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how is the consumer price index cpi used | the cpi is widely used by financial market participants to gauge inflation and by the federal reserve to calibrate its monetary policy businesses and consumers also use the cpi to make informed economic decisions since cpi measures the change in consumers purchasing power it is often a key factor in pay negotiations th... | |
what is the current cpi | in may 2024 the cpi rose 3 3 over the last 12 months before seasonal adjustment the index remained unchanged in may on a seasonally adjusted basis from the 0 3 increase in april 2024 6 | |
how is the consumer price index used | the cpi index is an inflation indicator closely watched by policymakers and financial markets a related cpi measure is used to calculate cost of living adjustments for federal benefit payments | |
how is the cpi calculated | the bureau of labor statistics samples 80 000 prices monthly to calculate the cpi weighing the index for each product or service in proportion to its share of recent consumer spending to calculate the overall change in prices the calculation also factors in the substitution effect as consumers shift spending away from ... | |
what are some criticisms of the cpi | over the years the cpi has frequently drawn criticism that it has either understated or overstated inflation because the cpi is based on consumer spending it doesn t track third party reimbursements for healthcare and significantly underweights healthcare relative to its proportion in the gdp as a result on the other h... | |
what is consumer surplus | consumer surplus is an economic measurement of consumer benefits resulting from market competition a consumer surplus happens when the price that consumers pay for a product or service is less than the price they re willing to pay it s a measure of the additional benefit that consumers receive because they re paying le... | |
where | measuring consumer surplusthe demand curve is a graphic representation used to calculate consumer surplus it shows the relationship between the price of a product and the quantity of the product demanded at that price with the price drawn on the y axis of the graph and the quantity demanded drawn on the x axis because ... | |
is a high consumer surplus good | a high consumer surplus means that goods are priced quite a bit lower in the market than where consumers would ultimately be willing to pay this is often the result of a high degree of competition technological progress and producer efficiency in general all of these things are considered to be good for promoting econo... | |
what is producer surplus | similar to consumer surplus producer surplus is the economic benefit to producers of goods measured by the difference in market price and where the producer would be willing to sell a producer surplus thus exists if the market price of a good is higher than the price the producer is willing to sell | |
what is total economic surplus | total economic surplus is equal to the producer surplus plus the consumer surplus it describes the total net benefit to society from free markets in goods or services the bottom linein free markets producers compete with one another to be the low cost producer and grab market share from other companies in their space t... | |
what are consumer staples | the term consumer staples refers to a set of essential products used by consumers this category includes things like foods and beverages household goods and hygiene products as well as alcohol and tobacco these goods are those products that people are unable or unwilling to cut out of their budgets regardless of their ... | |
what is consumerism | consumerism is the idea that increasing the consumption of goods and services purchased in the market is always a desirable goal and that a person s well being and happiness depend fundamentally on obtaining consumer goods and material possessions consumerism is related to the predominantly keynesian idea that consumer... | |
what is the consumption function | the consumption function is an economic formula that represents the relationship between total consumption and gross national income gni it was first introduced by british economist john maynard keynes who argued that the function could be used to predict total aggregate consumption expenditure the consumption function... | |
how do you calculate the consumption function | the consumption function can be calculated using a simple formula c a md where c is the consumer spending a is autonomous consumption spending regardless of income levels m is the marginal propensity to consume the amount of additional income needed to spend on goods and services rather than saving it and d is the amou... | |
what shifts the consumption function forward | the consumption function shifts forward or upward when disposable income or accumulated wealth also increases the inverse is true for a downward shift in the consumption function in this case it drops or shifts downward when income or wealth drops | |
why is the consumption function important | there are multiple reasons why the consumption function is important to economics it is a macroeconomic tool that can help economists understand the economy including how business cycles work and the function of the money supply among others economists and decision makers can use it and the formula to make investment d... | |
what is contango | contango is a situation where the futures price of a commodity is higher than the spot price contango usually occurs when an asset s price is expected to rise over time that results in an upward sloping forward curve understanding contangofutures contract supply and demand affect their price at each available expiratio... | |
