (the variation that exists within the sample sets) can become a bit complicated depending upon the type of data values involved. The denominator of the ratio is a measurement of the dispersion or variability. Higher values of the t-value, also called t-score, indicate that a large difference exists between the two sample sets. The smaller the t-value, the more similarity exists between the two sample sets.

• A large t-score indicates that the groups are different.

• A small t-score indicates that the groups are similar.

Degrees of freedom refers to the values in a study that has the freedom to vary and are essential for assessing the importance and the validity of the null hypothesis. Computation of these values usually depends upon the number of data records available in the sample set.

Correlated (or Paired) T-Test

The correlated t-test is performed when the samples typically consist of matched pairs of similar units, or when there are cases of repeated measures. For example, there may be instances of the same patients being tested repeatedly—before and after receiving a particular treatment. In such cases, each patient is being used as a control sample against themselves.

This method also applies to cases where the samples are related in some manner or have matching characteristics, like a comparative analysis involving children, parents or siblings. Correlated or paired t-tests are of a dependent type, as these involve cases where the two sets of samples are related.

The formula for computing the t-value and degrees of freedom for a paired t-test is:

\begin{aligned}&T=\frac{\textit{mean}1 - \textit{mean}2}{\frac{s(\text{diff})}{\sqrt{(n)}}}\\&\textbf{where:}\\&\textit{mean}1\text{ and }\textit{mean}2=\text{The average values of each of the sample sets}\\&s(\text{diff})=\text{The standard deviation of the differences of the paired data values}\\&n=\text{The sample size (the number of paired differences)}\\&n-1=\text{The degrees of freedom}\end{aligned}​T=(n)​s(diff)​mean1−mean2​where:mean1 and mean2=The average values of each of the sample setss(diff)=The standard deviation of the differences of the paired data valuesn=The sample size (the number of paired differences)n−1=The degrees of freedom​

The remaining two types belong to the independent t-tests. The samples of these types are selected independent of each other—that is, the data sets in the two groups don’t refer to the same values. They include cases like a group of 100 patients being split into two sets of 50 patients each. One of the groups becomes the control group and is given a placebo, while the other group receives the prescribed treatment. This constitutes two independent sample groups which are unpaired with each other.

Equal Variance (or Pooled) T-Test

The equal variance t-test is used when the number of samples in each group is the same, or the variance of the two data sets is similar. The following formula is used for calculating t-value and degrees of freedom for equal variance t-test:

\begin{aligned}&\text{T-value} = \frac{ mean1 - mean2 }{\frac {(n1 - 1) \times var1^2 + (n2 - 1) \times var2^2 }{ n1 +n2 - 2}\times \sqrt{ \frac{1}{n1} + \frac{1}{n2}} } \\&\textbf{where:}\\&mean1 \text{ and } mean2 = \text{Average values of each} \\&\text{of the sample sets}\\&var1 \text{ and } var2 = \text{Variance of each of the sample sets}\\&n1 \text{ and } n2 = \text{Number of records in each sample set} \end{aligned}​T-value=n1+n2−2(n1−1)×var12+(n2−1)×var22​×n11​+n21​​mean1−mean2​where:mean1 and mean2=Average values of eachof the sample setsvar1 and var2=Variance of each of the sample setsn1 and n2=Number of records in each sample set​

and,

\begin{aligned} &\text{Degrees of Freedom} = n1 + n2 - 2 \\ &\textbf{where:}\\ &n1 \text{ and } n2 = \text{Number of records in each sample set} \\ \end{aligned}​Degrees of Freedom=n1+n2−2where:n1 and n2=Number of records in each sample set​

Unequal Variance T-Test

The unequal variance t-test is used when the number of samples in each group is different, and the variance of the two data sets is also different. This test is also called the Welch's t-test. The following formula is used for calculating t-value and degrees of freedom for an unequal variance t-test:

\begin{aligned}&\text{T-value}=\frac{mean1-mean2}{\sqrt{\bigg(\frac{var1}{n1}{+\frac{var2}{n2}\bigg)}}}\\&\textbf{where:}\\&mean1 \text{ and } mean2 = \text{Average values of each} \\&\text{of the sample sets} \\&var1 \text{ and } var2 = \text{Variance of each of the sample sets} \\&n1 \text{ and } n2 = \text{Number of records in each sample set} \end{aligned}​T-value=(n1var1​+n2var2​)​mean1−mean2​where:mean1 and mean2=Average values of eachof the sample setsvar1 and var2=Variance of each of the sample setsn1 and n2=Number of records in each sample set​

and,

\begin{aligned} &\text{Degrees of Freedom} = \frac{ \left ( \frac{ var1^2 }{ n1 } + \frac{ var2^2 }{ n2 } \right )^2 }{ \frac{ \left ( \frac{ var1^2 }{ n1 } \right )^2 }{ n1 - 1 } + \frac{ \left ( \frac{ var2^2 }{ n2 } \right )^2 }{ n2 - 1}} \\ &\textbf{where:}\\ &var1 \text{ and } var2 = \text{Variance of each of the sample sets} \\ &n1 \text{ and } n2 = \text{Number of records in each sample set} \\ \end{aligned}​Degrees of Freedom=n1−1(n1var12​)2​+n2−1(n2var22​)2​(n1var12​+n2var22​)2​where:var1 and var2=Variance of each of the sample setsn1 and n2=Number of records in each sample set​

Determining the Correct T-Test to Use

The following flowchart can be used to determine which t-test should be used based on the characteristics of the sample sets. The key items to be considered include whether the sample records are similar, the number of data records in each sample set, and the variance of each sample set.

Image by Julie Bang © Investopedia 2019

Unequal Variance T-Test Example

Assume that we are taking a diagonal measurement of paintings received in an art gallery. One group of samples includes 10 paintings, while the other includes 20 paintings. The data sets, with the corresponding mean and variance values, are as follows:

 Set 1Set 2 19.728.3 20.426.7 19.620.1 17.823.3 18.525.2 18.922.1 18.317.7 18.927.6 19.520.6 21.9513.7  23.2  17.5  20.6  18  23.9  21.6  24.3  20.4  23.9  13.3Mean19.421.6Variance1.417.1

Though the mean of Set 2 is higher than that of Set 1, we cannot conclude that the population corresponding to Set 2 has a higher mean than the population corresponding to Set 1. Is the difference from 19.4 to 21.6 due to chance alone, or do differences really exist in the overall populations of all the paintings received in the art gallery? We establish the problem by assuming the null hypothesis that the mean is the same between the two sample sets and conduct a t-test to test if the hypothesis is plausible.

