Investment spending in advanced economies
has collapsed in this recession?real privatesector
investment in the G4 (US, Euro-zone,
Japan and UK) has fallen by 25% from its
peak, accounting for more than 75% of the
peak-to-trough decline in real GDP. If the
global recovery is to be strong and sustained,
private-sector investment will also have to
play an important role in the upturn.
The existence of spare capacity is unlikely, in
itself, to hold back a recovery in investment
spending: the sharpest accelerations in G4
investment in the past 30 years took place in
1983, 1992 and 2002?corresponding to the
largest observed output gaps in each of the last
three global recessions. While firms with spare
capacity may not wish to expand their capital
stocks, many will still need to accelerate gross
investment spending just to stabilise those
stocks at a lower level. Such has been the
collapse in business investment spending in
this downturn that gross investment is no
higher than depreciation, implying no growth
in the G4 real capital stock.
That investment spending has fallen to the
replacement rate provides one reason to expect
it to rise in the future. This has also coincided
with an improvement in the underlying drivers
of investment spending: the global return on
capital has fallen by less than in past
recessions and is now rising, borrowing costs
are low, financial conditions easy and a rise in
the G4 ?q-ratio? (the market value of installed
capital) suggests that the market will reward
companies that invest in new capital.
The biggest challenge for global investment
spending is not the demand to invest but
whether firms have the ability to fund that
demand. However, there are also encouraging
signs on this front: corporate free cash flow
has risen sharply and lending conditions have
begun to ease across the G4.
Recession Led by a Collapse in Investment
The recession in advanced economies has been led by a
collapse in private-sector investment. Total private
investment (business fixed investment, housing and
changes in inventories) has fallen 25.0% from its peak in
the G4 economies (the US, Euro-zone, Japan and the
UK).1 Housing has obviously played a key role in this
decline but total business investment has fallen by a
similar amount (24.9%).Of course, private consumption accounts for a much
larger share of GDP, so smaller changes matter more:
over the past 30 years, real private consumption has
averaged 62% of G4 GDP, whereas real private
investment has accounted for 17% and business
investment just 12%. But, even adjusting for their relative
sizes, investment spending has still accounted for a
greater share of business cycle volatility than
consumption spending.

Given the significant trade linkages among
European countries, stronger global growth and the
increase in trade activity, particularly with Asia, have
added a self-reinforcing element to the upswing.
The weaker than expected Euro, reduced
inventories, and better labour markets should also
help growth. At the same time, we remain aware of
the many structural challenges in the region,
including the ongoing fiscal concern

The US is still benefiting from substantial policy
support. Fed policy remains easy and the multiplier
effects from earlier fiscal policies are still rippling
through the economy. After 2010Q2, the onus for
growth will fall much more heavily on final private
demand. Housing remains mired in excess supply,
bank lending is still depressed, and employers are
reluctant to hire. Still, there may be upside risk to our
outlook if strength in final sales continues from Q1

Which Customers Should Receive Credit

A business offering credit runs the risk of not receiving payment for goods or business supplied. Thus, care must be taken over the typr of customer to whom credit facilities are offered. The five c’s of credit provide a useful checklist when considering request from a customer for supply on credit.

Capital: The customer must be financially sound before any credit is extended. When the customer is a business, an examination of its accounts should be carried out.  The profitability and liquidity of the customer shoul be checked.  Any financial commitments like capital expenditure and contract with suppliers must be taken into account.

Capacity: The customer must appear to have the capacity to pay amounts owing. Where possible, the payment record of the customer should be examined. If the customer is a business, the type of business operated and physical resources of the customer who whishes to buy on credit must be checked

Collateral: It may be necessary to ask some kind of security for goods supplied on credit. When this occurs, the business must be convinced the that the customer is able to offer some form of security.

Conditions: The state of the industry in which the customer operates and the general economic conditions of the paticular region or country may have an important influence on the ability of the customer to pay outstanding the amounts outstanding.

Character: It is important for a business to make some assessment of the character of the customer. The willingness to pay will depend on the honesty and integrity of the individual with whom the business is dealing.