when prices are in contango investors are willing to pay more for a commodity that will be delivered in the future the difference between the spot and future prices is referred to as a premium | the premium usually includes the cost of carry which is a term that refers to the costs of holding an asset for a certain period the cost of carry for commodities generally includes storage insurance or depreciation due to spoiling or rotting if the commodity is an agricultural or meat product in all futures market sce... | |
what are the causes of contago | contango can be caused by several factors including inflation expectations expected future supply disruptions and the carrying costs of the commodity in question some investors will seek to profit from contango by exploiting arbitrage opportunities between the futures and spot prices | |
what is the difference between contango and backwardation | the opposite of contango is known as backwardation when the market is in backwardation the futures prices for the commodity follow a downward sloping curve in which futures prices are below spot prices although backwardation is relatively rare it occasionally occurs in several commodity markets causes of backwardation ... | |
how does contango affect commodity exchange traded funds etfs | investors in exchange traded funds etfs must understand how contango can affect certain commodity based etfs specifically if a commodity etf invests in commodity futures contracts as opposed to physically holding the commodity in question that etf may be forced to replace or continuously roll over its futures contracts... | |
what is a contingency | a contingency is a potential occurrence of a negative event in the future such as an economic recession natural disaster fraudulent activity terrorist attack or a pandemic although contingencies can be prepared for the nature and scope of such negative events are typically unknowable in advance companies and investors ... | |
how a contingency works | to plan for contingencies financial managers may often also recommend setting aside significant reserves of cash so that the company has strong liquidity even if it meets with a period of poor sales or unexpected expenses managers may seek to proactively open credit lines while a company is in a strong financial positi... | |
how a company is reorganized after a negative event should be included in a contingency plan it should have procedures outlining what needs to be done to return the company to normal operations and limit any further damage from the event | for example financial services firm cantor fitzgerald was able to resume operation in just days after being crippled by the 9 11 terrorist attacks due to having a comprehensive contingency plan in place benefits of a contingency plana thorough contingency plan minimizes loss and damage caused by an unforeseen negative ... | |
why is an environmental contingency plan important | businesses that are at risk for environmental accidents particularly spills of hazardous materials should always have a plan in place detailing their response actions being prepared can help minimize the total damage done to the environment minimize accident related costs and limit liability | |
what is contingency theory | contingency theory is an approach to management that suggests the best way to run an organization is dependent or contingent on that particular situation in other words a specific management style can work well in one company and fail completely in another one | |
what are the steps in creating a contingency plan | to create a contingency plan first identify the key risks to your business and order them in regard to the likelihood of occurring and severity next conduct a business impact analysis bia from there start shaping your plan which should include preventive controls an incidence response plan a disaster recovery plan and ... | |
what is a contingent asset | a contingent asset is a potential economic benefit that is dependent on some future event s largely out of a company s control a contingent asset is thus also known as a potential asset not knowing for certain whether these gains will materialize or being able to determine their precise economic value means these asset... | |
what is a contingent asset | a contingent asset is a potential economic benefit that is dependent on some future event s largely out of a company s control a contingent asset is thus also known as a potential asset not knowing for certain whether these gains will materialize or being able to determine their precise economic value means these asset... | |
what are contingent convertibles cocos | contingent convertibles cocos are debt instruments primarily issued by european financial institutions these securities work in a fashion similar to traditional convertible bonds they have a specific strike price that once breached allows the conversion of the bond into equity or stock cocos also known as at1 bonds are... | |
how banks use contingent convertibles | banks use contingent convertibles differently from the way corporations use convertible bonds banks have their own set of parameters that warrant the bond s conversion to stock the triggering event for cocos can be the bank s value of tier 1 capital the judgment of supervisory authority or the value of the bank s under... | |
how do cocos differ from convertible bonds | contingent convertibles cocos and convertible bonds both have a price point that triggers the conversion of the bond into equity or stock however cocos have several triggers while traditional convertible bonds have only one cocos pay higher interest rates than convertible bonds due to their risks they have special opti... | |
are contingent convertibles regulated | yes cocos are regulated in the european union under the basel iii regulatory framework the framework sets minimum standards for the banking industry to improve supervision risk management and capital requirements | |