Since the number of data records is different (n1 = 10 and n2 = 20) and the variance is also different, the t-value and degrees of freedom are computed for the above data set using the formula mentioned in the Unequal Variance T-Test section.

The t-value is -2.24787. Since the minus sign can be ignored when comparing the two t-values, the computed value is 2.24787.

The degrees of freedom value is 24.38 and is reduced to 24, owing to the formula definition requiring rounding down of the value to the least possible integer value.

One can specify a level of probability (alpha level, level of significance, p) as a criterion for acceptance. In most cases, a 5% value can be assumed.

Using the degree of freedom value as 24 and a 5% level of significance, a look at the t-value distribution table gives a value of 2.064. Comparing this value against the computed value of 2.247 indicates that the calculated t-value is greater than the table value at a significance level of 5%. Therefore, it is safe to reject the null hypothesis that there is no difference between means. The population set has intrinsic differences, and they are not by chance.

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Quarter on quarter (QOQ) is a measuring technique that calculates the change between one fiscal quarter and the previous fiscal quarter. The term is similar to the year-over-year (YOY) measure, which compares the quarter of one year (such as the first quarter of 2020) to the same quarter of the previous year (the first quarter of 2019). The measure gives investors and analysts an idea of how a company is growing over each quarter.

KEY TAKEAWAYS

• QOQ compares a change in performance between one fiscal quarter and the previous fiscal quarter.

• QOQ reflects short-term changes in various metrics and can indicate company performance over two quarters.

• Businesses that have income fluctuations or peak earnings at certain times may need to make seasonal adjustments or use a YOY metric to measure performance.

Understanding Quarter on Quarter

QOQ allows a business to monitor shorter-term changes and to progress toward goals or benchmarks set for the year. It can provide valuable information as to how a company is performing and allow the company to respond and make process changes if required.

Often, the QOQ measure is used to compare the earnings between quarters. For example, ABC Company's first-quarter earnings were $1.50 per share, and its second-quarter earnings were $1.75 per share. By calculating the QOQ growth between quarters ($1.75 - $1.50/$1.50), it's clear that the company has grown its earnings by 16.6%, which is a positive indicator for investors.

Quarter on Quarter in Practice

When used in financial or accounting principles, a quarter is a consecutive three-month period within the year. Traditionally, the first quarter (Q1) refers to January, February, and March. Each subsequent three-month period represents Q2, Q3, and Q4.

When used as part of a QOQ analysis, a business would compare financials from Q2 (April, May, June) to Q1 (January, February, March). This comparison varies from YOY where the same quarter is compared from one year to the next. For example, Q1 of 2019 is compared to Q1 of 2018 in a YOY review.

Comparing quarters on a year-over-year (YOY) basis can be more effective than on a quarter on quarter (QOQ) basis, as it gives a broader picture of company health and is not impacted by seasonal issues.

Challenges with QOQ Analysis

There are circumstances where QOQ analysis may not provide a holistic view of the health of an organization. For example, if an industry experiences seasonal sales variance, such as landscapers or seasonal sellers, what may appear to be a downward trend may be an industry norm. The same can apply if a business experiences higher earnings during a peak season that may reflect abnormally high growth from one quarter to the next. An organization may choose to adjust the figures seasonally and compensate for regular shifts in business giving a more accurate picture throughout the year. Since YOY analysis involves the examination of the same quarter from one year to the next, it does not typically require a seasonal adjustment to provide valuable data.

Real-World Example

A company's earnings report from one quarter to the next can affect the market. A disappointing earnings report can cause the stock to plunge as investors try to sell off the stock before the price drops.

In 2018, Amazon's third-quarter earnings exceeded analysts' estimates, but Amazon's guidance for the fourth quarter fell short of expectations, and the company's stock price plunged in response to the announcement. The last quarter of the year includes the holidays and is typically Amazon's busiest season. Fourth-quarter revenue guidance was significantly below the consensus and caused concern among shareholders. Amazon stock plunged by 10%, although it eventually recovered as investors priced in the news.

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Notional value is a term often used to value the underlying asset in a derivatives trade. It can be the total value of a position, how much value a position controls, or an agreed-upon amount in a contract. This term is used when describing derivative contracts in the options, futures, and currency markets.

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Notional Value

Understanding Notional Value

In market parlance, notional value is the total underlying amount of a derivatives trade. The notional value of derivative contracts is much higher than the market value due to a concept called leverage.

Leverage allows one to use a small amount of money to theoretically control a much larger amount. So, notional value helps distinguish the total value of a trade from the cost (or market value) of taking the trade, There is a clear distinction: the notional value accounts for the total value of the position, while the market value is the price at which that position can be bought or sold in the market place. The amount of leverage utilized can be calculated by dividing notional value by market value.

Leverage = Notional value ÷ market value

A contract has a unique, standardized size that can be based on factors such as weight, volume, or multiplier. For example, a single COMEX Gold futures contract unit (GC) is 100 troy ounces, and an E-mini S&P 500 index futures contract has a $50 multiplier.12 The notional value of the former is 100 times the market price of gold while the notional value of the latter is $50 times the market price of the S&P 500 index.

Notional value = Contract size * underlying price

If someone buys an E-mini S&P 500 contract at 2,800, then that single futures contract is worth $140,000 ($50 x 2,800). Therefore, $140,000 is the notional value of that underlying futures contract. The person buying this contract is not required to put up $140,000 when taking the trade, though.

Rather, they only need to put up an amount called the initial margin,(market value) which is usually a fraction of the notional amount. The leverage used would be the notional amount divided by the price of buying the contract. If the price (initial margin) for one contract was $10,000, then the trader was able to utilize (140,000/10,000) 14 times leverage.

