Daily Archives: August 28, 2013

Credit 101, What is your Fico Score Made up of

FICO scores continue to serve as the first and most readily available indicator of credit risk. Therefore it is important to better understand what FICO scores look at. There are five categories that make up these scores:

  1. Payment History – 35%
  2. Amounts Owed – 30%
  3. Length of Credit History – 15%
  4. New Credit – 10%
  5. Types of Credit – 10%

As you can see, the most influential portion of this score is the payment history. The payment history is reported by credit grantors, including open and closed accounts. It is important to remember that payment in full does not remove the payment history.

Credit and collection accounts remain on the credit report for seven years plus 180 days from the date of the original delinquency and/or date of last activity. Courthouse records remain for seven years from the date filed. Bankruptcy chapters 7 and 11 remain for 10 years from the date filed.  While tax liens remain 10 years from the date filed as well, they could remain indefinitely if they go unpaid.

It is up to each individual to make sure his/her credit report is accurate. According to the FACT Act amendments to the Fair Credit Reporting Act requires each of the credit bureaus to provide consumers, upon request, one free personal credit report on any 12 month period.

Business credit is critical to the success of your business.  Often times business owners are not aware of the impact their personal credit has on their business.  Take action today by knowing what it being reported on your personal credit report.  We have listed some helpful links below to get you started.


  • Website recommended for free annual credit reports.  You are allowed one free copy each year for each of the credit bureau companies.
  • It does not come with a credit score for free but you have the ability to purchase your score at the time of ordering your free report.
  • Each of the bureaus now allows you to dispute any items on your report online.  They make it very easy.

  • Federal Trade Commission has valuable information regarding all things credit related.   The best way to navigate the site is use the search engine in the top right corner and type what you are looking for (i.e. credit repair, identity theft, credit report, etc).
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How to Read a Balance Sheet: Working Capital

Working capital is simply current assets minus current liabilities. It’s the best way to judge how much a company has in liquid assets to build its business, fund its growth, and produce shareholder value.

If a company has ample positive working capital, it’s is in good shape, with plenty of cash on hand to pay for everything it might need to buy. But negative working capital means that the company’s current liabilities exceed its current assets, removing its ability to spend as aggressively as a working-capital-positive peer. All other things being equal, a company with positive working capital will always outperform a company without it.

Working capital is the absolute lifeblood of a company. For most companies, acquiring working capital was 99% of the reason they went public in the first place, whether they wanted to build their businesses, fund acquisitions, or develop new products. Anything good that comes from a company springs from working capital. And if a company runs out of working capital, but still has bills to pay and products to develop, it’s got big problems.

A key comparison

You can discover some pretty cool things by comparing working capital to a company’s current market capitalization. Market cap equals the value of currently outstanding shares of stock, plus any long-term debt or preferred shares (a special form of debt). You add in those last two factors because anyone buying the company would not only have to pay the current market price, but also incur responsibility for all its debts.

To compare the two metrics, divide working capital by market cap. Let’s use Joe’s Bar and Grill for another example. We know that Joe’s has $10 million in current assets and $5 million in current liabilities. If you also know that Joe’s Bar and Grill has no debt, and 1 million shares outstanding at $10 a pop, you can figure out the working capital-to-market capitalization ratio

(Cuent assets – Current liabilities) / ((Shares outstanding * Share price) + Debt)

Now let’s plug in those numbers from Joe’s:

($10 million – $5 million) / ((1 million * $10) + 0) = 0.5 = 50%

All that math tells you that working capital backs up 50% of the market’s valuation of Joe’s Bar and Grill. Theoretically, if you liquidated Joe’s tomorrow, you’d get $0.50 on the dollar from working capital alone. This is a tremendous amount of money to have at your disposal, and a huge plus for Joe’s. Basically, if you see working capital-to-market cap ratios of 50% or higher, your company’s looking good.

(For retailers and clothing manufacturers in particular, you might want to subtract inventories from working capital before you check that percentage, just to make sure the resulting number’s not too different.)

Even though working capital is nifty, simply comparing a company’s cash hoard to its market capitalization can also be pretty enlightening. Simply divide the company’s cash and equivalents by its market capitalization. If 10% or more of your company’s capitalization is backed up with cold, hard cash, you know it has ample funds to keep itself going.

By Motley Fool Staff

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Tax at a Glance – Section 179

Essentially: Section 179 allows businesses to deduct the full purchase price of qualifying equipment & software purchased or financed during the tax year.

2013 and 2012 Deduction Limit = $500,000

-This is good on new & used equipment, as well as off-the-shelf software.

2013 and 2012 Limit on equipment purchases = $2,000,000

-This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced.

Bonus Depreciation = 50%

-This is taken after the $2 million limit in capital equipment purchases is reached. Note: Bonus Depreciation is available for new equipment only. Bonus Depreciation can also be taken by businesses that will have net operating losses in 2013.

To figure out your own Tax Benefit, use the ILS Tax Calculator

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