‘Super profit’ is similar to real profit and is a term used mainly in smaller businesses. Some small business owners express their profit as gross annual profit before deducting their own salaries (or any amount for market-related salaries that should be paid to compensate the owners for the work they undertake in the business). In these cases, super profit is the amount of profit after deduction has been made for these salaries. For example, if a business’s real profits after adjusting for all non-business expenses, but before allowing for owners’ market related wages of £80000 is £250000, then the super profits would be £170000. Or, if in another business the profit is also £250000 per annum, but market related wages for the owners working in this business are £120000, the super profits would be £130000.

WHAT is CAPITALISATION?

I have already mentioned that, generally, to arrive at the value of a small business one capitalises profits. Capitalisation is the simple process by which you multiply the profit by a multiple (or ratio) to arrive at value. The question of what multiple should be used to arrive at a ‘true’ valuation takes up a good part of this appendix, as it is involved with the concept of risk and return. I cover this in more detail in the section on the Price Earnings Ratio method of valuation, below.

Non-business items

A private business is a useful vehicle in which non-business expenses can be charged to provide benefit to its owners. Such matters as private motor vehicle, travel and telephone expenses are often included in business expenses and should be eliminated to arrive at real profit.

Non-recurring items

Where a business has any income or expense that is not likely to recur in future this should be removed from the published accounts to arrive at real profit.

Owners’ salaries

In calculating real profit it is sometimes necessary to deduct owners’ stated salaries from published profits and to replace them with salaries Ibased on market rates) which would be payable to managers undertaking equivalent work to the owners. Simply, you could ask what the business would need to pay on the open market for managers to undertake the owners’ current management tasks. This is also a useful guideline for an investor/purchaser who does not intend working in the business, as real profit can be calculated for the circumstances where an employed manager will be running the business.

Premises

Where the business owns the premises in which it operates, ownership can reside in different legal entities controlled by the business owner. In these circumstances rental is sometimes completely excluded from published business accounts, or charged at excessive amounts to move profits from one business entity to another.

In calculating real profit it is important that a true market rental figure is included in the business’s accounts. The true market rent should be easy to establish. Advice can be sought from your local estate agent if you have any doubts.

Cost of goods sold and gross margins

It is easy to manipulate the profit of any entity that purchases goods by adjusting the value of the closing stock in the accounts at period end. A business can achieve continuously increasing published profits merely by increasing the value of its closing stock. Conversely, a business can often eliminate its profit by writing down the value of its closing stock.

In calculating real profits, an amount needs to be added to or subtracted from the accounting profit to allow for any unrealistic valuation of stock.

Business value is normally arrived at by capitalising profits (or cash flows). Profits represent the purchaser’s return on investment and the reason he is prepared to pay the purchase price. But there are various types of profit, so what do we mean by the term ‘profit’ and what profit should be used in business valuations? There are three kinds of profit that you should know about, namely ‘real’ profit, ‘super’ profit and ‘future maintainable’ profit.

The published profit of a private business often gives a distorted view of the real profit of a business. This is because the business owners sometimes arrange matters so as to minimise taxation. On the other hand, some businesses will publish accounts that overstate their profits (or understate their losses) by not including expense items such as rent (where, for example, they own the business premises), or by understating the realistic cost of running the business by not including full salaries for business owners and their families. This can be due to oversight, or an attempt to overstate the value of a business.

In summary, published profits could be different from real profits because: Owners mix their private and business financial transactions. Profit is shifted between different business entities within the same group. In any one year there are non-recurring, or ‘one-off’ items included in the accounts.

The real profit of a business should be used to arrive at a true value of a business, whatever profit-based valuation method is being used.

Valuers usually qualify their valuations by stating the circumstances under which the valuation is being undertaken. For example, is the valuation of the business as a ‘going concern’, or for a close down, or for the sale of assets under duress (i.e. in a ‘fire sale’)? These circumstances can dramatically affect value as they could determine the presence or otherwise of goodwill value and the price received for individual assets.

For example, the value of fixed assets can be greatly reduced in a ‘fire sale’ when they are moved from their original premises and sold individually, rather than all together as a complete operating unit. In most cases of exit planning the owners of a business will be considering value as a going concern, but it is useful to be aware of the impact an exit through a close down (particularly a liquidation) could have on your business’s value.

In debt for equity swaps, shares are usually acquired in the parent company of a group. When a loan to a subsidiary is included in the transaction, problems may arise as the lenders are legally required to give consideration to the parent company in exchange for the shares.

The simplest mechanism of addressing this issue is to ‘transfer’ to the parent company the subsidiary’s indebtedness owed to the lender. Alternatively, the parent company guarantee, if one exists, may be called provided there are no cross-default problems.

The process is more difficult if there is no parent company guarantee as such transfers of indebtedness can be construed as the subsidiary providing financial assistance to its parent to purchase the latter’s shares. This is prohibited in some jurisdictions.