Notional value is integral in assessing portfolio risk which can be very useful when determining hedge ratios to offset that risk. For example, a fund has a $1,000,000 long exposure to US equity market and the fund manager wants to offset that risk using the E-mini S&P 500 futures contracts. They would have to sell an approximately equivalent amount of S&P 500 futures contracts to hedge their market exposure risk. Using the above example, the notional value of each E-mini S&P 500 futures contract is $140,000 and the market value is $10,000.

Hedge ratio = Cash exposure risk ÷ notional value of related underlying asset

Hedge ratio = $1,000,000 ÷ $140,000 = 7.14

So, the fund manager would sell approximately 7 E-mini S&P 500 contracts to effectively hedge their long cash position against market risk. The market value (cost) would be $70,000.

While notional value can be used in futures and stocks (total value of the stock position) in the ways discussed above, notional value also applies to interest rate swaps, total return swaps, equity options, and foreign currency derivatives.

KEY TAKEAWAYS

• Notional value is a term often used to value the underlying asset in a derivatives trade.

• Notional value of derivatives contracts is much higher than the market value due to a concept called leverage.

• Notional value is integral in assessing portfolio risk, which can be very useful when determining hedge ratios to offset that risk.

Interest Rate Swaps

In interest rate swaps, the notional value is the specified value upon which interest rate payments will be exchanged. The notional value in interest rate swaps is used to come up with the amount of interest due. Typically, the notional value on these types of contracts is fixed during the life of the contract.

Total Return Swaps

Total return swaps involve a party that pays a floating or fixed rate multiplied by a notional value amount plus the decrease in notional value. This is swapped for payments by another party that pays the appreciation of notional value.

Equity Options

Notional value in an option refers to the value that the option controls.

For example, ABC is trading for $20 with a particular ABC call option costing $1.50. One equity option controls 100 underlying shares. A trader purchases the option for $1.50 x 100 = $150.

The notional value of the option is $20 x 100 = $2,000. Buying the stock option contract would potentially give the trader control over a hundred shares of stock for $150 compared to if they purchased the stocks outright for $2,000.

The notional value of an equity options contract is the value of the shares that are controlled rather than the cost of the transaction.

Foreign Currency Exchange and Foreign Currency Derivatives

Foreign exchange derivatives like forwards and options have two notional values. Since these transactions involve two currencies, they both receive separate notional values. For example, if at the time of a trade, the exchange rate between the British pound (GBP) and the US dollar (USD) is 1.5, then $1,000,000 USD is equivalent to 666,667 GBP.

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A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations. The leverage ratio category is important because companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay off its debts as they come due. Several common leverage ratios are discussed below.

KEY TAKEAWAYS

• A leverage ratio is any one of several financial measurements that assesses the ability of a company to meet its financial obligations.

• A leverage ratio may also be used to measure a company's mix of operating expenses to get an idea of how changes in output will affect operating income. 

• Common leverage ratios include the debt-equity ratio, equity multiplier, degree of financial leverage, and consumer leverage ratio.

• Banks have regulatory oversight on the level of leverage they are can hold.

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Understanding The Leverage Ratio

What Does a Leverage Ratio Tell You?

Too much debt can be dangerous for a company and its investors. However, if a company's operations can generate a higher rate of return than the interest rate on its loans, then the debt may help to fuel growth. Uncontrolled debt levels can lead to credit downgrades or worse. On the other hand, too few debts can also raise questions. A reluctance or inability to borrow may be a sign that operating margins are tight.

There are several different ratios that may be categorized as a leverage ratio, but the main factors considered are debt, equity, assets, and interest expenses.

A leverage ratio may also be used to measure a company's mix of operating expenses to get an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. 

Finally, the consumer leverage ratio refers to the level of consumer debt compared to disposable income and is used in economic analysis and by policymakers.

Banks and Leverage Ratios

Banks are among the most leveraged institutions in the United States. The combination of fractional-reserve banking and Federal Deposit Insurance Corporation (FDIC) protection has produced a banking environment with limited lending risks.

To compensate for this, three separate regulatory bodies, the FDIC, the Federal Reserve, and the Comptroller of the Currency, review and restrict the leverage ratios for American banks.1 This means they restrict how much money a bank can lend relative to how much capital the bank devotes to its own assets. The level of capital is important because banks can "write down" the capital portion of their assets if total asset values drop. Assets financed by debt cannot be written down because the bank's bondholders and depositors are owed those funds.

Banking regulations for leverage ratios are complicated. The Federal Reserve created guidelines for bank holding companies, although these restrictions vary depending on the rating assigned to the bank. In general, banks that experience rapid growth or face operational or financial difficulties are required to maintain higher leverage ratios.2

There are several forms of capital requirements and minimum reserve placed on American banks through the FDIC and the Comptroller of the Currency that indirectly impacts leverage ratios. The level of scrutiny paid to leverage ratios has increased since the Great Recession of 2007 to 2009 when banks that were "too big to fail" were a calling card to make banks more solvent. These restrictions naturally limit the number of loans made because it is more difficult and more expensive for a bank to raise capital than it is to borrow funds. Higher capital requirements can reduce dividends or dilute share value if more shares are issued.

For banks, the tier 1 leverage ratio is most commonly used by regulators.

Leverage Ratios for Evaluating Solvency and Capital Structure

Perhaps the most well known financial leverage ratio is the debt-to-equity ratio.

The Debt-to-Equity (D/E) Ratio

This is expressed as:

\text{Debt-to-Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Shareholders' Equity}}Debt-to-Equity Ratio=Total Shareholders’ EquityTotal Liabilities​

For example, United Parcel Service's long-term debt for the quarter ending December 2019 was $21.8 billion. United Parcel Service's total stockholders' equity for the ending December 2019 was $3.3 billion. The company's D/E for the quarter was 8.62. That is considered high.3

A high debt/equity ratio generally indicates that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If the company's interest expense grows too high, it may increase the company's chances of a default or bankruptcy.

Typically, a D/E ratio greater than 2.0 indicates a risky scenario for an investor; however, this yardstick can vary by industry. Businesses that require large capital expenditures (CapEx), such as utility and manufacturing companies, may need to secure more loans than other companies. It's a good idea to measure a firm's leverage ratios against past performance and with companies operating in the same industry to better understand the data. Fedex has a D/E ratio of 1.78, so there is cause for concern where UPS is concerned. However, most analysts consider that UPS earns enough cash to cover its debts.

