MASTERCLASS Investment – the Quick Ratio and what it tells the investor

MASTERCLASS Investment – the Quick Ratio and what it tells the investor

Investment – the Quick Ratio and what it tells the investor

The quick ratio indicates a company’s short-term liquidity, that is, the ability to meet short-term obligations with its most liquid (available) assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current assets – inventories)    /    current liabilities,

or in detail –

= (cash and equivalents + marketable securities + accounts receivable) / current liabilities

The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Therefore, a quick ratio of 1.8 means that a company has $1.80 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company’s liquidity position. The ratio is also known as the “acid-test ratio” or “quick assets ratio.”

An example 

A company Balance Sheet has – Cash $3 million, marketable securities $8 million, accounts receivable $5 million, inventories $15 million.

This is offset by current liabilities of $18 million.

The quick ratio in this case is (3+8+5)/18 = 0.89 and the

 current ratio is (3+8+5+15)/18 = 1.72 .

Some points to note

The quick ratio is considered more conservative than a similar ratio, the current ratio because it excludes inventories from current assets. The ratio derives its name, it seems, because assets such as cash and marketable securities are quick sources of cash. Inventory can take time to be converted into cash, and if they have to be sold quickly, the result may be a lower price than book value of these inventories. As a result, they are excluded from assets that are ready sources of immediate cash.

Including “accounts receivable” as ready cash is also questioned by some, and depends on the credit terms that the company extends to its customers. A firm that gives its customers only 30 days to pay will obviously be in a better liquidity position than one that gives 90 days. But the liquidity position also depends on the credit terms the company has negotiated from its suppliers. For example, if a firm gives its customers 90 days to pay, but has 120 days to pay its suppliers, its liquidity position may be reasonable.

The other issue with including accounts receivable as a source of quick cash is that unlike cash and marketable securities – which can typically be converted into cash at the full value shown on the balance sheet – the total accounts receivable amount actually received may be slightly below book value because of discounts for early payment and credit losses.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596 – Paul.

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Basics about Super – Five basic things to know about our Super System

Basics about Super – Five basic things to know about our Super System

Basics about Super – Five basic things to know about our Super System

 

  1. Superannuation Guarantee (SG) – All Employers must pay at least the value of 9.5% of your wages/salary (not FROM your pay, but another expense of the employer) to your member account in a super fund (including a self-managed super fund). This is a compulsory legal requirement under superannuation guarantee (SG) laws, usually for any employee earning over $450 per month and over 18 years old. These are known as Concessional SG Contributions (the employer gets a tax concession/deduction as a business expense). (Formerly Deductible Contributions)
  2. Choice of fund – Except for employment agreements and some industrial awards, you can choose the super fund you want your employer to pay super into. If you don’t choose your super fund, your employer chooses for you.
  3. Salary Sacrifice – This is when you tell your employer to deduct some money BEFORE TAX from your pay and send that to your super fund with the SG they need to pay. This is also called a Concessional Contribution.
  4. Save Tax on Concessional Contributions – Your employer’s compulsory SG contributions and any before-tax contributions that you choose to make are both taxed at a maximum rate of 15 per cent on entry to the super fund. Compare a woman earning $37 000 a year – any $ earnt over this will pay over at least 30 per cent on that same income. Put direct into super, instead of taking it home, she will only pay 15% tax.
  5. Tax rate on investment earnings. Earnings on your super fund’s investments are also taxed at no more than 15 per cent.

 

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul.

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Masterclass SMSF – How to set up a Self-Managed Super Fund (SMSF) and operate ongoing

Masterclass SMSF – How to set up a Self-Managed Super Fund (SMSF) and operate ongoing

SMSF – How to set up a Self-Managed Super Fund (SMSF) and operate ongoing

Knowing how to set up a Self-Managed super Fund (SMSF) and operate ongoing is a serious financial decision and requires several considerations BEFORE you decide if an SMSF is for you.

An important step is to have a discussion with your financial and/or tax advisor to determine if an SMSF is a suitable part of your strategy for wealth creation and the retirement you want.

Here is a simplified layout – Step by Step: (the relevant of the applicable law are given from sections of the SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993 (SIS Act) and Regulations, eg S104A).

