Years passed, yet my impulse to write remained. I have a lot of stories and scenarios saved on my laptop and notes that I keep in the corner of my house. I created these because I wanted to share my imagination with others in some way. There are so many thoughts running through my head that I can’t relax unless they come out.

For years, I couldn’t find the courage to send them to publishing houses. I was always frightened of getting turned down.

Unfortunately, I never dared to do so.

I felt I’d have the courage to publish my last short story in the past couple of weeks. Then I thought why not post this in #NFT format?

My intention here is to both motivate myself and show that stories may get popularity in the NFT world.

In my perspective, NFT and authorship make an excellent combination. I’m hoping that in the future, we’ll see more established marketplaces devoted solely to this topic. I published my story in Turkish. But I also have many English stories waiting to be published.

The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue.

The higher the asset turnover ratio, the more efficient a company is at generating revenue from its assets. Conversely, if a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales

Formula and Calculation of the Asset Turnover Ratio

Below are the steps as well as the formula for calculating the asset turnover ratio.

\begin{aligned} &\text{Asset Turnover} = \frac{ \text{Total Sales} }{ \frac { \text{Beginning Assets}\ +\ \text{Ending Assets} }{ 2 } } \\ &\textbf{where:}\\ &\text{Total Sales} = \text{Annual sales total} \\ &\text{Beginning Assets} = \text{Assets at start of year} \\ &\text{Ending Assets} = \text{Assets at end of year} \\ \end{aligned}​Asset Turnover=2Beginning Assets + Ending Assets​Total Sales​where:Total Sales=Annual sales totalBeginning Assets=Assets at start of yearEnding Assets=Assets at end of year​

The asset turnover ratio uses the value of a company's assets in the denominator of the formula. To determine the value of a company's assets, the average value of the assets for the year needs to first be calculated.

1. Locate the value of the company's assets on the balance sheet as of the start of the year.

2. Locate the ending balance or value of the company's assets at the end of the year.

3. Add the beginning asset value to the ending value and divide the sum by two, which will provide an average value of the assets for the year.

4. Locate total sales—it could be listed as revenue—on the income statement.

5. Divide total sales or revenue by the average value of the assets for the year.

What the Asset Turnover Ratio Can Tell You

Typically, the asset turnover ratio is calculated on an annual basis. The higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets.

The asset turnover ratio tends to be higher for companies in certain sectors than in others. Retail and consumer staples, for example, have relatively small asset bases but have high sales volume—thus, they have the highest average asset turnover ratio. Conversely, firms in sectors such as utilities and real estate have large asset bases and low asset turnover.

Since this ratio can vary widely from one industry to the next, comparing the asset turnover ratios of a retail company and a telecommunications company would not be very productive. Comparisons are only meaningful when they are made for different companies within the same sector.

Example of How to Use the Asset Turnover Ratio

Let's calculate the asset turnover ratio for four companies in the retail and telecommunication-utilities sectors for FY 2020—Walmart Inc. (WMT), Target Corporation (TGT), AT&T Inc. (T), and Verizon Communications Inc. (VZ)

Zoning refers to municipal or local laws or regulations that govern how real property can and cannot be used in certain geographic areas. For example, zoning laws can limit commercial or industrial use of land to prevent oil, manufacturing, or other types of businesses from building in residential neighborhoods.

These laws can be modified or suspended if the construction of a property will serve to help the community advance economically.

KEY TAKEAWAYS

• Zoning allows local governments to regulate which areas under their jurisdiction may have real estate or land used for particular purposes.

• Examples of zoning classifications include residential, commercial, agricultural, industrial, or hotel/hospitality, among other more specific designations.

• Zoning laws can be changed by a local government as long as they fall within state and federal statutes, and a particular plot of land may be rezoned based on consideration.

How Zoning Works

Zoning outlines what types of developmental and operational use of land is allowed on a given tract. Municipalities tend to partition districts and neighborhoods according to a master plan. This may be done to promote economic development, control traffic flow, manage noise levels, reserve living space for residents, and protect certain resources.

Examples of zoning classifications include industrial, light industrial, commercial, light commercial, agricultural, single-family residential, multiunit residential, and schools.

Local government might ban the use of residential property for business purposes to keep commercial activity confined to specific parts of town. Such zoning can lead to conflicts if residents dispute the designated usage.

Zoning laws can also regulate the details of construction in specific neighborhoods. For example, zoning can limit the maximum height of buildings in a given area regardless of the type of construction allowed. High-rise residences or offices could be banned on particular parcels through zoning regardless of whether the buildings otherwise comply with the laws.

The presence of zoning restrictions can influence prices when purchasing a piece of property. Real estate might sell at a premium based on how many limits were put in place by the municipality.

In 1926, the U.S. Supreme Court ruled that properly drawn zoning ordinances were a valid exercise of states’ governing power. Zoning became constitutional by the court as a result of the case of Village of Euclid v. Ambler Realty.1

Economic Theory of Zoning

According to Nobel Prize-winning economist Ronald Coase’s Theorem, in the absence of transaction costs, questions and disputes over land use and development could be solved optimally without government regulation. Under the assumptions of Coase’s Theorem, how a given piece of land should be used and what type of activities should be permitted could simply be negotiated among the parties involved to achieve an economically efficient outcome.2

Coase’s Theorem illustrates why, in the real world—where transaction costs do occur and frictionless bargaining among stakeholders is unlikely—land use regulations such as zoning and other government-imposed solutions are the norm.

Critiques of Zoning Law

There are varied critiques of traditional zoning implementation.

Some critics claim that zoning creates and widens the disparity of quality of life among socioeconomic groups. For example, a township might maintain zoning laws that restrict heavy industrial and commercial development to tracts of land adjacent to lower-income neighborhoods. The effects of such policies would let more affluent parts of town avoid the associated noise and pollution.

Areas that continue to be zoned for low-density residential neighborhoods with a housing shortage are contributing to homelessness in their area by refusing to allow more residential housing units to be built.

A more modern critique of zoning that segregates commercial and residential areas is that it makes residents dependent on cars. A more integrated, walkable neighborhood where people could get groceries, work, and recreate close to their homes would allow them to forgo the environmental and financial costs of car ownership. If zoning allowed for walkable neighborhoods, less space would have to be devoted to roads and more space could be reserved for housing and green space.

Special Considerations

Alterations to zoning laws are possible even without full repeals of the current legislation. A developer or property owner can apply for variances that would allow certain exceptions to zoning regulations. This would let property be used in ways generally not permitted—for example, the owner of a home-based business might request a variance to allow the operations to continue.

Applicants for variances might be required to explain why the variance is needed and how the change will not cause significant disruption or detriment to the surrounding community.

Who Controls Zoning?

There is no federal agency for zoning, so who controls the zoning in your area depends almost entirely on where you live. It is controlled at the county level in some cases, at the city level in others. Sometimes zoning is decided by a zoning office, and sometimes it is controlled by a land use office.

How Can You Get the Zoning Changed on Something?

First, you’ll have to figure out who controls the zoning in your area. Then they usually will have a process by which you can appeal the zoning on something, but the specific steps will vary depending on where you live. Getting advice from a local real estate lawyer is advisable.

Can Zoning Laws Stop Me From Building on My Property?

Yes. You may own the land on which you want to build, but you still will have to abide by zoning laws that may say you can’t build a building of a certain size, or for a certain purpose, or any number of other regulations.

The Bottom Line

Zoning was originally created to design uniform neighborhoods, control traffic patterns, and—when done right—allow room for a city to grow. Zoning implementation had several unintended consequences and unfortunately contributed to increased income inequality and racial wealth disparities. With modern times, zoning practices will have to adapt to growing populations and needs.

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Zacks Investment Research is an American company dedicated to the production of independent research and investment-related content. It was founded in 1978 by Len Zacks, based on his insights while pursuing his Ph.D. at MIT.

The company provides professional investors with financial data and analysis to help make better investment decisions for proprietary accounts and the investment accounts of clients. Zacks is probably known best known for its extensive array of consensus earnings-per-share (EPS) estimates. More recently, the company has moved into other related areas including research reports, recommendation summaries on various stocks, stock prices, funds, charts and tables, and a host of other investment tools and data.

KEY TAKEAWAYS

• Zacks Investment Research is an American company that produces independent research and investment content.

• Zacks was founded in 1978 by Len Zacks, a Ph.D. scholar from MIT.

• Zacks Research is known for its focus on earnings estimate revisions, which Len Zacks described as "the most powerful force impacting stock prices."

• The company is known for "Zacks Ranks," stock ratings on a scale of one to five. A rank of #1 means "Strong Buy."

• In addition to "Zacks Ranks" for stock prices, the company has also introduced ratings for mutual funds and ETFs.

Understanding Zacks Investment Research

Zacks uses a quantitative stock-rating system that is purely mathematical, meaning they're not influenced by the biases or preferences of individual analysts. The rating system relies heavily on Earnings per share (EPS) related metrics, such as revisions to a company's projected earnings.

