lock-box system

Usually involves a company's customers remitting amounts to a bank account close to the customers in order for the company to have collected funds sooner. For example, a company with its headquarters in the Midwest, might have a bank account in New York for its east coast customers to mail in amounts owed. Similarly, the company may also have its west coast customers remit to a bank account in California. The company would have access to bank funds several days sooner with such an arrangement instead of all remittances being mailed to the Midwest.

One of the banking services that businesses of all sizes may find useful is a lockbox service. Essentially, a lockbox is simply a post office box that your bank establishes for your business and that the bank will control. You are issued a remit to address that will allow your customers to send payment for all invoices issued by your organization directly to the lockbox. In turn, your bank will open all correspondence, deposit the checks into your accounts, and provide you with electronic access that allows you to see daily activity. In short, your bank becomes the means whereby you collect receivables and deposit them into your operating, payroll or other designated business account. There are several advantages to securing a lockbox for your business. One of the most important is security. Generally, lockboxes are protected above and beyond the usual security measures associated with having a post office box. When a payment reaches your lockbox the chances of it falling into the wrong hands is just about nil. This can give both you and your customer base a sense of comfort.

The discounting factor is the amount that a future sum of money must be multiplied by to calculate its value at the present time. This calculation is a product of the time-value theory of money that states that money loses value over time. To perform the equation for thediscounting factor, the discount interest rate, which will be affected by inflation, and the time in years between the future date and the present must both be known. In most cases, thefactor is used to calculate what a dollar in the future will be worth in the present time. There is an old adage that says that a dollar today can't buy nearly as much as it did in the past. That is because of the time-value theory of money. A dollar will always be worth more in the present time than it will be in the future according to this theory. For that reason, investors can use the discounting factor to try and judge just how much promised money in the future is actually worth to them in the present time.

Dividend policies are the regulations and guidelines that companies develop and implement as the means of arranging to make dividend payments to shareholders. Establishing a specific dividend policy is to the advantage of both the company and the shareholder. In order to make sure the policy is workable, a company should develop a viable policy and then run this policythrough a number of test scenarios in order to determine what impact the dividend policywould have on the operation of the business. In many cases, companies choose to explicitly state the provisions within the dividend policy. This is definitely to the advantage of the shareholder, as a well defined policy makes it much easier to project the amount of payout profits generated for the period under consideration and thus be able to determine the size of the dividends that will be issued. When the dividendpolicy is well defined and documented, it is easy for the shareholder to obtain a written copy and thus be fully informed as to how the policy works. However, there are cases where the dividend policy is not so well documented. When this is the case, investors sometimes base their assumptions on upcoming dividend payments on what has occurred in the past. While less systematic, it is still possible to project a more or less accurate estimate of what the dividend payout will actually be.

Cash flow is usually understood to be the total amount of cash that is generated and received by a company, along with the amount of cash that is used for expenses of the organization. Generally, tracking cash flow means the immediate recording of transactions in a cash journal. This is considered essential to having an accurate picture of the financial stability of the business, and often can yield information that can be used to improve the economic condition of the company. A cash flow can be associated with the general operation of the company or with a particular component or project of the corporation. For example, when one department maintains a discretionary fund of petty cash, a record of transactions will be maintained. The idea behind recording receipts to petty cash as well as expenditures that are paid out will help the business to recognize when an incidental expense becomes a recurring one, and should be added as a line item to the budget. In the case of a special project, such as a marketing campaign, keeping track of the cash flowis a good idea. The simple record keeping will help the business to determine if the effort is generating revenue at projected levels along the way. At the same time, monitoring where the money is going will help to ensure that the project does not go over the amount that has been set aside for the purpose.

A cash budget is an accounting device that is used to effectively monitor and manage the immediate cash flow of a home or business budget. Many people choose to employ a cashapproach as a quick and easy way to monitor the financial condition of the household or a small business on a daily, weekly, or monthly basis. Generally, cash budgets are used to manage short-term cash flow by creating an organized means of keeping up with cash receipts and balancing them against cash disbursements during the accounting period. Part of the genius of a cash budget is the simplicity of the approach. Often, it is possible to employ this principle by using a basic spreadsheet. Creating columns that make it possible to record basic information, it is possible to tell at a glance how much money came in for the period, and how much went out. This is accomplished by recording each cash receipt and cashdisbursement on the spreadsheet. Often, the date, amount, and a brief description of the transaction is all that is necessary.

Net present value (NPV) refers to the present value of cash flows expected. It is used to compare different investments, be they investments internal to a company, typically called projects, or external investments made by a company or an individual. Net present value is used because it can be difficult to compare investments, particularly when there are different investment values or different expected profits payable at different times. By using the present value of these estimated investments and expected profits, investments can be compared evenly and a decision made based on which is the most profitable. In order to calculate the net present value of a project or investment, the value of expected profits must first be discounted to the present value. The rate by which expected profits are discounted is called the discount rate or hurdle rate. Typically, the discount rate is calculated by determining the amount of interest the investor could earn in the time period used usually one year if investing in a safer investment, such as letting the money earn interest in a savings account. To calculate NPV, one first needs to determine what the forecasted cash flows are expected to be over the life of the investment, treating the initial investment as negative cash flow. Next, the discount rate should be determined by establishing what the rate of return would be if the safer investment was chosen. The discount rate is then used to discount the expected cash flows as follows. Internal rates of return are discount rates that are utilized in the process of capital budgeting. Sometimes referred to as an economic rate of return, the internal rate of return, or IRR, identifies the net present value of the flow of cash associated with a specific project. The idea is to determine if the projects anticipated rate of return is sufficient to make proceeding with the effort worthwhile, of if the project should be abandoned in favor of some other approach or process. Businesses often calculate the internal rate of return when considering the merits of several different potential projects. The process normally begins by establishing a benchmark of return that is considered equitable for the costs involved. To determine the benchmark, it is not unusual for the business to look at the current rate of return in a securities market, identifying what amount of return could be reasonably anticipated if the assets needed for the project were invested in the market instead.

Earnings per share (EPS) are earnings from initial investment reported by companies on a quarterly basis. The most common method for calculating earnings per share is dividing profit by the weighted average of the common stock. Earnings per share computations can fall under many categories: continuing operations, discontinuing operations, extraordinary item, and net income. For each category, there is a specific formula for calculating earnings per share. Calculating EPS for net income and continuing operations, for example, requires the following formula: preferred dividends within net income divided by weighted average common stock. EPS can be calculated for the past year or trailing year, the present year or current year, and the future year or forward year. It is an Financial Accounting Standards Board (FASB) requirement that all companies report earnings per share in each and every category.