The Equity Multiplier

The equity multiplier is similar, but replaces debt with assets in the numerator: 

\text{Equity Multiplier} = \frac{\text{Total Assets}}{\text{Total Equity}}Equity Multiplier=Total EquityTotal Assets​

For example, assume that Macy's (NYSE: M) has assets valued at $19.85 billion and stockholder equity of $4.32 billion. The equity multiplier would be:

\$19.85 \text{ billion} \div \$4.32 \text{ billion} = 4.59$19.85 billion÷$4.32 billion=4.59

Although debt is not specifically referenced in the formula, it is an underlying factor given that total assets includes debt.

Remember that Total Assets = Total Debt + Total shareholders' Equity. The company's high ratio of 4.59 means that assets are mostly funded with debt than equity. From the equity multiplier calculation, Macy's assets are financed with $15.53 billion in liabilities.

The equity multiplier is a component of the DuPont analysis for calculating return on equity (ROE):       

\begin{aligned} &\text{DuPont analysis} = NPM \times AT \times EM\\ &\textbf{where:}\\ &NPM=\text{net profit margin}\\ &AT=\text{asset turnover}\\ &EM=\text{equity multiplier}\\ \end{aligned}​DuPont analysis=NPM×AT×EMwhere:NPM=net profit marginAT=asset turnoverEM=equity multiplier​

The Debt-to-Capitalization Ratio

An indicator that measures the amount of debt in a company’s capital structure is the debt-to-capitalization ratio, which measures a company’s financial leverage. It is calculated as:

\begin{aligned} &\text{Total debt to capitalization} = \frac{(SD + LD)}{(SD + LD + SE)}\\ &\textbf{where:}\\ &SD=\text{short-term debt}\\ &LD=\text{long-term debt}\\ &SE=\text{shareholders' equity}\\ \end{aligned}​Total debt to capitalization=(SD+LD+SE)(SD+LD)​where:SD=short-term debtLD=long-term debtSE=shareholders’ equity​

In this ratio, operating leases are capitalized and equity includes both common and preferred shares. Instead of using long-term debt, an analyst may decide to use total debt to measure the debt used in a firm's capital structure. The formula, in this case, would include minority interest and preferred shares in the denominator.

Degree of Financial Leverage

Degree of financial leverage (DFL) is a ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. It measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT) and is represented as:

\begin{aligned} &DFL = \frac{\% \text{ change in }EPS}{\% \text{ change in }EBIT} \\ &\textbf{where:}\\ &EPS=\text{earnings per share}\\ &EBIT=\text{earnings before interest and taxes}\\ \end{aligned}​DFL=% change in EBIT% change in EPS​where:EPS=earnings per shareEBIT=earnings before interest and taxes​

DFL can alternatively be represented by the equation below:

DFL = \frac{EBIT}{EBIT - \text{interest}}DFL=EBIT−interestEBIT​

This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be. Since interest is usually a fixed expense, leverage magnifies returns and EPS. This is good when operating income is rising, but it can be a problem when operating income is under pressure.

The Consumer Leverage Ratio

The consumer leverage ratio is used to quantify the amount of debt the average American consumer has relative to their disposable income.

Some economists have stated that the rapid increase in consumer debt levels has been a contributing factor to corporate earnings growth over the past few decades. Others blamed the high level of consumer debt as a major cause of the great recession.

\text{Consumer leverage ratio} = \frac{\text{Total household debt}}{\text{Disposable personal income}}Consumer leverage ratio=Disposable personal incomeTotal household debt​

Understanding how debt amplifies returns is the key to understanding leverage. Debt is not necessarily a bad thing, particularly if the debt is taken on to invest in projects that will generate positive returns. Leverage can thus multiply returns, although it can also magnify losses if returns turn out to be negative.

The Debt-To-Capital Ratio

The debt-to-capital ratio is a measurement of a company's financial leverage. It is one of the more meaningful debt ratios because it focuses on the relationship of debt liabilities as a component of a company's total capital base. Debt includes all short-term and long-term obligations. Capital includes the company's debt and shareholders' equity.

This ratio is used to evaluate a firm's financial structure and how it is financing operations. Typically, if a company has a high debt-to-capital ratio compared to its peers, it may have a higher default risk due to the effect the debt has on its operations. The oil industry seems to have about a 40% debt-to-capital threshold. Above that level, debt costs increase considerably.

The Debt-To-EBITDA Leverage Ratio

The debt-to-EBITDA leverage ratio measures a company's ability to pay off its incurred debt. Commonly used by credit agencies, this ratio determines the probability of defaulting on issued debt. Since oil and gas companies typically have a lot of debt on their balance sheets, this ratio is useful in determining how many years of EBITDA would be required to pay back all the debt. Typically, it can be alarming if the ratio is over 3, but this can vary depending on the industry.

The Debt-To-EBITDAX Ratio

Another variation of the debt-to-EBITDA ratio is the debt-to-EBITDAX ratio, which is similar, except EBITDAX is EBITDA before exploration costs for successful efforts companies. This ratio is commonly used in the United States to normalize different accounting treatments for exploration expenses (the full cost method versus the successful efforts method).

Exploration costs are typically found in the financial statements as exploration, abandonment, and dry hole costs. Other noncash expenses that should be added back in are impairments, accretion of asset retirement obligations, and deferred taxes.

The Interest Coverage Ratio

Another leverage ratio concerned with interest payments is the interest coverage ratio. One problem with only reviewing the total debt liabilities for a company is they do not tell you anything about the company's ability to service the debt. This is exactly what the interest coverage ratio aims to fix.

This ratio, which equals operating income divided by interest expenses, showcases the company's ability to make interest payments. Generally, a ratio of 3.0 or higher is desirable, although this varies from industry to industry.

The Fixed-Charge Coverage Ratio

Times interest earned (TIE), also known as a fixed-charge coverage ratio, is a variation of the interest coverage ratio. This leverage ratio attempts to highlight cash flow relative to interest owed on long-term liabilities.

To calculate this ratio, find the company's earnings before interest and taxes (EBIT), then divide by the interest expense of long-term debts. Use pre-tax earnings because interest is tax-deductible; the full amount of earnings can eventually be used to pay interest. Again, higher numbers are more favorable.