These ratings are based on research produced by U.S. brokerage firms. Every day, the company collects electronic data feeds and printed research on more than 8,500 North American publicly traded companies from 185 brokerage firms. By combining and aggregating the opinions of thousands of analysts, the company is able to identify expert consensus on the earnings potential of certain stocks.1

Zacks Ranks

Zacks 研究产品的一个关键要素是 Zacks Ranks，这是一组根据收益潜力对股票产品进行分组的投资评级。Zacks Ranks 最初是为股票排名而推出的，现在可用于共同基金、交易所交易基金和其他工具。

Zacks Ranks 根据对多个经纪商评估的综合分析，将股票分为从“强力买入”到“强力卖出”的五个类别。据该公司称，Zacks“强力买入”股票的年平均回报率超过 25%，并且在 26 年中表现优于标准普尔 500 指数（30.2

Zacks Ranks 使用四个标准来评估盈利潜力：

• 协议：经纪分析师在评估股票估值变化时一致的程度。

• 幅度：分析师共识最新变化的大小。

• 上行：由 Zacks 计算的估计变化与共识估计之间的差异。

• 惊喜：最近几个季度出现了正的盈利惊喜。3

这些排名基于 Len Zacks 的见解，即“盈利估计修正是影响股价的最强大力量”。当一只股票的盈利预测被上调时，机构买家通常会扩大头寸，从而提振该证券的价格。由于大买家需要很长时间才能扩大头寸，因此小型个人投资者可以迅速利用预期的价格上涨。 4

Zacks Ranks 是一个对股票进行评级的系统，评级在 1 到 5 之间。与大多数评级系统不同，#1 Zacks 排名意味着“强力买入”。

Zacks 与晨星

Zacks Investment Research 经常与总部位于芝加哥的投资研究公司晨星公司（ Morningstar Inc. ）进行比较，该公司收集共同基金和 ETF 的数据。与 Zacks 一样，Morningstar 也发布了五层级的分析和评级基金。

然而，两家公司对投资研究采取了不同的方法。Zacks 依赖于对基金业绩的定量分析，而晨星更关注基本面分析。晨星还根据过去的表现使用专有的数学公式来确定每只基金在各自类别中的排名。两家公司都提供免费和付费产品，每一层都有不同的访问级别。

Zacks 投资研究的例子

Zacks 列出了几个成功预测的案例，以证明其投资模型的成功。一个例子是 LSB Industries (LSX)，它在 2012 年 7 月被给予“强力买入”，预计未来三个月可能会出现突破。

“强力买入”评级表明券商分析师已经修改了他们对 LSX 的盈利预测，并且可能会继续上调他们的预测。在经过多次向上修正后的三个月内，LSX 为使用 Zacks Research 的投资者带来了 36% 的收益，而标准普尔 500 指数的收益为 5%。

Tranches are segments created from a pool of securities—usually debt instruments such as bonds or mortgages—that are divvied up by risk, time to maturity, or other characteristics in order to be marketable to different investors. Each portion or tranche of a securitized or structured product is one of several related securities offered at the same time, but with varying risks, rewards and maturities to appeal to a diverse range of investors.

Tranche is a French word meaning slice or portion.1 They are commonly found in mortgage-backed securities (MBS) or asset-backed securities (ABS).

KEY TAKEAWAYS

• Tranches are pieces of a pooled collection of securities, usually debt instruments, that are split up by risk or other characteristics in order to be marketable to different investors.

• Tranches carry different maturities, yields, and degrees of risk—and privileges in repayment in case of default.

• Tranches are common in securitized products like CDOs and CMOs.

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Tranches

The Basics of Tranches

Tranches in structured finance are a fairly recent development, spurred by the increased use of securitization to divide up sometimes-risky financial products with steady cash flows to then sell these divisions to other investors. The word tranche comes from the French word for slice.1 The discrete tranches of a larger asset pool are usually defined in transaction documentation and assigned different classes of notes, each with a different bond credit rating.

Senior tranches typically contain assets with higher credit ratings than junior tranches. The senior tranches have first lien on the assets—they're in line to be repaid first, in case of default. Junior tranches have a second lien or no lien at all.

Examples of financial products that can be divided into tranches include bonds, loans, insurance policies, mortgages and other debts.

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TESLA INC

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APPLE INC

NKE

NIKE INC

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AMAZON.COM, INC

WMT

WALMART INC

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Tranches in Mortgage-Backed Securities

A tranche is a common financial structure for securitized debt products, such as a collateralized debt obligation (CDO), which pools together a collection of cash flow-generating assets—such as mortgages, bonds, and loans—or a mortgage-backed security. An MBS is made of multiple mortgage pools that have a wide variety of loans, from safe loans with lower interest rates to risky loans with higher rates. Each specific mortgage pool has its own time to maturity, which factors into the risk and reward benefits. Therefore, tranches are made to divide up the different mortgage profiles into slices that have financial terms suitable for specific investors.

For example, a collateralized mortgage obligation (CMO) offering a partitioned mortgage-backed securities portfolio might have mortgage tranches with one-year, two-year, five-year and 20-year maturities, all with varying yields. If an investor wants to buy a MBS, they can choose the tranche type most applicable to their appetite for return and aversion to risk. A Z tranche is the lowest-ranked tranche of a CMO in terms of seniority. Its owners are not entitled to any coupon payments, receiving no cash flow from underlying mortgages until the more senior tranches are retired, or paid off.

Investors receive monthly cash flow based on the MBS tranche in which they invested. They can either try to sell it and make a quick profit or hold onto it and realize small but long-term gains in the form of interest payments. These monthly payments are bits and pieces of all the interest payments made by homeowners whose mortgage is included in a specific MBS.

Investment Strategy in Choosing Tranches

Investors who desire to have long-term steady cash flow will invest in tranches with a longer time to maturity. Investors who need a more immediate but a more lucrative income stream will invest in tranches with less time to maturity. 

All tranches, regardless of interest and maturity, allow investors to customize investment strategies to their specific needs. Conversely, tranches help banks and other financial institutions attract investors across many different profile types.

Tranches add to the complexity of debt investing and sometimes pose a problem to uninformed investors, who run the risk of choosing a tranches unsuitable to their investment goals.

Tranches can also be miscategorized by credit rating agencies. If they are given a higher rating than deserved, it can cause investors to be exposed to riskier assets than they intended to be. Such mislabeling played a part in the mortgage meltdown of 2007 and subsequent financial crisis. Tranches containing junk bonds or sub-prime mortgages (below-investment-grade assets) were labeled AAA or the equivalent, either through incompetence, carelessness or, as some charged, outright corruption on the agencies' part.

Real-World Example of Tranches

After the financial crisis of 2007-09, an explosion of lawsuits occurred against issuers of CMOs, CDOs and other debt securities—and among investors in the products themselves, all of which was dubbed "tranche warfare" in the press. An April 2008 story in the *Financial Times *noted that investors in the senior tranches of failed CDOs were taking advantage of their priority status to seize control of assets and cut off payments to other debt-holders. CDO trustees, such as Deutsche Bank and Wells Fargo, filed suits to ensure all tranche investors continued to receive funds.

And in 2009, the manager of Greenwich, Conn.-based hedge fund Carrington Investment Partners filed a lawsuit against the mortgage-servicing company American Home Mortgage Servicing. The hedge fund held junior tranches of mortgage-backed securities that contained loans made on foreclosed properties that American Home was selling for (allegedly) low prices—thus crippling the tranche's yield. Carrington argued in the complaint that its interests as a junior tranche-holder were in line with those of the senior tranche-holders.2

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A transaction is a completed agreement between a buyer and a seller to exchange goods, services, or financial assets in return for money.

In business bookkeeping, this plain definition of "transaction" can get tricky. A transaction may be recorded by a company earlier or later depending on whether it uses accrual accounting or cash accounting.

KEY TAKEAWAYS

• A transaction involves a monetary exchange for a good or service.

• Accrual accounting recognizes a transaction immediately after it is finalized, regardless of when payment is received or made.

• By contrast, cash accounting, used mostly by smaller businesses, records a transaction only when money is received or paid out.

Understanding Transactions

A sales transaction between a buyer and a seller is relatively straightforward. Person A pays person B in exchange for a product or service. When they agree on the terms, money is exchanged for the good or service and the transaction is complete.

Transactions can be more complex in the accounting world because businesses may make a deal today which won't be settled until a future date. Or, they may have revenues or expenses that are known but not yet due. Third-party transactions can also complicate the process.

Whether a business records income and expense transactions using the accrual method of accounting or the cash method of accounting affects the company’s financial and tax reporting.

• The accrual accounting method requires a transaction to be recorded when it occurs, regardless of when the money is received or the expenses are paid.

• The cash accounting method records a transaction only when the money is received or the expenses are paid. This may require a letter of intent or a memorandum of understanding.

