Make Profit with a Loans Guide

Payday loan – it all begins with you

admin — Mon, 15 Feb 2010 22:57:08 +0000

You have the potential to be a great partner and to create successful, long-lasting, trustworthy, and mutually beneficial partnerships. The formula is simple. Again and again I have emphasized the importance of understanding yourself first. It all begins with you. You need to know what you want. You need to select a partner who can help you close the gap between what you can currently do and where you want to be. You need to follow a partnering process: the Partnership Continuum. You need to be sure to keep the task and relationship dynamics in balance. You need to practice the Six Partnering Attributes. And you need to improve continuously by using the Plan–Do–Check–Act cycle.
Follow the outline I have used in this blog. It works. Don’t deviate from it and don’t take shortcuts. Relationships take time to build; trust takes time to build; it takes time to communicate. But once you have laid the foundation, partnerships will create endless value for your business and help build the smart alliances you need to successfully compete in the future.

The dynamics of credits and loans

admin — Fri, 30 Oct 2009 20:15:25 +0000

Exit barriers are also important as they vary widely across industries depending on the amount of sunk costs. These are costs a company will not recover when it exits a business.

Power of supplier: Integration potential Industry dynamics might be changed, for example, by vertical integration
of suppliers.

Threat by new competitors: High entry barriers can decrease the threat by new competitors. Entry barriers can result from:

Economies of scale
Product differentiation
Cost advantages
Capital needs
Access to distribution channels
Technology know-how
Access to raw materials
Location advantages
Government subsidies
Learning curve/product experience.

Threat by substitutes: The quality or price of substitutes poses a threat to an industry since those substitutes may induce a structural change of an industry.

Power of buyers: Price sensitivity and bargaining power of buyers have a great effect on the profitability of industries. The automobile industry is a good example at this point. The build-up of overcapacities created a buyers market.

The various types of credit competition

admin — Thu, 29 Oct 2009 19:02:20 +0000

The various types of competition can be grouped as follows:

Pure monopoly: Only one company provides a certain product or service in an area (e.g. post office, local utility companies). It is a result of regulation, patent, license or economies of scale. Earnings are highly predictable since competition is almost nonexistent and the degree of regulation is very high.

Pure oligopoly: A few companies produce the same commodity (e.g. oil, steel). There is enough market share for every competitor. Profit margins will depend on the economic cycle and the cyclicality of industries.

Differentiated oligopoly: A few companies produce partially differentiated products (e.g. cars, computers). The differentiation occurs along lines of quality, features, styling or services. Here it is important to evaluate the different business models of the companies. Profit margins will vary across different industries and companies.

Monopolistic competition: This industry consists of many competitors able to differentiate their products and services (e.g. food, beverage).

Pure competition: Many competitors offer the same product and service (e.g. commodity market). The degree of product differentiation gives an estimate about the margin structure of an industry. Alow product differentiation is accompanied by an intense price competition which results in low profit margins.

A credit for corporate bond investors

admin — Wed, 28 Oct 2009 18:29:14 +0000

Corporate bond investors should target industries with a balanced business risk and financial risk profile. In mature industries cash flows become increasingly predictable and capital expenditures of companies tend to stabilize.

In such an industry the task is to select those companies who succeeded in controlling their cost structures and operate at efficient levels.

Those sectors will show a stable credit trend. Structural changes might push a whole industry into a declining stage. Companies out of those industries will experience structural losses, hence their credit metrics will deteriorate. Management will have no options available to stop this trend. In a next step the competitive environment of an industry has to be analyzed.

The 5-Forces diagram by Michael E. Porter summarizes best the interaction of an industry with its economic environment. An understanding of those relationships is essential for the projection of credit trends in a sector. The competitive environment determines profit margins and the pricing power of companies.

Best credit investments for a fixed income investor

admin — Tue, 27 Oct 2009 17:38:04 +0000

For a fixed income investor the best investments will be in sectors whose life cycle is in stages 3 and 4. Stage 1 is characterized by high business and financial risk. The rewards can be substantial but fatal losses can occur as well. The traditional financing sources for early stage industries are venture capital, private equity followed by the equity market. In stage 2 an industry will experience accelerating growth in sales and profits, but it can be assumed that all generated funds will be reinvested to grow the business, and financial discipline will not be a priority to management. Bondholder unfriendly corporate actions across the industry will increase the downside potential for corporate bond investors.

Reduce the entire credit cycle to 5 stages

admin — Mon, 26 Oct 2009 16:04:06 +0000

The analysis of an industry’s life cycle is useful for making projections about profit margins, earnings growth, trends in sales and profitability. To simplify things it is quite common to reduce the entire life cycle of an industry to 5 stages Such a 5-stage model is described by Reilly and Brown (2003). Abrief description of the different stages will follow next.