what happens to contingent convertibles during a financial crisis | during a period of financial stress or uncertainty for banks the value of cocos can significantly decrease as they are high risk instruments if a bank is struggling and needs additional capital the value of its shares may decrease putting coco investors at risk for losses if a bank fails to meet its capital requirement... | |
what is a contingent liability | a contingent liability is a liability that may occur depending on the outcome of an uncertain future event contingent liabilities are recorded if the contingency is likely and the amount of the liability can be reasonably estimated the liability may be disclosed in a footnote on the financial statements unless both con... | |
how contingent liabilities work | pending lawsuits and product warranties are common contingent liability examples because their outcomes are uncertain the accounting rules for reporting a contingent liability differ depending on the estimated dollar amount of the liability and the likelihood of the event occurring the accounting rules ensure that fina... | |
when do i need to be aware of contingent liability | if you run a business or oversee the accounts of one you need to be aware of the contingent liabilities that you have taken on you ll also need to record them both gaap generally accepted accounting principles and ifrs international financial reporting standards require companies to record contingent liabilities in acc... | |
what is important to know about contingent liability | contingent liabilities adversely impact a company s assets and net profitability as a result knowledge of both contingencies and commitments is extremely important to users of financial statements because they represent the encumbrance of potentially material amounts of resources during future periods and thus affect t... | |
what is a contingent liability | a contingent liability is a liability that may occur depending on the outcome of an uncertain future event a contingent liability has to be recorded if the contingency is likely and the amount of the liability can be reasonably estimated both generally accepted accounting principles gaap and international financial rep... | |
what are the 3 types of contingent liabilities | gaap recognizes three categories of contingent liabilities probable possible and remote probable contingent liabilities can be reasonably estimated and must be reflected within financial statements possible contingent liabilities are as likely to occur as not and need only be disclosed in the financial statement footno... | |
what are examples of contingent liability | pending lawsuits and warranties are common contingent liabilities pending lawsuits are considered contingent because the outcome is unknown a warranty is considered contingent because the number of products that will be returned under a warranty is unknown | |
is contingent liability an actual liability | yes when they are probable even though they are only estimates due to their high probability contingent liabilities classified as probable are considered real this is why they need to be reported via accounting procedures and why they are regarded as real liabilities the bottom linea contingent liability is a potential... | |
what is a contingent value right cvr | the term contingent value right cvr refers to a right often granted to shareholders of a company facing restructuring or a buyout these rights ensure that the shareholders get certain benefits if a specific event occurs usually within a specified time frame these rights are similar to options because they frequently ha... | |
when are contingent value rights used | cvrs are issued at the time that one company acquires another it represents the difference in the two companies valuation of the target and provides a benefit to its shareholders these investors receive the benefit when the acquired company achieves a certain performance achievement | |
are contingent value rights guaranteed | contingent value rights are not guaranteed the acquired company must meet certain performance metrics and or targets for shareholders to receive the benefit if the cvr expires before this happens no benefit is granted | |
how can a shareholder profit from contingent value rights | to profit from a cvr investors must hold stock in the acquired company before it is delisted from the stock exchange companies tend to prefer non transferable cvrs because it doesn t require listing the shares on an exchange this costs less money and regulatory hurdles the bottom linein an acquisition the goal of cvrs ... | |
what is continuous compounding | continuous compounding is the mathematical limit that compound interest can reach if it s calculated and reinvested into an account s balance over a theoretically infinite number of periods while this is not possible in practice the concept of continuously compounded interest is important in finance it is an extreme ca... | |
what continuous compounding can tell you | in theory continuously compounded interest means that an account balance is constantly earning interest as well as refeeding that interest back into the balance so that it too earns interest continuous compounding calculates interest under the assumption that interest will be compounding over an infinite number of peri... | |
what is compound interest | compound interest is interest earned on interest you ve received when interest compounds each subsequent interest payment will get larger because it is calculated using a new higher balance more frequent compounding means you ll earn more interest overall | |
how does annual percentage yield apy relate to continuous compounding | annual percentage yield apy is the real rate of return on an investment taking compounding interest into account the apy of an account with more frequent or continuous compounding will be higher than the apy of an account that has infrequent compounding assuming they both have the same interest rate | |