Whereas accrual accounting is used most often by businesses with an average of over $25 million over the prior three years, cash accounting is used primarily by small businesses.1

Transactions Using Accrual Accounting

When accrual accounting is used, a company records income when completing a service or delivering goods. If inventory is required when accounting for a company’s income, and the company has gross receipts with an average of over $25 million over the prior three years, the company normally uses the accrual method of accounting for sales and purchases.1

Examples of Accrual Accounting

For example, a company selling merchandise to a customer on store credit in October records the transaction immediately as an item in accounts receivable (AR). Even if the customer does not make a cash payment on the merchandise until December or pays in installments, the transaction is recorded as income for October.

If a customer buys something on credit, it will immediately be recorded as a transaction if the company selling the good uses the accrual accounting method.

The same goes for goods or services the company purchases. Business expenses are recorded when the products or services are received. Supplies purchased on credit in April are recorded as expenses for April, even if the business does not make a cash payment on the supplies until May.

Transactions Using Cash Accounting

Most small businesses, especially sole proprietorships and partnerships, use the cash accounting method. Income is recorded when cash, checks, or credit card payments are received from customers.

Examples of Cash Accounting

Let's say a business sells $10,000 of widgets to a customer in March. The customer pays the invoice in April. The company recognizes the sale only after the cash is received in April.

Meanwhile, expenses are recorded only when a payment is made. A business may purchase $500 of office supplies in May, for example, and pay for them in June. The business recognizes the purchase when it pays the bill in June.

For tax reasons, the cash basis of accounting is available only if a company has an average of less than $25 million over the prior three years in annual sales. The cash basis is easier than the accrual basis for recording transactions because no complex accounting transactions, such as accruals and deferrals, are necessary. Its drawback is that the profit of the business may vary wildly from month to month, at least on paper.1

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A Treasury Bill (T-Bill) is a short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less. Treasury bills are usually sold in denominations of $1,000. However, some can reach a maximum denomination of $5 million in non-competitive bids. These securities are widely regarded as low-risk and secure investments.

The Treasury Department sells T-Bills during auctions using a competitive and non-competitive bidding process. Noncompetitive bids—also known as non-competitive tenders—have a price based on the average of all the competitive bids received. T-Bills tend to have a high tangible net worth.

KEY TAKEAWAYS

• A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.

• Treasury bills are usually sold in denominations of $1,000 while some can reach a maximum denomination of $5 million.

• The longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.

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1:41

Treasury Bills

Understanding Treasury Bills (T-Bills)

The U.S. government issues T-bills to fund various public projects, such as the construction of schools and highways. When an investor purchases a T-Bill, the U.S. government is effectively writing an IOU to the investor. T-bills are considered a safe and conservative investment since the U.S. government backs them.

T-Bills are normally held until the maturity date. However, some holders may wish to cash out before maturity and realize the short-term interest gains by reselling the investment in the secondary market.

T-Bill Maturities

T-bills can have maturities of just a few days or up to a maximum of 52 weeks, but common maturities are 4, 8, 13, 26, and 52 weeks.1 The longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.

Need help differentiating between T-Bills, T-Notes, and T-Bonds? T-Bills are short-term, so you can use the mnemonic that the "bill needs to be paid soon".

What if you had started investing years ago?

Find out what a hypothetical investment would be worth today.

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TSLA

TESLA INC

AAPL

APPLE INC

NKE

NIKE INC

AMZN

AMAZON.COM, INC

WMT

WALMART INC

SELECT INVESTMENT AMOUNT

$

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              2 years ago                      5 years ago                      10 years ago         

CALCULATE

T-Bill Redemptions and Interest Earned

T-bills are issued at a discount from the par value (also known as the face value) of the bill, meaning the purchase price is less than the face value of the bill. For example, a $1,000 bill might cost the investor $950 to buy the product.

When the bill matures, the investor is paid the face value—par value—of the bill they bought. If the face value amount is greater than the purchase price, the difference is the interest earned for the investor.2 T-bills do not pay regular interest payments as with a coupon bond, but a T-Bill does include interest, reflected in the amount it pays when it matures.3

T-Bill Tax Considerations

The interest income from T-bills is exempt from state and local income taxes. However, the interest income is subject to federal income tax. Investors can access the research division of the TreasuryDirect website for more tax information.4

Purchasing T-Bills

Previously issued T-bills can be bought on the secondary market through a broker. New issues of T-Bills can be purchased at auctions held by the government on the TreasuryDirect site. T-bills purchased at auctions are priced through a bidding process. Bids are referred to as competitive or non-competitive bids.5 Further bidders can be indirect bidders who buy through a pipeline such as a bank or a dealer. Bidders may also be direct bidders purchasing on their own behalf. Bidders range from individual investors to hedge funds, banks, and primary dealers.

A competitive bid sets a price at a discount from the T-bill's par value, letting you specify the yield you wish to get from the T-Bill. Noncompetitive bids auctions allow investors to submit a bid to purchase a set dollar amount of bills. The yield investors receive is based upon the average auction price from all bidders.5

Competitive bids are made through a local bank or a licensed broker. Individual investors can make noncompetitive bids via the TreasuryDirect website. Once completed, the purchase of the T-Bill serves as a statement from the government that says you are owed the money you invested, according to the terms of the bid.6

T-Bill Investment Pros and Cons

Treasury Bills are one of the safest investments available to the investor. But this safety can come at a cost. T-bills pay a fixed rate of interest, which can provide a stable income. However, if interest rates are rising, existing T-bills fall out of favor since their rates are less attractive compared to the overall market. As a result, T-bills have interest rate risk meaning there is a risk that existing bondholders might lose out on higher rates in the future.

Although T-bills have zero default risk, their returns are typically lower than corporate bonds and some certificates of deposit. Since Treasury bills don't pay periodic interest payments, they're sold at a discounted price to the face value of the bond. The gain is realized when the bond matures, which is the difference between the purchase price and the face value.4

However, if they're sold early, there could be a gain or loss depending on where bond prices are trading at the time of the sale. In other words, if sold early, the sale price of the T-bill could be lower than the original purchase price.1

Pros

• Zero default risk since T-bills have a U.S. government guarantee.

• T-bills offer a low minimum investment requirement of $100.

• Interest income is exempt from state and local income taxes but subject to federal income taxes.

• Investors can buy and sell T-bills with ease in the secondary bond market.

Cons

• T-Bills offer low returns compared with other debt instruments as well as when compared to certificates of deposits (CDs).

• The T-Bill pays no coupon—interest payments—leading up to its maturity.

• T-bills can inhibit cash flow for investors who require steady income.

• T-bills have interest rate risk, so, their rate could become less attractive in a rising-rate environment.

What Influences T-Bill Prices?

T-Bill prices fluctuate similarly to other debt securities. Many factors can influence T-Bill prices, including macroeconomic conditions, monetary policy, and the overall supply and demand for Treasuries.2

Maturity Dates

T-Bills with longer maturity dates tend to have higher returns than those with shorter maturities. In other words, short-term T-bills are discounted less than longer-dated T-bills. Longer-dated maturities pay higher returns than short-dated bills because there's more risk priced into the instruments meaning there's a greater chance that interest rates could rise. Rising market interest rates make the fixed-rate T-bills less attractive.

Market Risk

Investors' risk tolerance affects prices. T-Bill prices tend to drop when other investments such as equities appear less risky, and the U.S. economy is in an expansion. Conversely, during recessions, investors tend to invest in T-Bills as a safe place for their money spiking the demand for these safe products.

The Federal Reserve

The monetary policy set by the Federal Reserve through the federal funds rate has a strong impact on T-Bill prices as well. The federal funds rate refers to the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis. The Fed will increase or decrease the fed funds rate in an effort to contract or expand the monetary policy and the availability of money in the economy. A lower rate allows banks to have more money to lend while a higher fed funds rate decreases money in the system for banks to lend.7

As a result, the Fed's actions impact short-term rates including those for T-bill. A rising federal funds rate tends to draw money away from Treasuries and into higher-yielding investments. Since the T-bill rate is fixed, investors tend to sell T-bills when the Fed is hiking rates because the T-bill rates are less attractive. Conversely, if the Fed is cutting interest rates, money flows into existing T-bills driving up prices as investors buy up the higher-yielding T-bills.8

The Federal Reserve is also one of the largest purchasers of government debt securities. When the Federal Reserve purchases U.S. government bonds, bond prices rise while the money supply increases throughout the economy as sellers receive funds to spend or invest. Funds deposited into banks are used by financial institutions to lend to companies and individuals, boosting economic activity.

T-Bill prices tend to rise when the Fed performs expansionary monetary policy by buying Treasuries. Conversely, T-bill prices fall when the Fed sells its debt securities.

