Personal finance Term Paper Example | Topics and Well Written Essays - 2000 words

Personal finance - Term Paper Example Most money market securities provide interest income. Even if one’s liquidity needs are covered, one may invest in these securities to maintain a low level of risk. Yet, he can also consider some alternative securities that typically provide a higher rate of return but are more risky. Stocks Stocks are certificates representing partial ownership of a firm. Stock investors become shareholders of the firm. Firms issue stocks to obtain funds to expand their business operations. Investors invest in stock when they believe that they may earn a higher return than alternative investments offer. Primary and Secondary Stock Markets Stocks can be traded in a primary or a secondary market: The primary market is a market in which newly issued securities are traded. Firms can raise funds by issuing new stock in the primary market. The first offering of a firm’s stock to the public is referred to as an ‘initial public offering’ (IPO). A secondary market facilitates the t rading of existing securities by enabling investors to sell their shares at any time. These shares are purchased by other investors who wish to invest in that stock. Thus, even if a firm is not issuing new shares of stock, investors can easily obtain shares of that firm’s stock by purchasing them in the secondary market. On a typical day, more than a million shares are traded in the secondary market. The price of the stock changes each day in response to changes in supply and demand. Types of Stock Investors Stock investors can be classified as institutional investors or individual investors: Institutional investors These are professionals employed by a financial institution who are responsible for managing money on behalf of the clients they serve. They attempt to select stocks or other securities that will provide a reasonable return on investment. The employees of financial institutions who make investment decisions are referred to as ‘portfolio managers’ beca use they manage a portfolio of securities (including stocks). More than half of all trading in financial markets is attributable to institutional investors. Individual investors commonly invest a portion of the money earned from their jobs. Like institutional investors, they invest in stocks to earn a reasonable return on their investment. In this way their money can grow by the time they wish to use it to make purchases. The number of individual investors has increased substantially in the last 20 years. Many individual investors hold their stocks for periods beyond one year. In contrast, some individual investors called ‘day traders’ buy stocks and then sell them on the same day. They hope to capitalize on very short-term movements in security prices. In many cases, their investments last for only a few minutes. Many day traders conduct their investing as a career, relying on their returns from investing as their main source of income. This type of investing is very r isky because the stock prices of even the best-managed firms periodically decline. Day trading is not recommended for most investors. Return from Investing in Stock Stocks can offer a return on investment through dividends and stock price appreciation. Some firms distribute quarterly income to their shareholders in the form of dividends rather than reinvest the earnings in the firm’

Wilkerson Company Variance Analysis Case Study Example | Topics and Well Written Essays - 1250 words

Wilkerson Company Variance Analysis - Case Study Example However, one cannot give the real reasons behind this loss without first analyzing the data and comparing it with the standard target set by the company. If we look at the data we might see that the variance between the actual and targeted price may have caused the profit to decline. We can see that the company was able sell valves at a price which was $.15 below the budgeted price. Since the total production of valves was 7500 units, the company incurred a negative variance of $1125. Similarly, if we look at the data of pumps, we can, again, see that there has been a massive variance among targeted and actual price. This variance amounts to $20.69 for each unit the company sells. Therefore, total variance based on the production of 12500 is $258625.This is a negative variance and it has resulted in the budgeted profit to go down. However, there is good news for the company in their third product flow-controllers, as the price of this product is rising. Therefore, the variance in this case is positive which is a good sign for the company. The variance in this case is $9.62. The total effect of this variance is $38480. From the above information, it can be said that the company should focus more on producing flow controllers than other products because of rising prices in this commodity which will ultimately lead to higher profits for the company. Now, let's look at the machine hour variance. ... This means that highest degree of efficiency is being maintained in machine processes. Similarly, same degree of efficiency is being maintained in the production of pumps and flow-controllers. This shows that there is been absolutely no variance among the actual and budgeted financial indicators, and the company is doing well here. Wilkerson management is also using the direct material very efficiently and there's no direct material usage variance. Now, let's look at the gross profit margin of products that are produced by Wilkerson Company. In case of valves, we can see that there's a little change in this ratio. The budgeted margin was 35% whereas Wilkerson Company's actual margin is 34.9%. This small decrease in profit margin is a result of declining prices. The company is selling its products at 15 cents less than the budgeted price due to competition in the market. According to Randall (1996) there are various factors which might cause the company's gross profit margin to decline. These factors include: failure to control the cost of manufacturing, bad supervision of employees and wastage of resources etc. Looking at the gross-profit margin pumps, the budgeted gross profit margin was 35%, whereas Wilkerson's actual gross-profit margin is around 19% only. This massive decline again has been caused, again, by the price decline that has taken place in the industry due to stiff competition. As a result, firm has experienced ma ssive reduction in gross profit margin. However, if we look at the data of flow-controllers, there has been an increase in the profit margin to 41% from the budgeted margin of 35%. This again is a result of