Credit Card Debt Consolidation

Going through bad credit debt consolidation is something that can help you pay off high interest loans and credit cards. It is extremely important that you realize it is usually only helpful to consolidate your debts if you have high interest rates.

This service is going to cost you money and if you consolidate loans and credit cards that are not high interest then you are not going to find yourself saving money.

By consolidating all of your debts into one lump sum you will find that it is not hard to remember that one due date. It will be much easier to remember because it is one large sum of money and it only comes around once a month. This is something that many borrowers wish they could do but do not realize that it is a possibility in their current financial situation. It is always important to explore all of your options.

Please remember that the bad credit debt consolidation process is not free. It is going to cost you money in some form or fashion but you are going to have to decide if it is worth it to spend that money now by saving money over the long run. There are many financial calculators that are available online to help you with this process so make sure to use the free resources.

Financial Ratios

Financial ratios provide a quick and relatively simple means of examining the financial condition of business. A ratio simply expresses the relation of one figure appearing in the financial statements to some other figure appearing there for instance net profit per emplyee, sales per square metre of counter space.
Ratios can be very helpful when comparing the financial health of different businesses. Differences may exist between businesses in the scale of operations, and so direct comparison of profits generated by each business may be misleading.

By expressing profit in relation to some other measure the probles of scale is eliminated. A business with a profit of £10,000 and a sales turnover of £100,000 can be compared with a much larger business of  £80,000 and a sales turnover of £1,000,000 by the use of a simple ratio. The net profit to sales turnover ratio for the smaller business is 10% (10,000/100,000 X 100% ) and the same ratio for the larger business will be 8 percent (80,000/1,000,00 X 100%). These ratios  can be directly compared whereas comparison to the absolute profit figure would be less meaningful. They need to eliminate differences in scale through in scale through the use of ratios can also apply when comparing the performance of the same business over time.

Calculating a realtively small number of ratios, it is often possible to build up a reasonably good picture of the position of the performance of a business> Ratios are used by those who have an interest in business and business performance. Ratios are not difficult to calculate but can be difficult to interpret.

Ratios are not only the starting point for analysis, they help highlight financial strengths and weaknesses. Ratios can be expressed in various forms. , for example as a percentage, as  a fraction, as a propotion. There is no accepted list of ratios which can be applied to the financial statements, nor is there a standard method of calculating many ratios. Variations in both choice of ratios and their precise defination will be found in the leterature and in practice. It is important to be consistent in the way which ratios are calculated for comparison purposes.

Ratios are grouped in profitability, efficiency, liquidity, gearing and investment.

The key steps in financial ratios analysis are to identify uses and their information requirements, select and calculate appropriate ratios and interpret and evaluate the results.

Risk and Investment Decisions

Risk arises where the future in unclear and where a range of possible future outcomes exists. As the future is uncertain, there is a chance or risk that estimates made concerning the future will not occur. Risk is particularly important in the context of investment decisions.

This is because of the relatively long timescales involved, there is more time for things to go wrong between the decision being made and the  end of project because of the size of the investment. If things go wrong, the impact can be both significant and lasting. Sometimes, a distinction is not paticularly useful for our purposes and in this chapter the two words are used interchangeably.

Sensitivity Analysis

A popular way of assessing the level of risk associated with a project is to carry out sensitivity analysis.

This method involves an examination of key input values affecting the project in paticular proposals.

Where the result on investment appraisal, using the best estimates, is positive, each input value can be examined to see by how much the estimated figure could be changed before the project becomes unprofitable for that reason alone.

For example, the NPV for an investment in a machine to produce a particular product is a positive value of £50,000. If we carry out sensitivity analysis on this investment proposal, we would consider each of the key input values in turn we would seek to find  the most advers value which each of these inputs could have before the NPV figure becomes negative. The difference between the worst value calculated and the estimated value represents the margin of safety for that particular input. By carrying out a sensitivity analysis, managers may acquire a feel for the investment project which otherwise might not be possible.