Inflation

Treasuries also have to compete with inflation, which measures the pace of rising prices in the economy. Even if T-Bills are the most liquid and safest debt security in the market, fewer investors tend to buy them in times when the inflation rate is higher than the T-bill return. For example, if an investor bought a T-Bill with a 2% yield while inflation was at 3%, the investor would have a net loss on the investment when measured in real terms. As a result, T-bill prices tend to fall during inflationary periods as investors sell them and opt for higher-yielding investments.8

Example of a Treasury Bill Purchase

As an example, let's say an investor purchases a par value of $1,000 T-Bill with a competitive bid of $950. When the T-Bill matures, the investor is paid $1,000, thereby earning $50 in interest on the investment. The investor is guaranteed to at least recoup the purchase price, but since the U.S. Treasury backs T-bills, the interest amount should be earned as well.

As stated earlier, the Treasury Department auctions new T-bills throughout the year. On March 28, 2019, the Treasury issued a 52-week T-bill at a discounted price of $97.613778 to a $100 face value.9 In other words, it would cost approximately $970 for a $1,000 T-bill.

What Are the Maturity Terms for Treasury Bills?

U.S. Treasury bills are short-term government bonds and are issued with 5 terms. These consist of 4, 8, 13, 26, and 52 weeks.1

What Kind of Interest Payments Will I Receive If I Own a Treasury Bill?

The only interest paid will be when the bill matures. At that time, you are given the full face value. T-bills are zero-coupon bonds that are usually sold at a discount and the difference between the purchase price and the par amount is your accrued interest.

How Can I Buy a Treasury Bill?

U.S. Treasury bills are auctioned on a regular schedule. Individuals can buy T-bills from the government using the TreasuryDirect website. It is free to register, and it will function like a brokerage account that holds your bonds. In addition to bidding on new issues, You also can set up reinvestments into securities of the same type and term. For instance, you can use the proceeds from a maturing 52-week bill to buy another 52-week bill. Certain brokerage firms may also allow trading in U.S. Treasuries.6

Where Is My Paper Hard Copy of the T-Bill I Bought?

T-bills and other government bonds are no longer issued on paper and are only available in digital form through TreasuryDirect or your broker.2

How Are T-Bills Different From Treasury Notes and Bonds?

T-bills are short-term government debt instruments with maturities of one year or less, and they are sold at a discount without paying a coupon. T-Notes represent the medium-term maturities of 2, 3, 5, 7, and 10 years. These are issued at par ($100) and pay semi-annual interest. T-Bonds are otherwise identical to T-notes but have maturities of 30 years (or longer in some cases).10

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Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt relative to assets owned by a company. Using this metric, analysts can compare one company's leverage with that of other companies in the same industry. This information can reflect how financially stable a company is. The higher the ratio, the higher the degree of leverage (DoL) and, consequently, the higher the risk of investing in that company.

KEY TAKEAWAYS

• The total-debt-to-total-assets ratio shows the degree to which a company has used debt to finance its assets.

• The calculation considers all of the company's debt, not just loans and bonds payable, and considers all assets, including intangibles.

• If a company has a total-debt-to-total-assets ratio of 0.4, 40% of its assets are financed by creditors, and 60% are financed by owners' (shareholders') equity.

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Total Debt to Total Assets

Understanding the Total-Debt-to-Total-Assets Ratio

The total-debt-to-total-assets ratio analyzes a company's balance sheet by including long-term and short-term debt (borrowings maturing within one year), as well as all assets—both tangible and intangible, such as goodwill. It indicates how much debt is used to carry a firm's assets, and how those assets might be used to service debt. It, therefore, measures a firm's degree of leverage.

Debt servicing payments must be made under all circumstances, otherwise, the company would breach its debt covenants and run the risk of being forced into bankruptcy by creditors. While other liabilities such as accounts payable and long-term leases can be negotiated to some extent, there is very little “wiggle room” with debt covenants.

A company with a high degree of leverage may thus find it more difficult to stay afloat during a recession than one with low leverage. It should be noted that the total debt measure does not include short-term liabilities such as accounts payable and long-term liabilities such as capital leases and pension plan obligations.

The Formula for Total-Debt-to-Total-Assets Is

\begin{aligned} &\text{TD/TA} = \frac{ \text{Short-Term Debt} + \text{Long-Term Debt} }{ \text{Total Assets} } \\ \end{aligned}​TD/TA=Total AssetsShort-Term Debt+Long-Term Debt​​

What Does the Total-Debt-to-Total-Assets Ratio Tell You?

Total-debt-to-total-assets is a measure of the company's assets that are financed by debt rather than equity. When calculated over a number of years, this leverage ratio shows how a company has grown and acquired its assets as a function of time.

Investors use the ratio to evaluate whether the company has enough funds to meet its current debt obligations and to assess whether the company can pay a return on its investment. Creditors use the ratio to see how much debt the company already has and whether the company can repay its existing debt. This will determine whether additional loans will be extended to the firm.

A ratio greater than 1 shows that a considerable portion of the assets is funded by debt. In other words, the company has more liabilities than assets. A high ratio also indicates that a company may be putting itself at risk of defaulting on its loans if interest rates were to rise suddenly.

A ratio below 0.5, meanwhile, indicates that a greater portion of a company's assets is funded by equity.

Real-World Example of the Total-Debt-to-Total-Assets Ratio

Let's examine the total-debt-to total-assets ratio for three companies—The Walt Disney Company, Chipotle Mexican Grill, Inc., and Sears Holdings Corporation—for the fiscal year (FY) ended 2017 (December 31, 2016, for Chipotle).

Debt to Assets Comparison*(data in millions)*DisneyChipotleSearsTotal Debt$50,785$623.61$13,186Total Assets$95,789$2,026.10$9,362Total Debt to Assets0.53020.30781.4085

Debt to Assets Comparison

From the example above, Sears is shown to have a much higher degree of leverage than Disney and Chipotle and, therefore, a lower degree of financial flexibility. With more than $13 billion in total debt, it is easy to understand why Sears was forced to declare Chapter 11 bankruptcy in October 2018. Investors and creditors considered Sears a risky company to invest in and loan to due to its very high leverage.

Limitations of the Total-Debt-to-Total-Assets Ratio

One shortcoming of the total-debt-to-total-assets ratio is that it does not provide any indication of asset quality since it lumps all tangible and intangible assets together. For example, assume from the example above that Disney took on $50.8 billion of long-term debt to acquire a competitor and booked $20 billion as a goodwill intangible asset for this acquisition.

If the acquisition does not perform as expected and results in the entire goodwill asset being written off, the ratio of total debt to total assets (which would now be $95.8 billion - $20 billion = $75.8 billion) would be 0.67.

As with all other ratios, the trend of the total-debt-to-total-assets ratio should be evaluated over time. This will help assess whether the company’s financial risk profile is improving or deteriorating. For example, an increasing trend indicates that a business is unwilling or unable to pay down its debt, which could indicate a default in the future.

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A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate.

Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

KEY TAKEAWAYS

• A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing properties.

• REITs generate a steady income stream for investors but offer little in the way of capital appreciation.

• Most REITs are publicly traded like stocks, which makes them highly liquid (unlike physical real estate investments).

• REITs invest in most real estate property types, including apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses.

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Real Estate Investment Trust (REIT)

How REITs Work

Congress established REITs in 1960 as an amendment to the Cigar Excise Tax Extension. The provision allows investors to buy shares in commercial real estate portfolios—something that was previously available only to wealthy individuals and through large financial intermediaries.1

Properties in a REIT portfolio may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure—in the form of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses.

In general, REITs specialize in a specific real estate sector. However, diversified and specialty REITs may hold different types of properties in their portfolios, such as a REIT that consists of both office and retail properties. 

Many REITs are publicly traded on major securities exchanges, and investors can buy and sell them like stocks throughout the trading session.2 These REITs typically trade under substantial volume and are considered very liquid instruments. 

What if you had started investing years ago?

Find out what a hypothetical investment would be worth today.

SELECT A STOCK

TSLA

TESLA INC

AAPL

APPLE INC

NKE

NIKE INC

AMZN

AMAZON.COM, INC

WMT

WALMART INC

SELECT INVESTMENT AMOUNT

$

SELECT A PURCHASE DATE

              2 years ago                      5 years ago                      10 years ago         

CALCULATE

What Qualifies as a REIT?

Most REITs have a straightforward business model: The REIT leases space and collects rents on the properties, then distributes that income as dividends to shareholders. Mortgage REITs don't own real estate, but finance real estate, instead. These REITs earn income from the interest on their investments.

To qualify as a REIT, a company must comply with certain provisions in the Internal Revenue Code (IRC). These requirements include to primarily own income-generating real estate for the long term and distribute income to shareholders.3 Specifically, a company must meet the following requirements to qualify as a REIT:

• Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries

• Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales

• Pay a minimum of 90% of taxable income in the form of shareholder dividends each year

• Be an entity that's taxable as a corporation

• Be managed by a board of directors or trustees

• Have at least 100 shareholders after its first year of existence 

• Have no more than 50% of its shares held by five or fewer individuals3

Today, it's estimated that REITs collectively hold about $3.5 trillion in gross assets; publicly traded equity REITs account for $2.5 trillion.4

Types of REITs

There are three types of REITs:

• Equity REITs. Most REITs are equity REITs, which own and manage income-producing real estate. Revenues are generated primarily through rents (not by reselling properties).

