Salam semakin mahal

Oleh

Muhammad Fakhruddin Ismail

http://addeans.blogspot.com/

 

Tidak salah jika dikatakan ramai dikalangan muslimin samaada penulis atau siapa-siapa sahaja begitu berat untuk memberi salam kepada saudaranya terutama sekali seakidah dengan kita seolah-olah mulut mereka terkunci dan pandangan menjadi berat untuk mengucapkannya dan memberikan senyuman.

 Padahal islam telah mengajar kita untuk memberi salam kepada muslim kerana ia akan menyemaikan rasa cinta dan mengeratkan lagi silaturrahim. Dalam hadis sahih muslim daripada Abu Hurairah ia berkata bahawa Rasulullah SAW bersabda:

"Kalian tidak akan masuk syurga sehingga kalian beriman, dan kalian tidak beriman sampai kalian sehingga kalian saling mengasihi dan mencintai, apakah kalian mahu aku tunjukkan kepada sebuah amalan yang apabila kalian amalkan, kalian akan saling mengasihi dan mencintai?, terbarkanlah salam diantara kamu".

Bukan itu sahaja malah jika dilihat masyarakat islam kini hanya memberi salam kepada golongan yang dikenali sahaja. Kondisi seperti inilah dapat kita saksikan pada masa sekarang ini malah jelas ia bertentangan dengan sunnah, kerana Rasulullah SAW menganjurkan menyebarkan salam kepada orang yang dikenali mahupun yang tidak dikenali. Itu adalah diantara tanda-tanda dekatnya hari kiamat dimana adanya orang-orang yang hanya mahu mengucapkan salam kepada orang yang dikenalnya sahaja.Rasulullah SAW bersabda:

Sesungguhnya sebelum datangnya hari kiamat pengucapan salam itu hanya untuk orang-orang tertentu sahaja [iaitu yang dikenali]". (Musnad Ahmad 5:333. Al-Albani berkata : Ini adalah isnad yang shahih menurut syarat Muslim :Silsilatul Ahaditsish Shahih 2:251. hadits nombor 647 )

Lebih buruk lagi apabila apabila ada non-muslim memberi salam maka dijawabnya dengan ucapan yang buruk. Padahal apabila non-muslim (kafir zimmi) memberi salam sepatutnya menjawab salam tersebut seperti mana kita menjawab salam  dengan muslim itu sendiri. Allah berfirman:

Apabila kamu diberi penghormatan dengan sesuatu penghormatan, maka balaslah penghormatan itu dengan yang lebih baik dari padanya, atau balaslah penghormatan itu (dengan yang serupa). Sesungguhnya Allah memperhitungankan segala sesuatu. (An Nisaa' :86)

Perkara sebeginilah yang diajar Rasulullah SAW kepada para sahabat. Tapi sebaliknya yang berlaku. Masyarakat islam kini tidak mencerminkan akhlak tentang islam itu sendiri pada non-muslim sehingga mereka menganggap islam itu tidak sedemikian rupa.

Telah diriwayatkan bahawa seorang Majusi telah mengucapkan kepada Ibn Abbas:  Assalamu’alaikum”. Ibn Abbas berkata " Wa’alaikumussalam warahmatullah" . Lalu sebahagian sahabat-sahabatnya berkata " Adakah awak berkata warahmatullah ( dan rahmat Allah)?" Dia menjawab: "Tidakkah dengan rahmat Allah dia hidup." (Fiqh Minoriti Muslim oleh Dr Yusuf al-Qaradhawi “ Mengucapkan Tahniah Kepada Ahli Kitab Terhadap Kebesaran Mereka”- m/s 447)

Jika dilihat perkara seperti ini telah dilakukan oleh sahabat seperti Ibn Abbas sendiri maka mengapa kita tidak mencontohinya sahaja. Bukankah sahabat itu sebaik-baik generasi? Hal ini jelas seperti sabda Nabi SAW yang bermaksud:

"Sebaik-baik manusia adalah generasiku kemudian generasi yang datang setelah mereka, kemudian generasi lain yang datang setelah mereka." (Hadis riwayat al-Bukhari dan Muslim)

Malah naib presiden majlis penyelidikan dan fatwa Eropah Syeikh Faisal Mawlawi   di dalam laman webnya menyebut bukti-bukti yang lebih jelas bahawa memberi dan menjawab salam kepada orang bukan islam itu adalah dibenarkan.Jika dilihat dari konteks dakwah ia dapat mendekatkan mereka kepada islam dan menanam rasa kasih sayang kepada umat islam. Jadi pendekatan seperti inilah yang sepatutnya umat islam lakukan bukannya dengan menjawab  dengan ucapan yang buruk.

Di antara petunjuk Rasulullah SAW adalah memulai ucapan salam kepada siapa saja yang beliau temui, ia berbeza dengan orang yang sombong seolah-olah mereka mahu dihormati dengan menunggu panghormatan salam daripada orang  tersebut. Namun Rasulullah SAW menegaskan bahawa yang memberi salam adalah yang paling utama daripada yang menjawabnya. Rasulullah SAW bersabda:

"Orang yang lebih dekat kepada Allah s.w.t. adalah yang lebih dahulu memberi Salam." (Musnad Ahmad, Abu Daud, dan At Tirmidzi)

Maka sewajarnya kita yang mengakui sebagai seorang muslim dan mengaku Rasulullah SAW sebagai contoh dan ikutan kita hendaklah tidak mengabaikan tuntutan beliau agar sunnah Rasulullah SAW ini kembali diamalkan oleh umat islam dan dapat menonjolkan kembali imej islam itu sendiri kepada masyarakat bukan islam.