Pioneering development: A modest sales growth is accompanied by small or negative profit margins and profits. The firms face high R&D costs. Most recent examples are high-tech companies or internet-based companies with unproven business models. Most of the financing is obtained through venture capital or private equity.

Rapid accelerating growth: Demand for products and services grows and due to only few competitors, profit margins are high. Firms experience substantial backlogs and production capacity is being built up. At this stage successful companies will be able to access the capital markets for further financing.

Mature growth: An increasing number of competitors enter the market. The demand for the industry’s goods and services is satisfied, prices decline and profit margins begin to decline. At this stage financial discipline is important because future earnings might be lower due to competition. Companies with sustainable debt levels will benefit in the long run.

Stabilization and market maturity: The growth rate of the industry declines to the growth rate of the aggregate economy and profit growth will vary by industry due to different competitive structures. Competition will result in lower profit margins. In this stage industry trends will contribute to the development of aggregate credit quality.

Deceleration of growth and decline: Sales growth declines because of changes in demand and new substitutes. An increasing number of companies start to generate losses. The industry experiences a negative credit trend.

The analysis of credit and loans industry

admin — Sun, 25 Oct 2009 15:56:12 +0000

The sector selection is one of the most important performance drivers in a corporate bond portfolio. The overweighting and underweighting of different industries is a key element in a corporate bond strategy. The weighting of sectors in a corporate bond portfolio is the result of controlled deviations from the benchmark. They are based on the analysis of the operating environment of specific sectors, a bottom-up analysis of the respective companies and the risk-return profiles of bonds from a specific sector. It is advantageous to set up a corporate bond team by sectors because this structure allows an in-depth coverage of all sectors and the understanding of the competitive environment as well as the market positions and management strategies of single companies out of each sector. An industry consists of a group of firms which offer products that are close substitutes for each other.

The spreads of loans sectors widened massively

admin — Sat, 24 Oct 2009 14:26:16 +0000

Although the consumer sector did surprisingly well, the spreads of cyclical sectors widened massively between the beginning of 2000 and October 2002. Apart from external shocks such as September 11, 2001, there are two economic explanations for this observation. First, the corporate sector increased its leverage dramatically between 1997 and 2001, for the benefit of shareholders and at the cost of bondholders. The high level of leverage made companies vulnerable to economic downturns. Second, the recession that finally occurred in the United States was not typical in the sense that it was not driven by a lack of private demand, but it was rather driven by overinvestment, overcapacities in many industries and as a consequence there was a decline of business investment. The capital goods sector was directly affected by this development and credit spreads widened substantially. The automotive sector, conversely, suffered rather from speculations that the consumer might break away one day. Additionally, the incentive programs weakened profitability in the already fragile automotive sector further and funding gaps in the pension plans materialized following the burst of the equity buble.

On the other hand, noncyclical sectors like banks and utilities performed reasonably well in 2001. The steepening yield curve helped banks to increase their interest margins and thus to offset the costs associated with the declining credit quality in the customer base. The utility sector again justified its safe haven status that is based on the utility companies’ strong ability to generate cash flows.

Cyclical versus noncyclical payday sectors

admin — Fri, 23 Oct 2009 13:31:55 +0000

The breakdown of real GDP in its components highlights the importance of private consumption and investment for the state of the economy. In Q4 2003, personal consumption and investment accounted for 87 percent of US real GDP, that is, these components are major drivers of the economic cycle. Although the National Bureau of Economic Research (NBER) that is responsible for dating recessions employs a variety of indicators to determine the peak and trough of an economic cycle, recessions are usually characterized by declining private demand. Tthis was not true for the 2001 recession. The consumer held up very well, taking on even more debt and thus stretching his balance sheet to the limit.

Tax rebates and incentives like the zero percent financing in the automotive sector supported the high level of consumption additionally, so that the indebtedness of private households reached record highs while the savings rate plunged to extremely low levels by historical standards. This combination explains not only the limited downturn of retail sales during the 2001 recession, but also the sluggish recovery compared to former recessions.

The influence of credit sector allocation

admin — Thu, 22 Oct 2009 12:45:46 +0000

Finally, while the subjects of industry analysis and the identification of relative value between sectors are covered in more detail below, it should be noted that the sector allocation has a substantial influence on the risk profile of a corporate bond portfolio. Sectors differ not only with respect to the goods or services they produce, but also with respect to their sensitivity to the economic environment. Therefore, investors usually distinguish between cyclical and noncyclical sectors. In general, cyclical industries are those where the ability to generate revenues and cash flows is closely linked to the business cycle. Usually, this is due to the fact that the companies in those sectors produce goods or services for private consumption or that belong in the category of capital expenditures. Typical examples of cyclical sectors therefore are the automotive and the capital goods sector.