• Mortgage REITs. Mortgage REITs lend money to real estate owners and operators either directly through mortgages and loans, or indirectly through the acquisition of mortgage-backed securities. Their earnings are generated primarily by the net interest margin—the spread between the interest they earn on mortgage loans and the cost of funding these loans. This model makes them potentially sensitive to interest rate increases.

• Hybrid REITs. These REITs use the investment strategies of both equity and mortgage REITs.

REIT Types Comparison

Type of REIT

Holdings

Equity

Owns and operates income-producing real estate

Mortgage

Holds mortgages on real property

Hybrid

Owns properties and holds mortgages

REITs can be further classified based on how their shares are bought and held:

• Publicly Traded REITs. Shares of publicly traded REITs are listed on a national securities exchange, where they are bought and sold by individual investors. They are regulated by the U.S. Securities and Exchange Commission (SEC).5

• Public Non-Traded REITs. These REITs are also registered with the SEC but don’t trade on national securities exchanges. As a result, they are less liquid than publicly traded REITs.5 Still, they tend to be more stable because they’re not subject to market fluctuations.

• Private REITs. These REITs aren’t registered with the SEC and don’t trade on national securities exchanges. In general, private REITs can be sold only to institutional investors.

How to Invest in REITs

You can invest in publicly traded REITs—as well as REIT mutual funds and REIT exchange-traded funds (ETFs)—by purchasing shares through a broker. You can buy shares of a non-traded REIT through a broker or financial advisor who participates in the non-traded REIT’s offering.

REITs are also included in a growing number of defined-benefit and defined-contribution investment plans. An estimated 145 million U.S. investors own REITs either directly or through their retirement savings and other investment funds, according to Nareit, a Washington, D.C.-based REIT research firm.4

503,000

As of 2022, REITs collectively hold more than half-a-million individual properties.4

Pros and Cons of Investing in REITs

REITs can play an important part in an investment portfolio because they can offer a strong, stable annual dividend and the potential for long-term capital appreciation. REIT total return performance for the last 20 years has outperformed the S&P 500 Index, other indices, and the rate of inflation.6 As with all investments, REITs have their advantages and disadvantages.

On the plus side, REITs are easy to buy and sell, as most trade on public exchanges—a feature that mitigates some of the traditional drawbacks of real estate. Performance-wise, REITs offer attractive risk-adjusted returns and stable cash flow. Also, a real estate presence can be good for a portfolio because it provides diversification and dividend-based income—and the dividends are often higher than you can achieve with other investments.

On the downside, REITs don't offer much in terms of capital appreciation. As part of their structure, they must pay 90% of income back to investors.1

So, only 10% of taxable income can be reinvested back into the REIT to buy new holdings. Other negatives are that REIT dividends are taxed as regular income, and some REITs have high management and transaction fees.

Pros

• Liquidity

• Diversification

• Transparency

• Stable cash flow through dividends

• Attractive risk-adjusted returns

Cons

• Low growth

• Dividends are taxed as regular income

• Subject to market risk

• Potential for high management and transaction fees

REIT Fraud

The Securities and Exchange Commission (SEC) recommends that investors should be wary of anyone who tries to sell REITs that aren't registered with the SEC. It advises that "You can verify the registration of both publicly traded and non-traded REITs through the SEC's EDGAR system. You can also use EDGAR to review a REIT's annual and quarterly reports as well as any offering prospectus."2

It's also a good idea to check out the broker or investment advisor who recommends the REIT. The SEC has a free search tool that allows you to look up if an investment professional is licensed and registered.7

Real-World Example of a REIT

Another consideration when choosing REITs is to look at the sectors of the real estate market that are hot. Which booming sectors of the economy, in general, can be tapped into via real estate? As an example, healthcare is one of the fastest-growing industries in the U.S.8—especially in the growth of medical buildings, outpatient care centers, eldercare facilities, and retirement communities.

Several REITs focus on this sector. Healthpeak Properties (PEAK)—formerly HCP— is one example. As of April 2022, it had a market cap of nearly US $18.9 billion, with some 4 million shares traded daily.9 Its portfolio focuses on three core asset classes: life sciences facilities, medical offices, and senior housing, owning interests in more than 615 properties.1011

What Does REIT Stand for?

REIT stands for "Real Estate Investment Trust". A REIT is organized as a partnership, corporation, trust, or association that invests directly in real estate through the purchase of properties or by buying up mortgages. REITs issue shares that trade stock exchange and are bought and sold like ordinary stocks. In order to be considered a REIT, the company must invest at least 75% of its assets in real estate and derive at least 75% of its revenues from real estate-related activities.12

Do REITs Have to Pay Dividends?

By law and IRS regulation, REITs must pay out 90% or more of their taxable profits (to shareholders in the form of dividends. As a result, REIT companies are often exempt from most corporate income tax. Shareholders of REITs who receive dividends are taxed as if they are ordinary dividends.13

What Is a Paper Clip REIT?

A "paper clip REIT" increases the tax advantages afforded to a REIT while also allowing it to operate properties that such trusts normally cannot run. It is so-named because it involves two different entities that are "clipped" together via an agreement where one entity owns the properties and the other manages them.14 The paper clip REIT entails stricter regulatory oversight since there can be conflicts of interest and, as a result, this form of REIT is uncommon. It is similar but more flexible in structure to a "stapled REIT".

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Online banking allows a user to conduct financial transactions via the Internet. Online banking is also known as Internet banking or web banking.

Online banking offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments. Virtually every banking institution has some form of online banking, available both on desktop versions and through mobile apps.

KEY TAKEAWAYS

• Online banking allows a user to conduct financial transactions via the Internet.

• Consumers aren't required to visit a bank branch in order to complete most of their basic banking transactions.

• A customer needs a device, an Internet connection, and a bank card to register. Once registered, the consumer sets up a password to begin using the service.

Understanding Online Banking

With online banking, consumers aren't required to visit a bank branch to complete most of their basic banking transactions. They can do all of this at their own convenience, wherever they want—at home, at work, or on the go.

Online banking requires a computer or other device, an Internet connection, and a bank or debit card. In order to access the service, clients need to register for their bank's online banking service. In order to register, they need to create a password. Once that's done, they can use the service to do all their banking.

Banking transactions offered online vary by the institution. Most banks generally offer basic services such as transfers and bill payments. Some banks also allow customers to open up new accounts and apply for credit cards through online banking portals. Other functions may include ordering checks, putting stop payments on checks, or reporting a change of address.

Checks can now be deposited online through a mobile app. The customer simply enters the amount before taking a photo of the front and back of the check to complete the deposit.

Online banking does not permit the purchase of traveler's checks, bank drafts, certain wire transfers, or the completion of certain credit applications like mortgages. These transactions still need to take place face-to-face with a bank representative.

Most banks do not charge fees for online banking.

Advantages of Online Banking

Convenience is a major advantage of online banking. Basic banking transactions such as paying bills and transferring funds between accounts can easily be done 24 hours a day, seven days a week, wherever a consumer wishes.

Online banking is fast and efficient. Funds can be transferred between accounts almost instantly, especially if the two accounts are held at the same institution. Consumers can open and close a number of different accounts online, from fixed deposits to recurring deposit accounts that typically offer higher rates of interest.

Consumers can also monitor their accounts regularly closely, allowing them to keep their accounts safe. Around-the-clock access to banking information provides early detection of fraudulent activity, thereby acting as a guardrail against financial damage or loss.

Disadvantages of Online Banking

For a novice online banking customer, using systems for the first time may present challenges that prevent transactions from being processed, which is why some consumers prefer face-to-face transactions with a teller.

Online banking doesn't help if a customer needs access to large amounts of cash. While he may be able to take a certain amount at the ATM—most cards come with a limit—he will still have to visit a branch to get the rest.

Although online banking security is continually improving, such accounts are still vulnerable when it comes to hacking. Consumers are advised to use their own data plans, rather than public Wi-Fi networks when using online banking, to prevent unauthorized access.

Additionally, online banking is dependent on a reliable Internet connection. Connectivity issues from time to time may make it difficult to determine if banking transactions have been successfully processed.

Online Banks

Some banks operate exclusively online, with no physical branch. These banks handle customer service by phone, email, or online chat. Online banking is frequently performed on mobile devices now that Wi-Fi and 5G networks are widely available. It can also be done on a desktop computer.

These banks may not provide direct automatic teller machine (ATM) access but will make provisions for consumers to use ATMs at other banks and retail stores. They may reimburse consumers for some of the ATM fees charged by other financial institutions. Reduced overhead costs associated with not having physical branches typically allow online banks to offer consumers significant savings on banking fees. They also offer higher interest rates on accounts.

Prominent online banks in the United States include Ally Bank,1

Bank5 Connect,2 Discover Bank,3 and Synchrony Bank.4

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A limited partnership (LP)—not to be confused with a limited liability partnership (LLP)—is a partnership made up of two or more partners. The general partner oversees and runs the business while limited partners do not partake in managing the business. However, the general partner of a limited partnership has unlimited liability for the debt, and any limited partners have limited liability up to the amount of their investment. 