1.  Plan and preparation – knowing what is involved and your suitability

  1. Consider other options, seek advice, your time, skills available
  2. What Trustee Type and Eligibility (over 18, no legal disability, not disqualified, no convictions) individuals, corporate (preferred and more stable for succession planning, also often required by lenders if borrowing)
  3. Member numbers – single, multiple (up to 4)
  4. Trust Deed, order/have written
  5. Attend a FREE webinar – Self-Managed Super Fund Roadmap

2.   Starting the SMSF

  1. Commence the SMSF by executing the Trust Deed
  2. Apply for ABN, TFN and Regulation by ATO
  3. ATO Trustee Declarations signed and kept 10 years S104A
  4. Bank Account opened in name of SMSF – MUST segregate super money from personal
  5. Roll-in monies – request from your current super funds, and/or contribute own monies and assets as allowed Reg 7.04
  6. Decide if you will keep insurance in your current commercial super fund (leaving a small balance there to maintain insurance cover), or get quotes to pay from your SMSF and roll the full super over (call us to hear from our advisors why this is an important consideration)
  7. Organise your Employer to contribute/pay your regular super guarantee (SG) to your new SMSF bank account – by Completing Standard Choice form, from ATO
  8. Investment Strategy decide and have written – Reg 4.09.

3.   Operate SMSF – each year from the start

  1. Manage/follow up contributions from employer or personal, and roll-ins from Super Funds
  2. Invest monies as per your Investment Strategy Reg 4.09
  3. Life & TPD Insurance Requirements can be paid by SMSF if required
  4. Maintain Record keeping, accounting, mail, banking – S35B
  5. (When later required) – Set up Pensions (benefits) note there is a minimum payment, documented, application, minutes, actuary certificate (if applic), pension payments – Sub Reg 1.06 (9A)
  6. Further Compliance tasks, meeting minutes for major decisions eg change in investment strategy, keep 10 yrs – S103
  7. Organise annual return, audit at year end – S35B, S35C(2)(d).

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

If you have any questions, why not give us a call – it’s FREE also!

No obligation. 0407 361 596, Paul.

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CASE STUDY – Murray and Susan – Time poor business man wanted the chance for better returns

CASE STUDY – Murray and Susan – Time poor business man wanted the chance for better returns

Murray and Susan – Time poor business man wanted the chance for better returns

WHERE they were atMurray and Susan were in their late 30s, with a young family ,when they spoke to their advisor, and as a time-poor businessman, they wanted the chance for better returns on their retirement savings. The business he continued to build with his father had expanded interstate which meant trips back and forth, and time was even tighter. Options included renting out the family home in Melbourne, and themselves renting interstate until things were more settled interstate, which analysed with the planner.

What they WANTED to haveThey wanted to have more control over their retirement outcome and to be totally self-funded. They planned to have a large home in retirement to be able to have their children and families stay with them if required. Time and money to travel overseas would be good, as it was not possible at the moment with the growing businesses.

What it would COST Talking with the advisor, they estimated an annual income required would be $80,000 in today’s money.

What they would NEEDTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this meant they required at least 20 times the income goal – that rounded to approx. $1,600,000 in assets.

What to do NOW Their current super was under $200,000, so there was work to do – in looking for good capital growth and making extra contributions in the low-tax super environment. The possibility of property would be looked at in time, since SuperBenefit could set up the structures needed, if directed. Murray and Susan also liked that the SuperBenefit Programme recommended broker supplied a list twice a year after reporting season, of financial data on companies with strong financial health that are likely to perform well.

We were instructed by the planner to set up the SMSF and applied to the super funds to roll-over to the new SMSF bank account. Then they spoke to the stock broker about the list he had created for SuperBenefit clients, of healthy Aust companies based on the 12 financial health criteria. Since 2010 clients have made returns ranging from 3-18% in certain years.

They also had peace because any queries or compliance issues, could simply be directed to the SuperBenefit administrator, who would  CONNECT them to the right advisors as required (SMSF Connector Service).

They now had the components in place:

  • Strategyto take control of the retirement plan, and build super;
  • Structure an SMSF using SuperBenefit administration;
  • Support with resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connector service provides.

Note – This is a simplified summary of one client – We recommend asking for a FREE consultation and/or seeking further professional advice with our recommended advisors or your own.

Got questions? If you want experts who have years of helping others, without the hype – Then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You – Top right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation. 0407 361 596, Paul.

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MASTERCLASS Investment – The Current Ratio formula and what it shows

MASTERCLASS Investment – The Current Ratio formula and what it shows

Investment – The Current Ratio formula and what it shows

The Current Ratio formula gives a value which is a type of “liquidity ratio” and shows a company’s ability to pay its short-term obligations – short term refers to the next 12 months.

In other words it is a formula to show a company’s ability to pay out its short-term (12 month) liabilities (debts and payables) using its short-term assets (cash, inventory, receivables).

The formula to calculate the ratio as follows:

Current Ratio = (Current Assets / Current Liabilities)

The higher the current ratio, the more capable the company is capable of paying its obligations, and a value over 2 is generally desired. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point (assets are less than the liabilities). While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt – as there are many ways to improve a business by sales and financing – but it is definitely not a good position to be in for too long.
The current ratio also gives a sense of the “efficiency” of a company’s operating cycle, that is, its ability to turn its product into cash. Companies that have trouble being paid on their receivables on time or with long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.
The ratio is similar to the acid-test ratio except that the acid-test ratio takes out inventory and pre-paids or deposits as assets that can be liquidated, as they can take longer (weeks, months). The components of current ratio (current assets and current liabilities) can be used to calculate working capital (which is the difference between current assets and current liabilities). Working capital is also used to calculate the working capital ratio, which is working capital as a ratio of sales.

