Author: Helen Barklam
Helen Barklam is Editor of Investment Guide. Helen is a journalist and writer with more than 25 years experience. Helen has worked in a wide range of different sectors, including health and wellness, sport, digital marketing, home design and finance. Helen aims to ensure our community have a wealth of quality content to read and enjoy.
Every investment class has its pros and cons and property is no different. Some of the key advantages of investing in property include the potential for both income and capital appreciation and readily available financing to leverage your capital and boost potential returns. However, it’s not all sunshine and rainbows and this article will look to consider why you might not want to invest in property. High upfront investment Buy-to-let mortgages typically require a minimum 25% deposit. Depending upon where you are trying to purchase, the required deposit will vary. For a £300,000 property, you will need £75,000 plus cash…
Bridging loans are short term (typically 12 to 18 months) secured loans, commonly used by property developers to aid cash flow. Unlike traditional loans where you repay an element of interest and capital each month, a bridging loan is repaid in full at the end of the term. Aside from use by property developers to aid cash flow, other common uses of bridging loans include refurbishment and renovation (particularly on properties which perhaps would not qualify for a traditional mortgage in their current state), purchase of property at auction (where speed of funding is key) and purchase of property where…
The ‘save half your age’ pension rule of thumb is commonly cited by financial advisers. This rule states that when you start making pension contributions, you should halve your age to derive the percentage you will contribute into your pension pot each year until you retire. This percentage refers to the combined contribution of both employer and employee. The rule is intended to simply convey the point that the earlier you start contributing funds into your pension scheme, the more time those funds will have to grow and benefit from tax free compound growth. Consider this simplistic example to illustrate…
Peer to peer lending directly connects investors with borrowers via a peer to peer lending platform. Peer to peer lending platforms aim to provide value to all parties involved. The investor has the opportunity to generate enhanced returns vs. saving cash in banks or other financial institutions. Borrowers benefits from loan capital at competitive interest rates which can be used to fund growth. Meanwhile, the peer to peer lending platform itself generates profit from facilitating this arrangement. There are many UK-based platforms, with each tending to specialise in one type of lending: consumer loans, property-backed loans or business loans. Contents:…
People refer to the stock market as a ‘bull market’ where share prices have been rising consistently over a period of time. Conversely, a bear market is the opposite, where the stock market has consistently decreased for a period of time. On a related note, a ‘bullish’ investor is one who believes a share price (or the market) will rise, whereas a ‘bearish’ investor believes a share price (or the market) will fall. A bear market is typically announced where the market has moved downwards by 20 percent between quarters. It should not be confused with a ‘stock market correction’…
Financial due diligence (‘FDD’) is a review of a Target company’s financial information prior to a proposed transaction. FDD is often used to support deal rationale, confirm that the purchase price agreed for the Target remains appropriate, and to identify the appropriate enterprise to equity value adjustments for the share purchase agreement. In this article, we focus on the type of financial due diligence performed during an acquisition of a private business in the UK. Such FDD work is commonly conducted by ‘Transaction Services’ (also known as ‘Transaction Diligence’) teams within accountancy firms such as the Big 4 (EY, PwC,…
Price Volume revenue bridge Price volume revenue bridges allow you to determine what has driven revenue increases or decreases between two or more financial periods. In order to create a price volume bridge, you just need to know revenue and volume information for the relevant periods. From this information, you can calculate average sales price and ultimately the price and volume movements. In the above example, revenue has increased from £1,000 in FY01 to £1,200 in FY02 (£200 or 20% growth). Volumes have increased from 100 to 105 (5 unit or 5% increase) whilst average sales price has increased from…
Compound annual growth rate (‘CAGR’) is a measure of growth (in percentage terms) from one period to another. It is a very useful metric when looking at investment growth over time, or when comparing forecast growth rates to historical trends during due diligence. For example, if 15% revenue growth is forecast compared with 4% CAGR historically, this is an indicator that the forecast may be fairly challenging. CAGR is measured in percentage terms. Whilst revenue might have fluctuated between Y1, Y2 and Y3 (e.g. from £400k Y1, to £375k in Y2 and £500k in Y3), CAGR represents the consistent return…
Discounted Cash Flow (‘DCF’) is the most common valuation method employed by those in private equity or investment banks. The technique involves calculating the present value of expected future cash flows. It’s useful to initially think about this concept in the context of a publicly listed businesses. An investor acquiring 10 shares in ABC PLC is doing so in order to hopefully profit from future dividend receipts and/or any capital appreciation via the ultimate sale of those 10 shares to another investor. The price of the 10 shares today therefore depends on the present value of all future dividends that…