KEY TAKEAWAYS

• A limited partnership (LP) exists when two or more partners go into business together, but the limited partners are only liable up to the amount of their investment.

• An LP is defined as having limited partners and a general partner, which has unlimited liability.  

• LPs are pass-through entities that offer little to no reporting requirements.

• There are three types of partnerships: limited partnership, general partnership, and limited liability partnership.

• Most U.S. states govern the formation of limited partnerships, requiring registration with the Secretary of State.

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Limited Partnership

Understanding Limited Partnerships (LPs)

A limited partnership is required to have both general partners and limited partners. General partners have unlimited liability and have full management control of the business. Limited partners have little to no involvement in management, but also have liability that's limited to their investment amount in the LP.

Partnership agreements should be created to outline the specific responsibilities and rights of both general and limited partners.

Types of Partnerships

Generally, a partnership is a business where two or more individuals have ownership. There are three forms of partnerships: limited partnership, general partnership, and limited liability partnership. The three forms differ in various aspects, but also share similar features.

In all forms of partnerships, each partner must contribute resources such as property, money, skills, or labor to share in the business' profits and losses. At least one partner takes part in making decisions regarding the business' day-to-day affairs.

All partnerships should have an agreement that specifies how to make business decisions. These decisions include how to split profits or losses, resolve conflicts, and alter ownership structure, and how to close the business, if necessary.

Limited Partnership (LP)

A limited partnership is usually a type of investment partnership, often used as investment vehicles for investing in such assets as real estate. LPs differ from other partnerships in that partners can have limited liability, meaning they are not liable for business debts that exceed their initial investment.

General partners are responsible for the daily management of the limited partnership and are liable for the company's financial obligations, including debts and litigation. Other contributors, known as limited (or silent) partners, provide capital but cannot make managerial decisions and are not responsible for any debts beyond their initial investment. 

Limited partners can become personally liable if they take a more active role in the LP.

General Partnership (GP)

A general partnership is a partnership when all partners share in the profits, managerial responsibilities, and liability for debts equally. If the partners plan to share profits or losses unequally, they should document this in a legal partnership agreement to avoid future disputes.

A joint venture is often a type of general partnership that remains valid until the completion of a project or a certain period passes. All partners have an equal right to control the business and share in any profits or losses. They also have a fiduciary responsibility to act in the best interests of other members as well as the venture.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a type of partnership where all partners have limited liability. All partners can also partake in management activities. This is unlike a limited partnership, where at least one general partner must have unlimited liability and limited partners cannot be part of management. 

LLPs are often used for structuring professional services companies, such as law and accounting firms. However, LLP partners are not responsible for the misconduct or negligence of other partners. 

Special Considerations

Almost all U.S. states govern the formation of limited partnerships under the Uniform Limited Partnership Act, which was originally introduced in 1916 and has since been amended multiple times. The most recent revision was in 2013.1 The majority of the United States—49 states and the District of Columbia—have adopted these provisions with Louisiana as the sole exception.2

To form a limited partnership, partners must register the venture in the applicable state, typically through the office of the local Secretary of State. It is important to obtain all relevant business permits and licenses, which vary based on locality, state, or industry. The U.S. Small Business Administration (SBA) lists all local, state, and federal permits and licenses necessary to start a business.3

Note that in music, LP means long-playing, which is another word for an album. An LP is longer than a single or extended play (EP) album. It was originally used to describe longer-length vinyl albums. However, it’s now also used to describe CDs and digital music albums.

Advantages and Disadvantages of a Limited Partnership (LP)

The key advantage to an LP, at least for limited partners, is that their personal liability is limited. They are only responsible for the amount invested in the LP. These entities can be used by GPs when looking to raise capital for investment. Many hedge funds and real estate investment partnerships are set up as LPs. 

Limited partners also don't have to pay self-employment taxes. LPs are pass-through entities, meaning the entity files a Form 1065, and then partners receive Schedule K-1s that they use to include their portion of the income or loss on their own personal tax returns.4

On the downside, LPs require that the general partner have unlimited liability. They are responsible for 100% of management control but also are on the hook for any debts or mishandling of business dealings. As well, limited partners are only allowed limited involvement in operations. If their role is deemed non-passive, they lose personal liability protection. 

Pros

• Personal liability protection for limited partners

• Pass-through entity for taxation (i.e. only taxed once unlike C-corp)

• Ease of creation and reporting (e.g. no required annual meetings)

• Less formal structure

• No self-employment taxes for limited partners

Cons

• GPs have unlimited personal liability (although they also have management control of the LP)

• Limited partners limited in management participation

• Ownership can be harder to transfer than other entities, such as an LLC

• Not as flexible for changing management roles

Limited Partnership (LP) FAQs

What Is a Limited Partnership (LP) in Business?

Businesses that form a limited partnership generally do so to own or operate a set of specific assets, such as a real estate investment partnership or LP for managing oil pipelines. One party (the general partner) has control over the assets and management responsibilities, but also are personally liable. The other party (limited partners) are generally investors whose personal liability is limited to their investment.

What Is the Difference Between an LLC and a Limited Partnership?

Both LLCs and LPs offer flexibility in structuring responsibilities, profit-split, and taxes. An LP allows certain investors (limited partners) to invest without having a management role or any personal liability, while the general partners carry all the liability. With an LLC, the owners can shield themselves from personal liability, but all generally have management roles. An LP must have at least one limited partner.

LLCs also have greater flexibility for tax reporting. Often, the general partner of an LP will be structured as an LLC to help provide personal liability protection, as LLC managers are typically not held personally responsible for the businesses’ liabilities. 

What Is the Difference Between an LP and LLP?

An LP and LLP have a similar structure. However, LPs have general partners and limited partners, while LLPs have no general partners. All partners in an LLP have limited liability.

What Is Limited Partnership Taxation?

Limited partnerships are taxed as pass-through entities, meaning each partner receives a Schedule K-1 which they include on their personal tax return.

What Are the Benefits of a Limited Partnership?

Limited partnerships are ideal entities for raising capital for a particular investment or set of assets. They allow limited partners to invest while keeping their liability limited.

The Bottom Line

Limited partnerships are generally used by hedge funds and investment partnerships as they offer the ability to raise capital without giving up control. Limited partners invest in an LP and have little to no control over the management of the entity, but their liability is limited to their personal investment. Meanwhile, general partners manage and run the LP, but their liability is unlimited.

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A jumbo loan, also known as a jumbo mortgage, is a type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Designed to finance luxury properties and homes in highly competitive local real estate markets, jumbo mortgages come with unique underwriting requirements and tax implications. These kinds of mortgages have gained traction as the housing market continues to recover following the Great Recession.

The value of a jumbo mortgage varies by state—and even county. The FHFA sets the conforming loan limit size for different areas on an annual basis. The limit for 2022 was set at $647,200 for most of the country. This was an increase of $98,950 from the 2021 limit of $548,250. For counties that have higher home values, the baseline limit is set at $970,800, or 150% of $647,200.1

The FHFA has a different set of provisions for areas outside of the continental United States for loan limit calculations. As a result, the baseline limit for a jumbo loan in Alaska, Guam, Hawaii, and the U.S. Virgin Islands as of 2022 is also $970,800. That amount may actually be even higher in counties that have higher home values.1

KEY TAKEAWAYS

• A jumbo loan is a type of financing that exceeds the limits set by the Federal Housing Finance Agency and cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

• Homeowners must undergo more rigorous credit requirements than those applying for a conventional loan.

• Approval requires a stellar credit score and a very low debt-to-income ratio. 

• The average APR for a jumbo mortgage is often par with conventional mortgages, while down payments are roughly 10% to 15% of the total purchase price.

How a Jumbo Loan Works

If you have your sights set on a home that costs close to half a million dollars or more—and you don't have that much sitting in a bank account—you're probably going to need a jumbo mortgage. And if you’re trying to land one, you’ll face much more rigorous credit requirements than homeowners applying for a conventional loan. That’s because jumbo loans carry more credit risk for the lender since there is no guarantee by Fannie Mae or Freddie Mac. There's also more risk because more money is involved.

Just like traditional mortgages, minimum requirements for a jumbo have become increasingly stringent since 2008. To get approved, you’ll need a stellar credit score—700 or above—and a very low debt-to-income (DTI) ratio. The DTI should be under 43% and preferably closer to 36%. Although they are nonconforming mortgages, jumbos still must fall within the guidelines of what the Consumer Financial Protection Bureau considers a “qualified mortgage”—a lending system with standardized terms and rules, such as the 43% DTI.2

You’ll need to prove you have accessible cash on hand to cover your payments, which are likely to be very high if you opt for a standard 30-year fixed-rate mortgage. Specific income levels and reserves depend on the size of the overall loan, but all borrowers need 30 days of pay stubs and W2 tax forms stretching back two years. If you're self-employed, the income requirements are greater: Two years of tax returns and at least 60 days of current bank statements. The borrower also needs provable liquid assets to qualify and cash reserves equal to six months of the mortgage payments. And all applicants have to show proper documentation on all other loans held and proof of ownership of non-liquid assets (like other real estate).