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The joint-stock company is a predecessor to the modern corporation. A joint-stock company is a business owned by its investors, with each investor owning a share based on the amount of stock purchased.

Joint-stock companies are created in order to finance endeavors that are too expensive for an individual or even a government to fund. The owners of a joint-stock company expect to share in its profits.

KEY TAKEAWAYS

• A joint-stock company is a business owned collectively by its shareholders, who can buy or sell shares to one another.

• Joint-stock companies are the ancestors of the modern corporation, although there are legal differences.

• Historically, a joint-stock company was not incorporated and thus its shareholders could bear unlimited liability for debts owed by the company.

• In the U.S., the process of incorporation limits shareholder liability to the face value of their shares.1

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Joint-Stock Company

Understanding Joint-Stock Companies

Unless the company is incorporated, the shareholders of a joint-stock company have unlimited liability for company debts. The legal process of incorporation, in the U.S., reduces that liability to the face value of stock owned by the shareholder.1 In Great Britain, the term "limited" has a similar meaning.2

The shares of a joint-stock company are transferable. If the joint-stock company is public, its shares are traded on registered stock exchanges. Shares of private joint-stock company stock are transferable between parties, but the transfer process is often limited by agreement, to family members, for example.1

Historically, investors in joint-stock companies could have unlimited liability, meaning that a shareholder's personal property could be seized to pay off debts in the event of a company collapse.3

Historically, investors in joint-stock companies could have unlimited liability, meaning that a shareholder's personal property could be seized to pay off company debts.3

Joint-Stock Company vs. Public Company

The term joint-stock company is virtually synonymous with a corporation, public company, or just plain company, except for a historical association with unlimited liability. That is, a modern corporation is a joint-stock company that has been incorporated in order to limit shareholder liability.

Each country has its own laws regarding a joint-stock company. These generally include a process to limit liability.

A Short History of Joint-Stock Companies

There are records of joint-stock companies being formed in Europe as early as the 13th century. However, they appear to have multiplied beginning in the 16th century, when adventurous investors began speculating about opportunities to be found in the New World.4

European exploration of the Americas was largely financed by joint-stock companies. Governments were eager for new territory but were reluctant to take on the enormous costs and risks associated with these ventures.4

That led entrepreneurs to devise a business plan. They would sell shares in their ventures to many investors in order to raise money to fund voyages to the New World. The potential for resources to be exploited and trade to be developed was the attraction for many investors. Others wanted to literally stake a claim in the New World and establish new communities that would be free of religious persecution.4

In American history, the Virginia Company of London is one of the earliest and most famous joint-stock companies. In 1606, King James I signed a royal charter permitting the company exclusive rights to establish a colony in what is now Virginia. The Virginia Company's business plan was ambitious, ranging from exploiting the region's gold resources (there weren't any) to finding a navigable route to China (they didn't).4

After many hardships, the company successfully established the Jamestown colony in Virginia and began to grow and export tobacco. However, in 1624, an English court ordered the company to dissolve and converted Virginia into a royal colony. The investors in the Virginia Company never saw a profit.4

Why Were Joint Stock Companies Important in U.S. History?

Joint-stock companies played a major role in funding the settlement of the original colonies. These companies could raise money from many investors, without exposing any investor to excessive risk. This allowed the companies to raise enough resources to launch successful settlements in the new world. One famous example was the Virginia Company of London, which funded the settlement at Jamestown.5

What Was the Advantage of Joint Stock Companies?

Joint-stock companies can raise a large amount of capital by issuing shares, rather than relying on a single investor. This made them a practical investment vehicle for colonial ventures that were prohibitively expensive for any single financier. Moreover, the introduction of tradeable shares added an element of liquidity, since investors could realize gains without waiting for the venture to conclude.

What Was the Most Famous Joint-Stock company?

Perhaps the most famous joint-stock company was the British East India Company, which was formed to trade with India and Asia. Over the course of its 250-year history, the EIC effectively controlled the colonization and exploitation of India and other overseas territories.6

The Bottom Line

Joint-stock companies are collectively owned by shareholders. Some existed as early as the 13th century. While, historically, they left shareholders open to unlimited liability, incorporation law has limited liability for shareholders. In the U.S., it was limited to the face value of their shares.

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A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal.

The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.

KEY TAKEAWAYS

• A head and shoulders pattern is a technical indicator with a chart pattern of three peaks, where the outer two are close in height and the middle is the highest.

• A head and shoulders pattern—considered one of the most reliable trend reversal patterns—is a chart formation that predicts a bullish-to-bearish trend reversal.

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What Is The Head And Shoulders Pattern?

Understanding a Head and Shoulders Pattern

The head and shoulders pattern forms when a stock's price rises to a peak and subsequently declines back to the base of the prior up-move. Then, the price rises above the former peak to form the "nose" and then again declines back to the original base. Finally, the stock price rises again, but to the level of the first, initial peak of the formation before declining back down to the base or neckline of chart patterns one more time.

Image by Sabrina Jiang © Investopedia 2020

What Does a Head and Shoulders Pattern Tell You?

A head and shoulders pattern is comprised of three component parts:

1. After long bullish trends, the price rises to a peak and subsequently declines to form a trough.

2. The price rises again to form a second high substantially above the initial peak and declines again.

3. The price rises a third time, but only to the level of the first peak, before declining once more.

The first and third peaks are shoulders, and the second peak forms the head. The line connecting the first and second troughs is called the neckline.

An inverse or reverse head and shoulders pattern is also a reliable indicator that can signal that a downward trend is about to reverse into an upward trend. In this case, the stock's price reaches three consecutive lows, separated by temporary rallies. Of these, the second trough is the lowest (the head) and the first and third are slightly shallower (the shoulders). The final rally after the third dip signals that the bearish trend has reversed and prices are likely to keep rallying upward.

Tug-of-War

Stock prices are the result of a continuous game of tug-of-war; whether a stock's price goes up or down is the direct result of how many people are on each team. Those who believe a stock's price will go up are called bulls, and those who believe the stock will go down are called bears. If more of a stock's shareholders are bears, then its price will go down as they sell their shares to avoid losing money. If more people are bullish, then the price will go up as new investors buy in to take advantage of the opportunity.