Get our FREE Expert Guide – Self-Managed Super and You – it has all the info you need to know, with bonus TIPS and CHECKLISTS  to determine if SMSF is for you and what steps are needed to set up. It also gives you ALL the Aust Tax Office publications about SMSF. Get you copy now – click “Free Download” top right hand side above. You’ll also get monthly SMSF news, investment teaching and upcoming seminar and workshop briefs! Download your FREE Guide now!

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NEWS – Australian Tax Office statistics on Self-managed Super (SMSF) draw a glowing picture of health

NEWS – Australian Tax Office statistics on Self-managed Super (SMSF) draw a glowing picture of health

ATO statistics on SMSF draw a glowing picture of health

Professional Planner and the SMSF Association report this week some encouraging findings –The latest set of ATO statistics on self-managed super funds (SMSFs) draw a glowing picture of health of the largest superannuation sector, says SMSF Association CEO/Managing Director Andrea Slattery.

The report, titled Self-managed super funds: A statistical overview 2013-14, says “the continuing strength and community confidence in the SMSF sector is demonstrated by positive shifts in SMSF numbers, total assets and member account balances over the five years to 2014. Changes in the composition of SMSF asset portfolios show the ability of SMSFs to adjust to changing circumstances and economic conditions.”

In the five years to 30 June 2014, the average assets of SMSFs grew 23% and reached more than $1 million for the first time in 2014. Likewise, average assets per member increased to $564,000, the highest over the period. The sector now accounts for 29% of the $2 trillion in superannuation assets.

Slattery says: “As the peak body in the SMSF space, it is reassuring for the sector to get such a positive endorsement from the regulator. In particular, what was the stand-out comment for me was the ATO’s saying that ‘changes in the composition of SMSF asset portfolios show the ability of SMSFs to adjust to changing circumstances and economic circumstances’. [In the 12 months to 30 June 2014, SMSFs, on average, returned 9.8% and for the past five years showed positive returns.]

“Considering these numbers are drawn over a five-year period, hopefully it will put to rest that old chestnut that says trustees are out of their depth in today’s volatile markets. The recent report by CommSec, which showed trustees moved quickly to take advantage of the recent downturn in the Australian equity market, is just further evidence of their capacity to handle their investment portfolios.

“It also demonstrates, I believe, the quality of specialist advice that is now available to trustees, and their growing propensity to take heed of that advice.”

Slattery says another positive trend to emerge from the report was the growth in members in new SMSFs to come from younger age groups, with the median age of SMSF members falling under 50 years of age.

“It’s always been our contention that there should be no age or asset barrier to entry to an SMSF, a position upheld by the both the Cooper Review (2010) and Financial System Inquiry (2014).

What these numbers show is that younger people are taking this opportunity to set up an SMSF and be more engaged in their retirement savings, a trend that should only be encouraged as they are setting out earlier in their working lives to ensure they are self-sufficient in retirement – the prime goal of our compulsory superannuation system.”

SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is Free. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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Masterclass SMSF – What can you invest in?

Masterclass SMSF – What can you invest in?

SMSF – What can you invest in?

For the SMSF Trustee, there are certain rules that must be followed to ensure the SMSF super fund stays compliant regarding what you can invest in.

Key Investment Rules

  • Ensure Fund-Ownership of assets is secure (preference in   trustee name (individual(s) or corporate name) – S52(2)(d)
  • Invest following the written Investment Strategy – Reg 4.09
  • Cannot lend money or financially help others or members – S65
  • Cannot buy assets from members or related members or entities (except shares and securities at market value, business real property) – S66 & S69-71E
  • Must be no charge over any assets in the fund (recourse) S67A-67B & Reg 13.12–13.13
  • Meet Sole Purpose Test – Decisions that will provide for retirement – S62.

Investment Choices

SFs can invest in various asset classes including:

  • Shares, Options, CFD’s ,Covered Call Options
  • Property – Residential and Commercial
  • Managed Funds
  • Term Deposits and Cash
  • Government Bonds
  • Exotic Assets (with a proviso***) such as:
  • Art and Collectables
  • Cars, Wine
  • Antiques, Jewellery

***The Main Issue is you cannot USE/Enjoy them YET – This would break the Sole Purpose Test and is a breach of the SIS Act – S62 & Reg 13.14.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and YouTop right hand side above.

If you have any questions, why not give us a call – it’s FREE also!

No obligation. 0407 361 596, Paul.

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