what are the most common compounding periods | depending on the situation interest is typically compounded monthly quarterly semi annually or annually some accounts may even offer daily compounding though compounding more frequently than that is incredibly unusual | |
what is discrete compounding | discrete compounding is the opposite of continuous compounding instead of interest compounding constantly it compounds at set intervals such as daily or monthly the bottom linecontinuous compounding may be a theoretical concept that can t be achieved in reality but it has real value for savers and investors it allows s... | |
what is a contra account | a contra account is used in a general ledger to reduce the value of a related account when the two are netted together a contra account s natural balance is the opposite of the associated account if a debit is the natural balance recorded in the related account the contra account records a credit for example the contra... | |
when accounting for assets the difference between the asset s account balance and the contra account balance is referred to as the book value there are two major methods of determining what should be booked into a contra account | the allowance method of accounting allows a company to estimate what amount is reasonable to book into the contra account the percentage of sales method assumes that the company cannot collect payment for a fixed percentage of goods or services that it has sold both methods result in an adjustment to book value for exa... | |
what is the benefit of using a contra account | contra accounts are used to reduce the value of the original account directly to keep financial accounting records clean if a contra account is not used it can be difficult to determine historical costs which can make tax preparation more difficult and time consuming | |
what are the different types of contra accounts | there are four key types of contra accounts contra asset contra liability contra equity and contra revenue contra assets decrease the balance of a fixed or capital asset carrying a credit balance contra liabilities reduce liability accounts and carry a debit balance contra equity accounts carry a debit balance and redu... | |
what are examples of a contra asset account | key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation allowance for doubtful accounts reduces accounts receivable accumulated depreciation reflects the reduction in value of a fixed asset | |
is a contra balance negative or positive | depending on how you view the account balance a contra account balance can be negative or positive on one hand a contra asset represents a true positive amount of something in the amazon example above the company estimated roughly 1 4 billion of accounts receivable were uncollectable and that uncollectable amount is po... | |
do contra accounts have debit or credit balances | contra assets have natural credit balances whereas assets normally have positive debit balances contra assets though still reported along with other assets have an opposite type of natural balance contra liability equity and revenue accounts have natural debit balances these three types of contra accounts are used to r... | |
what is a contract for difference cfd | a contract for difference cfd is an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade prices are cash settled there s no delivery of physical goods or securities with cfds contracts for difference are an advanced trading strategy used by experie... | |
what is one difference between a contract for differences cf and a futures contract | futures contracts have an expiration date at which time there s an obligation to buy or sell the asset at a preset price cfds are different in that there is no expiration date and you never own the underlying asset can u s citizens buy cfds cfds are not allowed by the u s securities and exchange commission 1 these over... | |
what is a contractionary policy | a contractionary policy is a monetary measure to reduce government spending or the rate of monetary expansion by a central bank it is a macroeconomic tool used to combat rising inflation the main contractionary policies employed by the united states government include raising interest rates increasing bank reserve requ... | |
what are the effects of contractionary policy | a contractionary policy often results in the tightening of credit through increased interest rates increased unemployment reduced business investment and reduced consumer spending there is commonly an overall reduction in the gross domestic product gdp | |
what is the main goal of contractionary policy | the purpose of a contractionary policy is to slow growth to a healthy economic level typically between 2 to 3 a year for the gdp an economy that grows more than 3 creates negative consequences including inflation | |
why is contractionary policy unpopular | contractionary policies require elected officials to increase taxes and reduce government spending like social and welfare programs both unpopular with voters the bottom linea contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflatio... | |
what is a contrarian | contrarian investing is an investment style in which investors purposefully go against prevailing market trends by selling when others are buying and buying when most investors are selling berkshire hathaway chair and chief executive officer ceo warren buffett is a famous contrarian investor contrarian investors believ... | |
what is contrarian investing | contrarian investing refers to an investing strategy that looks for profit opportunities in trades that go against current market sentiment for example if the market is bullish the contrarian investor is bearish and will look for opportunities to sell conversely if the market is bearish the contrarian is bullish and wi... | |
how have billionaire contrarians used deep value to beat the market | deep value investing is a term often used in conjunction with billionaire contrarians who pick their stock investments based on their analysis that a particular company is trading at many multiples below intrinsic or book value these billionaires look for companies with share prices that have been unfairly and signific... | |