Inverse Head and Shoulders

The opposite of a head and shoulders chart is the inverse head and shoulders, also called a head and shoulders bottom. It is inverted with the head and shoulders top used to predict reversals in downtrends. This pattern is identified when the price action of a security meets the following characteristics: The price falls to a trough and then rises; the price falls below the former trough and then rises again; finally, the price falls again but not as far as the second trough. Once the final trough is made, the price heads upward, toward the resistance found near the top of the previous troughs.

The Market Actions Behind the Head and Shoulders Pattern

Like all charting patterns, the ups and downs of the head and shoulders pattern tell a very specific story about the battle being waged between bulls and bears.

The initial peak and subsequent decline represent the waning momentum of the prior bullish trend. Wanting to sustain the upward movement as long as possible, bulls rally to push the price back up past the initial peak to reach a new high (the head). At this point, it is still possible that bulls could reinstate their market dominance and continue the upward trend.

However, once the price declines a second time and reaches a point below the initial peak, it is clear that bears are gaining ground. Bulls try one more time to push the price upward but succeed only in hitting the lesser high reached in the initial peak. This failure to surpass the highest high signals the bulls' defeat and bears take over, driving the price down and completing the reversal.

How Do I Identify a Head and Shoulders Pattern on a Chart?

The pattern is composed of a "left shoulder," a "head," then a "right shoulder" that shows a baseline with three peaks, the middle peak being the highest. The left shoulder is marked by price declines followed by a bottom, followed by a subsequent increase. The head is formed by price declines again forming a lower bottom. The right shoulder is then created when the price increases once again, then declines to form the right bottom.

What Does a Head and Shoulders Pattern Indicate?

The head and shoulders chart is said to depict a bullish-to-bearish trend reversal and signals that an upward trend is nearing its end. Investors consider it to be one of the most reliable trend reversal patterns.

How Can I Use the Head and Shoulders Pattern to Make Trading Decisions?

The most common entry point is a breakout of the neckline, with a stop above (market top) or below (market bottom) the right shoulder. The profit target is the difference between the high and low with the pattern added (market bottom) or subtracted (market top) from the breakout price. The system is not perfect, but it does provide a method of trading the markets based on logical price movements.

What Is an Inverse Head and Shoulders?

An inverse head and shoulders, also called a "head and shoulders bottom," is similar to the standard head and shoulders pattern, but inverted, with the head and shoulders top used to predict reversals in downtrends. 

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Enterprise resource planning (ERP) is a process used by companies to manage and integrate the important parts of their businesses. Many ERP software applications are important to companies because they help them implement resource planning by integrating all of the processes needed to run their companies with a single system. An ERP software system can also integrate planning, purchasing inventory, sales, marketing, finance, human resources, and more.

KEY TAKEAWAYS

• ERP software can integrate all of the processes needed to run a company.

• ERP solutions have evolved over the years, and many are now typically web-based applications that users can access remotely.

• Some benefits of ERP include the free flow of communication between business areas, a single source of information, and accurate, real-time data reporting.

• An ERP system can be ineffective if a company doesn't implement it carefully.

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Enterprise Resource Planning (ERP)

Understanding Enterprise Resource Planning

You can think of an enterprise resource planning system as the glue that binds together the different computer systems for a large organization. Without an ERP application, each department would have its system optimized for its specific tasks. With ERP software, each department still has its system, but all of the systems can be accessed through one application with one interface.

ERP applications also allow the different departments to communicate and share information more easily with the rest of the company. It collects information about the activity and state of different divisions, making this information available to other parts, where it can be used productively.

ERP applications can help a corporation become more self-aware by linking information about the production, finance, distribution, and human resources together. Because it connects different technologies used by each part of a business, an ERP application can eliminate costly duplicate and incompatible technology. The process often integrates accounts payable, stock control systems, order-monitoring systems, and customer databases into one system.

ERP offerings have evolved over the years from traditional software models that make use of physical client servers to cloud-based software that offers remote, web-based access.

A company could experience cost overruns if its ERP system is not implemented carefully.

Benefits of Enterprise Resource Planning (ERP)

Businesses employ enterprise resource planning (ERP) for various reasons, such as expanding business, reducing costs, and improving operations. The benefits sought and realized by one company may be different from another; however, there are some worth noting.

Integrating and automating business processes eliminates redundancies, improves accuracy, and improves productivity. Departments with interconnected processes can now synchronize work to achieve faster and better outcomes.

Some businesses benefit from enhanced reporting of real-time data from a single source system. Accurate and complete reporting help companies adequately plan, budget, forecast, and communicate the state of operations to the organization and interested parties, such as shareholders.

ERPs allow businesses to quickly access needed information for clients, vendors, and business partners, contributing to improved customer and employee satisfaction, quicker response rates, and increased accuracy rates. Associated costs often decrease as the company operates more efficiently.

Departments are better able to collaborate and share knowledge; a newly synergized workforce can improve productivity and employee satisfaction as employees are better able to see how each functional group contributes to the mission and vision of the company. Also, menial, manual tasks are eliminated, allowing employees to allocate their time to more meaningful work.

Special Considerations

An ERP system doesn't always eliminate inefficiencies within the business. The company needs to rethink the way it's organized, or else it will end up with incompatible technology.

ERP systems usually fail to achieve the objectives that influenced their installation because of a company's reluctance to abandon old working processes that are incompatible with the software. Some companies are also reluctant to let go of old software that worked well in the past. The key is to prevent ERP projects from being split into many smaller projects, which can result in cost overruns.

Employing change management principles throughout the ERP life cycle can prevent or reduce failures that compromise full implementation.

ERP Solutions Providers

Some familiar names are leaders in ERP software. Oracle Corp. (ORCL) originally supplied a relational database that integrated with ERP software developed by SAP (SAP) before entering the broader enterprise market in a big way in the early 2000s. Microsoft (MSFT) has long been an industry leader, with many customers using multiple software applications from the company.

As cloud-based solutions have grown in popularity in recent years, the traditional ERP industry leaders have seen challenges from upstarts such as Bizowie and WorkWise.