Jumbo Loan Rates

While jumbo mortgages used to carry higher interest rates than conventional mortgages, the gap has been closing in recent years. Today, the average annual percentage rate (APR) for a jumbo mortgage is often par with conventional mortgages—and in some cases, actually lower. As of January 1, 2022, Wells Fargo, for example, charged an APR of 3.360% on a 30-year fixed-rate conforming loan and 3.065% for the same term on a jumbo loan.3 

Even though the government-sponsored enterprises can't handle them, jumbo loans are often securitized by other financial institutions; since these securities carry more risk, they trade at a yield premium to conventional securitized mortgages. However, this spread has been reduced with the interest rate of the loans themselves.

Down Payment on a Jumbo Loan

Fortunately, down payment requirements have loosened over the same time period. In the past, jumbo mortgage lenders often required home buyers to put up 30% of the residence's purchase price (compared to 20% for conventional mortgages). Now, that figure has fallen as low as 10% to 15%. As with any mortgage, there can be various advantages to making a higher down payment—among them, to avoid the cost of the private mortgage insurance lenders require for down payments below 20%.

Who Should Take Out a Jumbo Loan?

How much you can ultimately borrow depends, of course, on your assets, your credit score, and the value of the property you're interested in buying. These mortgages are considered most appropriate for a segment of high-income earners who make between $250,000 and $500,000 a year. This segment is known as HENRY, an acronym for high earners, not rich yet. Basically, these are people who generally make a lot of money but don't have millions in extra cash or other assets accumulated—yet.

While an individual in the HENRY segment may not have amassed the wealth to purchase an expensive new home with cash, such high-income individuals do usually have better credit scores and more extensively established credit histories than the average homebuyer seeking a conventional mortgage loan for a lower amount. They also tend to have more solidly established retirement accounts. They often have been contributing for a longer period of time than lower-income earners.

Don't expect a big tax break on a jumbo loan. The cap on the mortgage interest deduction is limited to $750,000 for new mortgage debt.4

These are just the sorts of individuals that institutions love to sign up for long-term products, partly because they often need additional wealth management services. Plus, it's more practical for a bank to administer a single $2 million mortgage than 10 loans valued at $200,000 apiece.

Image by Sabrina Jiang © Investopedia 2020

Special Considerations for a Jumbo Loan

Just because you may qualify for one of these loans doesn't mean you should take one out. You certainly shouldn't if you are counting on it furnishing you with a substantial tax break, for example.

You’re probably aware that you can deduct the mortgage interest you paid for any given year from your taxes, providing you itemize your deductions. But you probably never had to worry about the cap the IRS places on this deduction—a cap that was lowered by the passage of the Tax Cuts and Jobs Act. Anyone who got a mortgage on Dec. 14, 2017, or earlier can deduct interest on up to $1 million in debt, which is the amount of the old cap. But for home purchases made after Dec. 14, 2017, you can only deduct the interest on up to $750,000 in mortgage debt. If your mortgage is larger, you don't get the full deduction. If you plan to take out a $2 million jumbo mortgage that accrues $80,000 in interest a year, for example, you can only deduct $30,000—the interest on the first $750,000 of your mortgage. In effect, you only get a tax break on 37.5% of the mortgage interest.4

That means you should borrow with care and crunch the numbers carefully to see what you can truly afford and what kinds of tax benefits you will receive. With the state and local tax deduction limited to $10,000 a year, due to the same tax bill, a highly taxed property will also cost you more to own. One other strategy: Compare terms to see if taking out a smaller conforming loan, plus a second loan, instead of one big jumbo, might prove better for your finances in the long haul.

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In finance, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Meta (FB) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google). 

The term was popularized by Jim Cramer, the television host of CNBC's Mad Money, in 2013, who praised these companies for being “totally dominant in their markets." Originally, the term "FANG" was used, with Apple—the second “A” in the acronym—added in 2017.

KEY TAKEAWAYS

• FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google). 

• In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of nearly $7.1 trillion as of Aug. 19, 2021.

• Some have raised concerns that the FAANG stocks may be in the midst of a bubble, whereas others argue that their growth is justified by the stellar financial and operational performance they have shown in recent years.

What if you had started investing years ago?

Find out what a hypothetical investment would be worth today.

SELECT A STOCK

TSLA

TESLA INC

AAPL

APPLE INC

COKE

COCA-COLA CONSOLIDATED INC

AMZN

AMAZON.COM, INC

WMT

WALMART INC

SELECT INVESTMENT AMOUNT

$

SELECT A PURCHASE DATE

              2 years ago                      5 years ago                      10 years ago         

CALCULATE

Understanding FAANG Stocks

In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of around $7 trillion as of Q1 2022.12345

Their substantial growth has been buoyed recently by high-profile purchases made by large and influential investors such as Berkshire Hathaway (BRK), Soros Fund Management, and Renaissance Technologies. These are just a few of the many large investors who have added FAANG stocks to their portfolios because of their perceived strength, growth, or momentum. 

Each of the FAANG stocks trades on the Nasdaq exchange and is included in the S&P 500 Index. Since the S&P 500 is a broad representation of the market, the movement of the market mirrors the index's movement. As of August 2021, the FAANGs make up about 19% of the S&P 500—a staggering figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole.

This large influence over the index means that volatility in the stock price of the FAANG stocks can have a substantial effect on the performance of the S&P 500 in general. In August 2018, for example, FAANG stocks were responsible for nearly 40% of the index’s gain from the lows reached in February 2018.

Example of FAANG Stocks

The extraordinary size and influence of the FAANG stocks have prompted concerns about a potential bubble in FAANG stocks. These concerns started gaining prominence in 2018, when technology stocks, which had been driving consistent gains in the stock market, began losing their former strength. In November 2018, several FAANG stocks lost more than 20% of their valuations and were declared to be in bear territory.6 By some estimates, FAANG stocks lost more than a trillion dollars from their peak valuations as a result of the steep drop in the markets in November 2018.6

Although their valuations have since recovered, the level of volatility sometimes shown by FAANG stocks—and the oversized influence these stocks can have on the market overall—is a source of concern for some investors.

On the other hand, those who believe in the fundamental strength of the FAANG stocks have abundant evidence for this claim. For example, Facebook is the world’s largest social network with approximately 2.8 billion users. In its 2021 annual report, Meta posted revenues of $118 billion and net income of $39.4 billion.7

Amazon, meanwhile, has become a seemingly insurmountable force in business-to-consumer (B2C) e-commerce. With over 120 million products for sale, it has over 300 million active customers in the United States, of whom more than half pay for monthly Amazon Prime memberships.8 With 2021 TTM revenues of $470 billion and a net income of $33.4 billion, it is not hard to understand why investors believe Amazon’s vast market capitalization is justified.9

Overall, it is through strong financial performance such as this that the FAANG stocks have prospered recently. Over the past five years, for instance, Meta and Amazon have seen stock-price increases of 185% and 500%, respectively. For their part, Apple and Alphabet saw price increases of about 175% over that same timeframe, whereas Netflix saw its value rise by nearly 450%.

What Makes FAANG Stocks So Popular?

The five stocks that make up the “FAANG” acronym—Meta (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)—are all well-known brands among consumers. But they are also famous for their remarkable growth in recent years, with market capitalizations ranging from $166 billion (in the case of Netflix) to $2.7 trillion (in the case of Apple), as of Q1 2022.32 From an investment perspective, these five stocks are generally praised for their stellar historical track records and clear leadership positions within their industries.

Are FAANG Stocks Overvalued?

Investors disagree about whether the FAANG stocks are overvalued. Their proponents will argue that their valuations are justified based on their fundamental strength as businesses. But critics argue that, even with impressive business performance, the FAANG stocks’ prices have become so expensive that it may be difficult to realize attractive long-term profits from investing in them. Ultimately, this “debate” between investors is best captured by the buying and selling patterns in the FAANG stocks themselves.

Are FAANG Stocks Hard to Acquire?

No. The FAANG stocks are all easy to acquire, in the sense that they are publicly traded companies with substantial daily trading volumes. They are also routinely included in popular exchange-traded funds (ETFs). However, investors who believe that the FAANG stocks may be overvalued would argue that they are difficult to acquire at an economical price. These investors may be tempted to delay purchasing FAANG stocks, waiting for their valuations to decline.

Who Coined the Term FANG Stocks?

While Jim Cramer certainly popularized the term, he himself credits Bob Lang, a Real Money and The Street colleague of Cramer's, with identifying these four stocks and inventing the acronym.10

Learn the Basics of Trading and Investing

Looking to learn more about trading and investing? No matter your learning style, there are more than enough courses to get you started. With Udemy, you’ll be able to choose courses taught by real-world experts and learn at your own pace, with lifetime access on mobile and desktop. You’ll also be able to master the basics of day trading, option spreads, and more. Find out more about Udemy and get started today.