what is contributed capital | contributed capital also known as paid in capital is the cash and other assets that shareholders have given a company in exchange for stock investors make capital contributions when a company issues equity shares based on a price that shareholders are willing to pay for them the total amount of contributed capital or p... | |
when companies repurchase shares and return capital to shareholders the shares bought back are listed at their repurchase price which reduces shareholders equity | calculating contributed capitalcontributed capital is reported in the shareholder s equity section of the balance sheet and usually split into two different accounts common stock and additional paid in capital account in other words contributed capital includes the par value or nominal value of the stock found in the c... | |
what is contribution margin | the contribution margin can be stated on a gross or per unit basis it represents the incremental money generated for each product unit sold after deducting the variable portion of the firm s costs the contribution margin is computed as the selling price per unit minus the variable cost per unit also known as dollar con... | |
where c is the contribution margin r is the total revenue and v represents variable costs | it may also be useful to express the contribution margin as a fraction of total revenue in this case the contribution margin ratio cr is expressed as the contribution margin divided by total revenues in the same time period cr r v r begin aligned textbf cr frac textbf r textbf v textbf r end aligned cr r r v | |
what contribution margin can tell you | the contribution margin is the foundation for break even analysis used in the overall cost and sales price planning for products the contribution margin helps to separate out the fixed cost and profit components coming from product sales and can be used to determine the selling price range of a product the profit level... | |
how to improve contribution margin | based on the contribution margin formula there are two ways for a company to increase its contribution margins they can find ways to increase revenues or they can reduce their variable costs variable costs tend to represent expenses such as materials shipping and marketing companies can reduce these costs by identifyin... | |
when to use contribution margin analysis | investors examine contribution margins to determine if a company is using its revenue effectively a high contribution margin indicates that a company tends to bring in more money than it spends very low or negative contribution margin values indicate economically nonviable products whose manufacturing and sales eat up ... | |
how do you calculate contribution margin | contribution margin is calculated as revenue variable costs the contribution margin ratio is calculated as revenue variable costs revenue | |
what is a good contribution margin | the best contribution margin is 100 so the closer the contribution margin is to 100 the better the higher the number the better a company is at covering its overhead costs with money on hand | |
what is the difference between contribution margin and profit margin | profit margin is calculated using all expenses that directly go into producing the product contribution margin only takes into account variable costs the bottom linethe contribution margin represents the revenue that a company gains by selling each additional unit of a product or good this is one of several metrics tha... | |
what is a controller | a controller is an individual who has responsibility for all accounting related activities including high level accounting managerial accounting and finance activities within a company the duties of a controller include assisting with the preparation of the operating budgets overseeing financial reports and performing ... | |
is a controller the same as cfo or vp of finance | a controller is not the same as a cfo or vp of finance a cfo or vp of finance are often higher level positions that are on the executive team meanwhile a controller is usually a lower level position that is less involved in strategic planning or external affairs and mostly involved in internal reporting | |
what qualifications does a controller need | a controller must often have around at least 10 years of professional experience though larger public companies will often require more though an accounting or finance license is not always required a controller may need to carry a cpa license a controller usually needs to have at least some sort of higher education as... | |
why is a controller important | controllers are important to finance because they control the risk and reporting aspects of the company a controller is the point person for making sure the financial reporting is done correctly they are also the person to understand why inaccuracies may exist what changes must be put in place and how those changes wil... | |
what is a conventional mortgage or loan | a conventional mortgage is a homebuyer s loan made through a private lender compared to a federal housing administration fha loan a conventional loan often requires a higher credit score to qualify 1conventional loans are not offered or secured by a government entity instead these mortgages are available through privat... | |
when the federal reserve makes it more expensive for banks to borrow by targeting a higher federal funds rate the banks in turn pass on the higher costs to their customers and consumer loan rates including those for mortgages tend to go up | typically linked to the interest rate are points or fees paid to the lender or broker the more points you pay the lower your interest rate one point costs 1 of the loan amount and reduces your interest rate by about 0 25 12the final factor in determining the interest rate is the individual borrower s financial profile ... | |