Examples of Enterprise Resource Planning (ERP)

Men's grooming product maker Fulton & Roark successfully implemented enterprise resource planning to better track inventory and financial data. The North Carolina company, like many other businesses, used spreadsheets to track inventory and accounting software to record financial data.1

As the company grew, its processes lagged behind. Their antiquated inventory tracking system did not account for changing costs, and the accounting software could not record metrics needed for key financial statements. These breakdowns created manual processes, which further compromised time and resources.

To eliminate unnecessary processes and centralize work, they chose the Oracle Netsuite ERP system. Immediately, Fulton & Rourk was better able to identify accounting errors related to inventory, eliminate costs from employing third-parties to evaluate their financial records, and better report financial positions.

Cadbury, global confectioner and maker of the popular chocolate Cadbury egg, also successfully implemented an ERP system. It operated thousands of systems that could not keep pace with its rapid growth, as well as used ineffective warehouse management systems. Previously, it implemented a failed SAP ERP system, which resulted in an overproduction of products.

Trying its hand at enterprise resource planning again, it implemented a system that integrated its thousands of applications,2 standardized processes across 16 locations, and restructured warehouse management systems—breaking down silos for a seamless, integrated coordination of work—to name a few.3

There are many case studies that support the need for properly executed enterprise resource planning. The system should match the needs and goals of the company.

Enterprise Resource Planning FAQs

What Is an ERP and How Does It Work?

Enterprise resource planning (ERP) consists of technologies and systems companies use to manage and integrate their core business processes. Enterprise resource planning software offers single system solutions that integrate processes across the business. Such applications allow for users to interact within a single interface, share information, and enable cross-functional collaboration.

What Is an Example of an ERP?

With the explosion of the Internet of things (IoT), it's no secret that Internet-fueled or cloud-based applications are on the rise. As a result, more companies are moving away from on-site ERP systems to adopt the more agile, cloud-based ERP system, managed and maintained by the host or vendor. Oracle, widely known in the tech industry, offers several cloud-based ERP products used by many household brands, such as FedEx, Blue Cross, and Blue Shield.

What Are the Benefits of an ERP?

An ERP promotes the free flow of communication across an organization and results in increased synergies between different business areas, increased efficiencies as processes are streamlined and information is readily accessible to those that need it; and reduced costs associated with outdated and ineffective technology. Adopting an ERP may be a costly endeavor, but the return on investment (ROI) may be achieved quickly. Most certainly, the benefits realized (e.g., increased productivity and reduced administrative costs) may far outweigh the costs to introduce an ERP.

What Should an ERP System Include?

The components of an ERP system are dependent on the needs of the organization. However, there are key features that each ERP should include. An ERP system should be automated—to reduces errors—and flexible, allowing for modifications as the company changes or grows. More people are mobile; therefore, the ERP platform should allow users to access it from their mobile devices. Lastly, an ERP system should provide a means for productivity to be analyzed and measured. Other tools can be integrated within the system to improve a company's capabilities.

The Bottom Line

Enterprise resource planning (ERP) manages and integrates business processes through a single system. With a better line of sight, companies are better able to plan and allocate resources. Without ERP, companies tend to operate in a siloed approach, with each department operating its own disconnected system.

ERP systems promote the free flow of communication and sharing of knowledge across an organization, the integration of systems for improved productivity and efficiencies, and increased synergies across teams and departments. However, moving to an ERP system will be counterproductive if the company's culture does not adjust with the change and the company does not review how the structure of its organization can support it.

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Capital is a broad term that can describe any thing that confers value or benefit to its owner, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual. While money itself may be construed as capital is, capital is more often associated with cash that is being put to work for productive or investment purposes.

In general, capital is a critical component of running a business from day to day and financing its future growth. Business capital may derive from the operations of the business or be raised from debt or equity financing. When budgeting, businesses of all kinds typically focus on three types of capital: working capital, equity capital, and debt capital. A business in the financial industry identifies trading capital as a fourth component.

KEY TAKEAWAYS

• The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth.

• The four major types of capital include working capital, debt, equity, and trading capital. Trading capital is used by brokerages and other financial institutions.

• Any debt capital is offset by a debt liability on the balance sheet.

• The capital structure of a company determines what mix of these types of capital it uses to fund its business.

• Economists look at the capital of a family, a business, or an entire economy to evaluate how efficiently it is using its resources.

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Capital

Understanding Capital

From the economists' perspective, capital is key to the functioning of any unit, whether that unit is a family, a small business, a large corporation, or an entire economy.

Capital assets can be found on either the current or long-term portion of the balance sheet. These assets may include cash, cash equivalents, and marketable securities as well as manufacturing equipment, production facilities, and storage facilities.

In the broadest sense, capital can be a measurement of wealth and a resource for increasing wealth. Individuals hold capital and capital assets as part of their net worth. Companies have capital structures that define the mix of debt capital, equity capital, and working capital for daily expenditures that they use.

Capital is typically cash or liquid assets being held or obtained for expenditures. In a broader sense, the term may be expanded to include all of a company’s assets that have monetary value, such as its equipment, real estate, and inventory. But when it comes to budgeting, capital is cash flow.

In general, capital can be a measurement of wealth and also a resource that provides for increasing wealth through direct investment or capital project investments. Individuals hold capital and capital assets as part of their net worth. Companies have capital structures that include debt capital, equity capital, and working capital for daily expenditures.

How individuals and companies finance their working capital and invest their obtained capital is critical for their prosperity.

How Capital Is Used

Capital is used by companies to pay for the ongoing production of goods and services in order to create profit. Companies use their capital to invest in all kinds of things for the purpose of creating value. Labor and building expansions are two common areas of capital allocation. By investing capital, a business or individual seeks to earn a higher return than the capital's costs.

At the national and global levels, financial capital is analyzed by economists to understand how it is influencing economic growth. Economists watch several metrics of capital including personal income and personal consumption from the Commerce Department’s Personal Income and Outlays reports. Capital investment also can be found in the quarterly Gross Domestic Product report.

Typically, business capital and financial capital are judged from the perspective of a company’s capital structure. In the U.S., banks are required to hold a minimum amount of capital as a risk mitigation requirement (sometimes called economic capital) as directed by the central banks and banking regulations.1

Other private companies are responsible for assessing their own capital thresholds, capital assets, and capital needs for corporate investment. Most of the financial capital analysis for businesses is done by closely analyzing the balance sheet.