In finance, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Meta (FB) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google). 

The term was popularized by Jim Cramer, the television host of CNBC's Mad Money, in 2013, who praised these companies for being “totally dominant in their markets." Originally, the term "FANG" was used, with Apple—the second “A” in the acronym—added in 2017.

KEY TAKEAWAYS

• FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies: Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (formerly known as Google). 

• In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of nearly $7.1 trillion as of Aug. 19, 2021.

• Some have raised concerns that the FAANG stocks may be in the midst of a bubble, whereas others argue that their growth is justified by the stellar financial and operational performance they have shown in recent years.

What if you had started investing years ago?

Find out what a hypothetical investment would be worth today.

SELECT A STOCK

TSLA

TESLA INC

AAPL

APPLE INC

COKE

COCA-COLA CONSOLIDATED INC

AMZN

AMAZON.COM, INC

WMT

WALMART INC

SELECT INVESTMENT AMOUNT

$

SELECT A PURCHASE DATE

              2 years ago                      5 years ago                      10 years ago         

CALCULATE

Understanding FAANG Stocks

In addition to being widely known among consumers, the five FAANG stocks are among the largest companies in the world, with a combined market capitalization of around $7 trillion as of Q1 2022.12345

Their substantial growth has been buoyed recently by high-profile purchases made by large and influential investors such as Berkshire Hathaway (BRK), Soros Fund Management, and Renaissance Technologies. These are just a few of the many large investors who have added FAANG stocks to their portfolios because of their perceived strength, growth, or momentum. 

Each of the FAANG stocks trades on the Nasdaq exchange and is included in the S&P 500 Index. Since the S&P 500 is a broad representation of the market, the movement of the market mirrors the index's movement. As of August 2021, the FAANGs make up about 19% of the S&P 500—a staggering figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole.

This large influence over the index means that volatility in the stock price of the FAANG stocks can have a substantial effect on the performance of the S&P 500 in general. In August 2018, for example, FAANG stocks were responsible for nearly 40% of the index’s gain from the lows reached in February 2018.

Example of FAANG Stocks

The extraordinary size and influence of the FAANG stocks have prompted concerns about a potential bubble in FAANG stocks. These concerns started gaining prominence in 2018, when technology stocks, which had been driving consistent gains in the stock market, began losing their former strength. In November 2018, several FAANG stocks lost more than 20% of their valuations and were declared to be in bear territory.6 By some estimates, FAANG stocks lost more than a trillion dollars from their peak valuations as a result of the steep drop in the markets in November 2018.6

Although their valuations have since recovered, the level of volatility sometimes shown by FAANG stocks—and the oversized influence these stocks can have on the market overall—is a source of concern for some investors.

On the other hand, those who believe in the fundamental strength of the FAANG stocks have abundant evidence for this claim. For example, Facebook is the world’s largest social network with approximately 2.8 billion users. In its 2021 annual report, Meta posted revenues of $118 billion and net income of $39.4 billion.7

Amazon, meanwhile, has become a seemingly insurmountable force in business-to-consumer (B2C) e-commerce. With over 120 million products for sale, it has over 300 million active customers in the United States, of whom more than half pay for monthly Amazon Prime memberships.8 With 2021 TTM revenues of $470 billion and a net income of $33.4 billion, it is not hard to understand why investors believe Amazon’s vast market capitalization is justified.9

Overall, it is through strong financial performance such as this that the FAANG stocks have prospered recently. Over the past five years, for instance, Meta and Amazon have seen stock-price increases of 185% and 500%, respectively. For their part, Apple and Alphabet saw price increases of about 175% over that same timeframe, whereas Netflix saw its value rise by nearly 450%.

What Makes FAANG Stocks So Popular?

The five stocks that make up the “FAANG” acronym—Meta (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)—are all well-known brands among consumers. But they are also famous for their remarkable growth in recent years, with market capitalizations ranging from $166 billion (in the case of Netflix) to $2.7 trillion (in the case of Apple), as of Q1 2022.32 From an investment perspective, these five stocks are generally praised for their stellar historical track records and clear leadership positions within their industries.

Are FAANG Stocks Overvalued?

Investors disagree about whether the FAANG stocks are overvalued. Their proponents will argue that their valuations are justified based on their fundamental strength as businesses. But critics argue that, even with impressive business performance, the FAANG stocks’ prices have become so expensive that it may be difficult to realize attractive long-term profits from investing in them. Ultimately, this “debate” between investors is best captured by the buying and selling patterns in the FAANG stocks themselves.

Are FAANG Stocks Hard to Acquire?

No. The FAANG stocks are all easy to acquire, in the sense that they are publicly traded companies with substantial daily trading volumes. They are also routinely included in popular exchange-traded funds (ETFs). However, investors who believe that the FAANG stocks may be overvalued would argue that they are difficult to acquire at an economical price. These investors may be tempted to delay purchasing FAANG stocks, waiting for their valuations to decline.

Who Coined the Term FANG Stocks?

While Jim Cramer certainly popularized the term, he himself credits Bob Lang, a Real Money and The Street colleague of Cramer's, with identifying these four stocks and inventing the acronym.10

Learn the Basics of Trading and Investing

Looking to learn more about trading and investing? No matter your learning style, there are more than enough courses to get you started. With Udemy, you’ll be able to choose courses taught by real-world experts and learn at your own pace, with lifetime access on mobile and desktop. You’ll also be able to master the basics of day trading, option spreads, and more. Find out more about Udemy and get started today.

The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean. The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from one another.

Understanding the Coefficient of Variation

The coefficient of variation shows the extent of variability of data in a sample in relation to the mean of the population. In finance, the coefficient of variation allows investors to determine how much volatility, or risk, is assumed in comparison to the amount of return expected from investments. Ideally, if the coefficient of variation formula should result in a lower ratio of the standard deviation to mean return, then the better the risk-return trade-off. Note that if the expected return in the denominator is negative or zero, the coefficient of variation could be misleading.

The coefficient of variation is helpful when using the risk/reward ratio to select investments. For example, an investor who is risk-averse may want to consider assets with a historically low degree of volatility relative to the return, in relation to the overall market or its industry. Conversely, risk-seeking investors may look to invest in assets with a historically high degree of volatility.

While most often used to analyze dispersion around the mean, quartile, quintile, or decile CVs can also be used to understand variation around the median or 10th percentile, for example.

The coefficient of variation formula or calculation can be used to determine the deviation between the historical mean price and the current price performance of a stock, commodity, or bond, relative to other assets.

KEY TAKEAWAYS

• The coefficient of variation (CV) is a statistical measure of the relative dispersion of data points in a data series around the mean.

• In finance, the coefficient of variation allows investors to determine how much volatility, or risk, is assumed in comparison to the amount of return expected from investments.

• The lower the ratio of the standard deviation to mean return, the better risk-return trade-off.

Coefficient of Variation Formula

Below is the formula for how to calculate the coefficient of variation:

\begin{aligned} &\text{CV} = \frac { \sigma }{ \mu } \\ &\textbf{where:} \\ &\sigma = \text{standard deviation} \\ &\mu = \text{mean} \\ \end{aligned}​CV=μσ​where:σ=standard deviationμ=mean​

Please note that if the expected return in the denominator of the coefficient of variation formula is negative or zero, the result could be misleading.

Coefficient of Variation in Excel

The coefficient of variation formula can be performed in Excel by first using the standard deviation function for a data set. Next, calculate the mean using the Excel function provided. Since the coefficient of variation is the standard deviation divided by the mean, divide the cell containing the standard deviation by the cell containing the mean.

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Coefficient Of Variation (CV)

Example of Coefficient of Variation for Selecting Investments

For example, consider a risk-averse investor who wishes to invest in an exchange-traded fund (ETF), which is a basket of securities that tracks a broad market index. The investor selects the SPDR S&P 500 ETF, Invesco QQQ ETF, and the iShares Russell 2000 ETF. Then, they analyze the ETFs' returns and volatility over the past 15 years and assumes the ETFs could have similar returns to their long-term averages.

For illustrative purposes, the following 15-year historical information is used for the investor's decision:

• If the SPDR S&P 500 ETF has an average annual return of 5.47% and a standard deviation of 14.68%, the SPDR S&P 500 ETF's coefficient of variation is 2.68.

• If the Invesco QQQ ETF has an average annual return of 6.88% and a standard deviation of 21.31%, the QQQ's coefficient of variation is 3.10.

• If the iShares Russell 2000 ETF has an average annual return of 7.16% and a standard deviation of 19.46%, the IWM's coefficient of variation is 2.72.

Based on the approximate figures, the investor could invest in either the SPDR S&P 500 ETF or the iShares Russell 2000 ETF, since the risk/reward ratios are approximately the same and indicate a better risk-return trade-off than the Invesco QQQ ETF.

The Fundamentals of Corporate Finance and Accounting

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