An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first. |||LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.
A tax on the value of a piece of land. Land value tax inherently makes up a portion of all real estate property tax; however, land value tax takes only the fair value of the land into account. The taxation of land is very straightforward, requiring only a valuation of the land. |||Some argue that land value tax is the best tax in terms of economic efficiency. Since the availability of land is inelastic, the value of land is therefore determined by the rules of supply and demand. Land value taxes are implemented in numerous countries around the world, including the United States, namely in Pennsylvania.
A qualified retirement plan that combines an employee's stock ownership plan (ESOP) with a 401(k). Under this type of retirement plan the company will match employee contributions with stock rather than cash. KSOPs benefit companies by reducing expenses that would arise by separately operating an ESOP and 401(k) retirement plans. |||Using a KSOP is a great option for companies when their shareholders are looking to sell their shares in the company. The KSOP instantly creates a market with sufficient liquidity that is needed for those shareholders wishing to sell their stake. KSOPs also provide added motivation to employees to ensure the profitability of the company. This is because the added profitability would directly enhance their retirement plans.
A standard form in the investment industry that ensures investment advisors know detailed information about their clients' risk tolerance, investment knowledge and financial position. |||KYC forms protect both clients and investment advisors. Clients are protected by having their investment advisor know what investments best suit their personal situations. Investment advisors are protected by knowing what they can and can not include in their client's portfolio.
A corporate structure whereby the shareholders of the company have a limited liability to the company's actions. |||Basically, an LLC is a hybrid between a partnership and a corporation.
A large hedge fund led by Nobel Prize-winning economists and renowned Wall Street traders that nearly collapsed the global financial system in 1998 as a result of high-risk arbitrage trading strategies. The fund formed in 1993 and was founded by renowned Salomon Brothers bond trader John Meriwether. |||LTCM started with just over $1 billion in initial assets and focused on bond trading. The trading strategy of the fund was to make convergence trades, which involve taking advantage of arbitrage between securities that are incorrectly priced relative to each other. Due to the small spread in arbitrage opportunities, the fund had to leverage itself highly to make money. At its height in 1998, the fund had $5 billion in assets, controlled over $100 billion and had positions whose total worth was over a $1 trillion. Due to its highly leveraged nature and a financial crisis in Russia (i.e. the default of government bonds) which led to a flight to quality, the fund sustained massive losses and was in danger of defaulting on its loans. This made it difficult for the fund to cut its losses in its positions. The fund held huge positions in the market, totaling roughly 5% of the total global fixed-income market. LTCM had borrowed massive amounts of money to finance its leveraged trades. Had LTCM gone into default, it would have triggered a global financial crisis, caused by the massive write-offs its creditors would have had to make. In September 1998, the fund, which continued to sustain losses, was bailed out with the help of the Federal Reserve and its creditors and taken over. A systematic meltdown of the market was thus prevented.
A business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable. Long-term unit costs are almost always less than short-term unit costs because in a long-term time frame, companies have the flexibility to change big components of their operations, such as factories, to achieve optimal efficiency. A goal of both company management and investors is to determine the lower bounds of LRATC. |||For instance, if a manufacturing company builds a new, larger plant for production, it is assumed that the LRATC per unit would eventually become lower than at the old plant as the company takes advantage of certain economies of scale.
Forward-looking incremental costs that can be accounted for by a company. |||These are the changing costs that a company can somewhat foresee. For example, oil price increases, rent increases, and expansion and maintenance costs.
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