Business Capital Structure

A company’s balance sheet provides for metric analysis of a capital structure, which is split among assets, liabilities, and equity. The mix defines the structure.

Debt financing represents a cash capital asset that must be repaid over time through scheduled liabilities. Equity financing, meaning the sale of stock shares, provides cash capital that is also reported in the equity portion of the balance sheet. Debt capital typically comes with lower rates of return and strict provisions for repayment.

Some of the key metrics for analyzing business capital are weighted average cost of capital, debt to equity, debt to capital, and return on equity.

Types of Capital

Below are the top four types of capital that businesses focus on in more detail

Debt Capital

A business can acquire capital by borrowing. This is debt capital, and it can be obtained through private or government sources. For established companies, this most often means borrowing from banks and other financial institutions or issuing bonds. For small businesses starting on a shoestring, sources of capital may include friends and family, online lenders, credit card companies, and federal loan programs.

Like individuals, businesses must have an active credit history to obtain debt capital. Debt capital requires regular repayment with interest. The interest rates vary depending on the type of capital obtained and the borrower’s credit history.

Individuals quite rightly see debt as a burden, but businesses see it as an opportunity, at least if the debt doesn't get out of hand. It is the only way that most businesses can obtain a large enough lump sum to pay for a major investment in its future. But both businesses and their potential investors need to keep an eye on the debt to capital ratio to avoid getting in too deep.

Issuing bonds is a favorite way for corporations to raise debt capital, especially when prevailing interest rates are low, making it cheaper to borrow. In 2020, for example, corporate bond issuance by U.S. companies soared 70% year over year, according to Moody's Analytics.2 Average corporate bond yields had then hit a multi-year low of about 2.3%.3

Equity Capital

Equity capital can come in several forms. Typically, distinctions are made between private equity, public equity, and real estate equity.

Private and public equity will usually be structured in the form of shares of stock in the company. The only distinction here is that public equity is raised by listing the company's shares on a stock exchange while private equity is raised among a closed group of investors.

When an individual investor buys shares of stock, they are providing equity capital to a company. The biggest splashes in the world of raising equity capital come, of course, when a company launches an initial public offering (IPO). In 2020, new issues appeared from young companies including Palantir, DoorDash, and Airbnb.

Working Capital

A company's working capital is its liquid capital assets available for fulfilling daily obligations. It is calculated through the following two assessments:

• Current Assets – Current Liabilities

• Accounts Receivable + Inventory – Accounts Payable

Working capital measures a company's short-term liquidity. More specifically, it represents its ability to cover its debts, accounts payable, and other obligations that are due within one year.

Note that working capital is defined as current assets minus its current liabilities. A company that has more liabilities than assets could soon run short of working capital.

Trading Capital

Any business needs a substantial amount of capital in order to operate and create profitable returns. Balance sheet analysis is central to the review and assessment of business capital.

Trading capital is a term used by brokerages and other financial institutions that place a large number of trades on a daily basis. Trading capital is the amount of money allotted to an individual or the firm to buy and sell various securities.

Investors may attempt to add to their trading capital by employing a variety of trade optimization methods. These methods attempt to make the best use of capital by determining the ideal percentage of funds to invest with each trade.

In particular, to be successful, it is important for traders to determine the optimal cash reserves required for their investing strategies.

A big brokerage firm like Charles Schwab or Fidelity Investments will allocate considerable trading capital to each of the professionals who trade stocks and other assets for it.

Capital vs. Money

At its core, capital is money. However, for financial and business purposes, capital is typically viewed from the perspective of current operations and investments in the future.

Capital usually comes with a cost. For debt capital, this is the cost of interest required in repayment. For equity capital, this is the cost of distributions made to shareholders. Overall, capital is deployed to help shape a company's development and growth.

Capital FAQs

What Does Capital Mean in Economics?

To an economist, capital usually means liquid assets. In other words, it's cash in hand that is available for spending, whether on day-to-day necessities or long-term projects. On a global scale, capital is all of the money that is currently in circulation, being exchanged for day-to-day necessities or longer-term wants.

What Is the Capital in a Business?

The capital of a business is the money it has available to fund its day-to-day operations and to bankroll its expansion for the future. The proceeds of its business are one source of capital.

Capital assets is generally a broader term. The capital assets of an individual or a business may include real estate, cars, investments (long or short-term), and other valuable possessions. A business may also have capital assets including expensive machinery, inventory, warehouse space, office equipment, and patents held by the company.

Many capital assets are illiquid—that is, they can't be readily turned into cash in order to meet immediate needs.

A company that totaled up its capital value would include every item owned by the business as well as all of its financial assets (minus its liabilities). But an accountant handling the day-to-day budget of the company would consider only its cash on hand as its capital.

What Are Examples of Capital?

Any financial asset that is being used may be capital. The contents of a bank account, the proceeds of a sale of stock shares, or the proceeds of a bond issue all are examples. The proceeds of a business' current operations go onto its balance sheet as capital.

What Are the 3 Sources of Capital?

Most businesses distinguish between working capital, equity capital, and debt capital, although they overlap.

• Working capital is the money needed to meet the day-to-day operation of the business and pay its obligations in a timely manner.

• Equity capital is raised by issuing shares in the company, publicly or privately, and is used to fund the expansion of the business.

• Debt capital is borrowed money. On the balance sheet, the amount borrowed appears as a capital asset while the amount owed appears as a liability.

The Bottom Line

The word capital has a number of meanings depending on its context.

On a company balance sheet, capital is money available for immediate use, whether to keep the day-to-day business running or to launch a new initiative. It may be defined on its balance sheet as working capital, equity capital, or debt capital, depending on its origin and intended use. Brokerages also list trading capital; that is the cash available for routine trading in the markets.

When a company defines its overall capital assets, it generally will include all of its possessions that have a cash value, such as equipment and real estate.

When economists look at capital, they are most often looking at the cash in circulation within an entire economy. Some of the major national economic indicators are the ups and downs of all of the cash in circulation. One example is the monthly Personal Income and Outlays report from the U.S. Bureau of Economic Analysis.4

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