In certain circumstances, a ‘good’ company may be created to separate viable assets and businesses of a group from those identified for liquidation. It may be easier to facilitate exit by obtaining, say, preference shares in the ‘good’ company with conversion rights into the shares of the parent company. The lenders’ returns from the transaction will then be linked with the prospects of the ‘good’ company. The conversion option will provide an additional exit avenue if the group as a whole is sold.

The sooner a company’s problems can be identified, the easier they are to resolve. The company’s most significant problems should be established before the process of developing a solution begins. Other problems that emerge during the transaction also need to be resolved effectively. Very often the eventual solution addresses only symptoms, or only some of the company’s difficulties, with the consequence that a further restructuring is necessary soon afterwards. In more extreme cases, the company fails. In addition, the solution should be robust enough to withstand uncertainties and accommodate contingencies. Financial restructurings should be seen as ‘once and for all’ solutions.

Finally, but perhaps most importantly, the right people must be involved in a restructuring, and the right relationship exist between them, for a loan workout to succeed. Apart from the quality of the company’s management, the calibre, experience and training of the bank staff involved in the workout, as well as those of the advisors, are also critical. This also includes the personal relationships between the company’s management, the bankers and other creditors. A restructuring is unlikely to be successful without the confidence of all parties in each other’s ability and integrity.

According to financial analysts domestic markets are better placed in times of current global crisis and as a result they will most likely bounce back in the medium to long term. The growth estimate for the GDP has been revised down to approximately 7% this year. It still remains quite good if compared to other options available to global investors.
Thus, people who invested their money in blue chip or generally strong mid-caps shouldn’t panic in the present market conditions and stick to their positions. A great number of investors entered stocks at higher levels and are aiming at investing further and averaging out. Nevertheless, investors are advised to invest their risk capital only in the markets. Investors who are eager to purchase in bear markets should rather buy in smaller lots and at regular intervals in order to average out the entry price.

The terrible cycle of consumer debt can in the end result in some really devastating consequences if you leave it to its own devices. While payday loans are a good alternative to other types of credit when you are in an immediate need for fast money, you should never use them as a long term solution. That is why it is essential to pay off the loan on time.
Depending on the state, there are different regulations dealing with how long a payday loan can run. As a general rule, such loans are valid for a period between two weeks and a month. When the loan term is due, you must have the available funds to cover the check that you have written or else the consequences can be severe. Although a bounced check on a payday loan is not considered a crime, payday loan companies may resort to harsh means to get their money back. Their collection agencies are usually much more aggressive than other credit collection companies.
You should never borrow more money than you know you will be able to pay back. If you are going to get a $500 paycheck, then getting a loan for more than that will probably cause a person to default on the small loan. From there, the cycle of debt is impossible to avoid. You are advised to borrow only when great need arises and only get an amount that you are certain can be repaid. Any uncertainty in this process may lead to harmful problems with the term of the loan ends.

The process of becoming a forex trader is full of changes and obstacles and it clearly does not occur overnight. To gain professional trading skills may take just as long as you would normally expect to become a well-known lawyer, a best-seller book writer or a top-notch computer programmer. Yes, what I mean are years and years of educations and experience.

Personally I believe that it is better to learn everything you can yourself before you start asking questions. I don’t mean that questions are something bad for you and there exist a great deal of communities and traders willing to help newbies, however all people on the internet are qualified to give advice. Certain answers can be harmful to a new traders’ mind! What is more, you shouldn’t try to skip through steps. It is irrational to expect to enroll to university and start with asking questions related to third-year disciplines. You just won’t be able to understand the answers! It’s like trying to dance in a ballet without ever exercising first!

As far as questions are concerned, I believe if you want to become a successful forex trader you have to understand yourself. Understanding your goals and limits will help you explore your risk tolerance, money management techniques and trading methods. To do so I suggest asking yourself the following questions:

1.    Can you handle the possibility of losing money? (both financially and emotionally)
2.    What do you expect from forex trading? (money, excitement, profession, mortgage payment!)
3.    Are you eager to spend a decent amount of time learning and practicing trading?
4.    Are you deeply emotional and how do you react to stressful situations?

Remember that understanding only yourself won’t be enough. You will also have to explore the waters you are getting into – the forex market, the price movements, influences and consequences.

Where money is involved so are emotions. Most people are quite skilled in trading but they can’t cope with their emotions.  Emotions of a person are usually the biggest obstacle to achieving success in trading. In order to become a successful trader one cannot trade emotionally. One must trade logically. Our egos make us want to be successful 100% of the cases, but the truth is that nobody is successful 100% of the time. Not even the professionals.

• Achieving success by professional traders involves understanding that the market is about logic, not emotions.

When one trades logically, not emotionally he or she is likely to be one of the 10% who trade successfully all the time!