what s the difference between a federal housing administration fha loan and a conventional loan | fha loans are designed to make homeownership possible and easier for low to moderate income borrowers with poor credit history or limited savings conventional loan interest rates may be higher than government backed mortgages such as fha loans and you will need a higher credit score and down payment to qualify | |
is it better to go fha or conventional | a conventional loan is often better if you have good or excellent credit because your mortgage rate and private mortgage insurance pmi costs will decrease but an fha loan can be perfect if your credit score is in the high 500s or low 600s for lower credit borrowers fha is often the cheaper option however it s worth che... | |
what credit score do i need for a conventional loan | fannie mae says conventional loans typically require a minimum credit score of 620 but it can vary by lender banks may be more willing to lend to people with a significant down payment the bottom linea conventional mortgage or conventional loan is a homebuyer s loan that is not offered or secured by a government entity... | |
what is a convertible bond | a convertible bond is a fixed income corporate debt security that yields interest payments but can be converted into a predetermined number of common stock or equity shares the conversion from the bond to stock can be done at certain times during the bond s life and is usually at the discretion of the bondholder as a h... | |
how does a convertible bond work | a convertible bond works by providing bondholders with the flexibility to convert their bonds into shares of the issuing company s stock if the bondholder chooses to convert they surrender the bond and receive shares at the predetermined conversion price if they opt not to convert they continue to receive periodic inte... | |
what is the conversion ratio | the conversion ratio of a convertible bond specifies the number of shares that a bondholder will receive upon conversion for example a conversion ratio of 10 1 means that one convertible bond can be converted into 10 shares of the issuing company s stock | |
how do interest payments on convertible bonds work | interest payments on convertible bonds work similarly to those on regular bonds bondholders receive periodic interest payments usually semiannually or annually based on the bond s coupon rate and face value these payments continue until the bond matures or is converted into equity | |
what happens if a convertible bond is not converted | if a convertible bond is not converted by the bondholder before its maturity date the issuing company is typically obligated to repay the principal amount of the bond to the bondholder along with any accrued interest payments | |
when can bondholders convert their bonds into shares | bondholders can usually convert their bonds into shares of the issuing company s stock at any time before the bond matures as long as the conversion conditions specified in the bond s terms are met sometimes a company may include language saying the instrument can only be converted after being held or issued for a cert... | |
what is convertible preferred stock | convertible preferred stocks are preferred shares that include an option for the holder to convert them into a fixed number of common shares after a predetermined date most convertible preferred stock is exchanged at the request of the shareholder but sometimes there is a provision that allows the company or issuer to ... | |
how is a convertible preferred share different from a regular preferred share | convertible preferred shares give their holders the option of converting them into a set amount of common stock shares in the future this gives the shareholder the potential benefit of capital appreciation in addition to the guaranteed benefit of a regular dividend as a result convertible preferred shares will often tr... | |
how does a convertible preferred share differ from a convertible bond | both convertible preferred shares and convertible bonds can be converted into common shares but they differ in several key ways convertible bonds like any bonds are debts that gives the owners of convertible preferred bonds priority over the owners of convertible preferred shares in the event of bankruptcy or liquidati... | |
why would investors buy convertible preferred stock | convertible preferred stock offers the investor the benefits of both preferred stock and common stock investors get the stability liquidation priority and higher dividends of preferred stock but they also have the option to convert their shares into common stock later if they believe that the price will go up this conv... | |
what is convexity | convexity is apparent in the relationship between bond prices and bond yields convexity is the curvature in the relationship between bond prices and interest rates it reflects the rate at which the duration of a bond changes as interest rates change duration measures a bond s sensitivity to changes in interest rates it... | |
what is negative and positive convexity | if a bond s duration increases as yields increase the bond is said to have negative convexity the bond price will decline by a greater rate with a rise in yields than if yields had fallen if a bond s duration rises and yields fall the bond is said to have positive convexity as yields fall bond prices rise by a greater ... | |
why do interest rates and bond prices move in opposite directions | as interest rates fall bond prices rise and vice versa new bond issues must also have higher rates to satisfy investor demand for lending the issuer their money the price of bonds returning less than that rate will fall as there would be very little demand for them as bondholders will look to sell their existing bonds ... |
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