For now, it appears as if the central bank may start raising the short-term interest rates it controls in the second half of To date, that has been far enough away to not shake the confidence of the bulls, particularly since tame bond yields have not created much competition for stocks.
Normally, the bond market reacts more quickly to economic data than the Federal Reserve. But that is only occurring to a limited extent this time around, at least in part because of a large number of buyers for yields of any substance.
Yields in a number of markets in Europe and Asia are lower than stateside, or even negative. Inflation could still dampen returns for stocks if bond yields start climbing steadily. Real wages adjusted for inflation have also slipped lately, making it tougher for consumers to buy more of anything.
In a diversified company, of course, the causes of good or poor performance can usually be found at the level of the business unit. Since they were not publicly traded, these units had no price in the stock market. AKI compared each of the eight units with such companies in its industry.
First, the analysts determined the betas as of January for the comparison companies and—according to the degree of leverage, the tax rate, and betas in the stock market—adjusted them for the effects of various levels of financial leverage.
The procedure was the same for the other divisions. The beta for Alaska Gas was the average of the releveraged betas assuming a debt-equity ratio of 1 from proxy companies in the gas distribution and gas transmission industries. To test the accuracy of these estimates, the AKI staff compared the weighted average of the releveraged betas with the January market-derived AKI beta. Note that the VICO agreement had not yet been announced.
A similar proxy beta analysis at the end of yielded a beta slightly over 1. AKI management used this risk analysis as a benchmark for performance. Exhibit V shows an estimate of subsidiary performance with the return on capital used as a proxy for the long-term return to the investor. Alaska Gas, the low-risk subsidiary, outperformed both Lockwood and the parent company. The agricultural equipment business, however, was in a slump, largely because many low-moisture areas had received unusually abundant rainfall.
Exhibit VI Performance of Subsidiary vs. Industry June —December The heads of both Alaska Gas and Lockwood had forecast their results rather well. If they believed its prospects were dismal, AKI executives would obviously want to answer the following questions:. A summary appears in Exhibit VII. The group judged Alaska Gas to be in a superior position with respect to its facilities and resources but also in a deteriorating position because of the declining growth rate of its Anchorage market.
Since the commission set the rates the company could charge, its future returns were difficult to predict. Lockwood had products with strong competitive positions, but they were in mature and declining markets.
Management expected low crop prices to continue, and low prices would lead to a drop in new and replacement purchases of farm equipment. Moreover, technological innovation was altering the irrigation equipment business, and the barriers to entry were few. The AKI staff turned this analysis into estimates of the future risk and return for each subsidiary.
Analysts figured cash flows and, by using a discounted cash flow approach, converted them to estimated returns. Thus far, a rather traditional analysis. Each circle represents a subsidiary, and the circle size the proportion of corporate capital employed.
Not unexpectedly, the Alaska Interstate managers decided that Alaska Gas would be less risky 2. This exhibit also shows the difference between the first assessment these managers made, in April , and the one they made in December The arrows show the movement from the April forecast to the circle that represents the December forecast. While far more subjective as a measure of future risk than a mechanistic approach like the industry proxy betas, this approach included the best judgment of the most knowledgeable people.
The process of obtaining the information in a systematic way forced these managers to make their evaluations with care. Exhibit IX shows the anticipated changes in risk and return by The circles are those made in the December assessment, and the arrows point to the expected position in While planning little new investment in either Lockwood or Alaska Gas, the AKI officers expected better returns from Lockwood when an assumed pent-up demand for irrigation equipment made itself felt.
On the whole, the managers expected the entire AKI portfolio to become more profitable, at a slight increase in risk. That increase in risk would come not from Lockwood or Alaska Gas but from the new offshore gas venture. It had, of course, in the short run quite the opposite effect. Making explicit judgments about risk and return, however, puts a spotlight on the assumptions behind them and inhibits overenthusiasm. Second, the use of probabilistic analysis could have helped pinpoint the magnitude of the systematic and the unsystematic risk.
These changes are important; the first ensures that the data will be comparable from manager to manager, and the second defines the sources of risk that require managers to follow different strategies. The evidence indicated that Alaska Gas was not particularly sensitive to macroeconomic events and was unlikely to be exposed to much risk from industry or company-specific sources.
Lockwood appeared to be quite different. With a beta of 1. So Lockwood was a risky venture. It is used to limit loss or gain in a trade. The concept can be used for short-term as well as long-term trading. The Return On Equity ratio essentially measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders.
The denominator is essentially t. It is a temporary rally in the price of a security or an index after a major correction or downward trend. The Iron Butterfly Option strategy, also called Ironfly, is a combination of four different kinds of option contracts, which together make one bull Call spread and bear Put spread. Together these spreads make a range to earn some profit with limited loss. Hedge fund is a private investment partnership and funds pool that uses varied and complex proprietary strategies and invests or trades in complex products, including listed and unlisted derivatives.
Put simply, a hedge fund is a pool of money that takes both short and long positions, buys and sells equities, initiates arbitrage, and trades bonds, currencies, convertible securities, commodities. The loan can then be used for making purchases like real estate or personal items like cars.
The only thing that this loan cannot be used for is making further security purchases or using the same for depositing of margin. Description: In order to raise cash. Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run.
In other words, lot size basically refers to the total quantity of a product ordered for manufacturing. A simple example of lot size. Choose your reason below and click on the Report button.
This will alert our moderators to take action. Nifty 18, Zomato Ltd. Market Watch. ET NOW. Brand Solutions. Video series featuring innovators. ET Financial Inclusion Summit.
0コメント