 

Muhammad Fakhruddin Ismail

RSI

Relative Strength Index (RSI)

Use

Overbought/Oversold

Wilder recommended using 70 and 30 and overbought and oversold levels respectively. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal. Some traders identify the long-term trend and then use extreme readings for entry points. If the long-term trend is bullish, then oversold readings could mark potential entry points.

Divergences

Buy and sell signals can also be generated by looking for positive and negative divergences between the RSI and the underlying stock. For example, consider a falling stock whose RSI rises from a low point of (for example) 15 back up to say, 55. Because of how the RSI is constructed, the underlying stock will often reverse its direction soon after such a divergence. As in that example, divergences that occur after an overbought or oversold reading usually provide more reliable signals.

Centerline Crossover

The centerline for RSI is 50. Readings above and below can give the indicator a bullish or bearish tilt. On the whole, a reading above 50 indicates that average gains are higher than average losses and a reading below 50 indicates that losses are winning the battle. Some traders look for a move above 50 to confirm bullish signals or a move below 50 to confirm bearish signals.

CCI

Introduction

Developed by Donald Lambert, the Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI. (Note: Determination of the cycle's length is independent of the CCI.) If the cycle runs 60 days (a low about every 60 days), then a 20-day CCI would be recommended. For the purpose of this example, a 20-day CCI is used.

Since Lambert's original guidelines, traders have also found the CCI valuable for identifying reversals. The CCI is a versatile indicator capable of producing a wide array of buy and sell signals.

•  CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100.

•  As with most oscillators, divergences can also be applied to increase the robustness of signals. A positive divergence below -100 would increase the robustness of a signal based on a move back above -100. A negative divergence above +100 would increase the robustness of a signal based on a move back below +100.

•  Trend line breaks can be used to generate signals. Trend lines can be drawn connecting the peaks and troughs. From oversold levels, an advance above -100 and trend line breakout could be considered bullish. From overbought levels, a decline below +100 and a trend line break could be considered bearish.

Traders and investors use the CCI to help identify price reversals, price extremes and trend strength. As with most indicators, the CCI should be used in conjunction with other aspects of technical analysis. CCI fits into the momentum category of oscillators. In addition to momentum, volume indicators and the price chart may also influence a technical assessment.

Nur Madihah puasa sebab miskin

Oleh AZRAN FITRI RAHIM
azran.rahim@utusan.com

KOTA BHARU 14 Mac – “Kadang-kadang saya menitiskan air mata sebab kakak (panggilan keluarga kepada Nik Nur Madihah Nik Mohd. Kamal, gambar) terpaksa berpuasa sebab tidak ada wang untuk beli makanan.

“Tetapi alhamdulillah, kakak memahami keadaan keluarga. Malah kakak menjadikan ibadah itu sebagai rutin pada setiap hari Khamis dan Isnin sejak berumur 12 tahun.”

Demikian luahan ibu kepada pelajar cemerlang Sijil Pelajaran Malaysia (SPM) 2008, Mariani Omar, 42, ketika ditanya mengenai kesusahan dia dan suami, Nik Mohd. Kamal Hussein, 41, membentuk seorang insan contoh.

Katanya, biar susah bagaimana sekali pun, anak sulung daripada empat beradik itu tidak pernah merungut.

Malah Nik Nur Madihah, menurutnya, melalui semua kepayahan itu dengan tabah dan menerimanya sebagai cabaran untuk berusaha dengan lebih keras.

“Disebabkan tak ada wang poket, kakak akan makan roti di sekolah dan kerana terlalu banyak makan roti, ia jadi kegemarannya. Malah dia bercita-cita belajar cara buat roti. Kata kakak, dia hendak buat roti banyak-banyak.

“Ibu mana yang tidak tersentuh apabila melihat keadaan anak begitu. Tetapi saya bersyukur kerana dia menerima kekurangan ini,” katanya kepada Mingguan Malaysia di sini hari ini.

Nik Nur Madihah, 18, anak seorang nelayan dari Sekolah Menengah Kebangsaan Agama Arab Maahad Muhammadi (Perempuan) di sini mencatat sejarah negeri ini apabila memperoleh 20 A dalam peperiksaan SPM 2008.

Kejayaan itu menjadikan pelajar tersebut antara pelajar cemerlang dengan mendapat 19 1A dan satu 2A, kurang satu mata pelajaran berbanding pencapaian pelajar terbaik SPM 2007, Azali Azlan yang memperoleh 21 A.

Dia juga membuktikan kesusahan keluarga bukan halangan untuk mencapai kecemerlangan walaupun mengambil sebanyak mungkin mata pelajaran bagi menguji keupayaan dirinya dalam menghadapi cabaran hidup sebagai pelajar.

Kesusahan hidup Nik Nur Madihah yang tinggal di rumah sewa kecil di Pengkalan Chepa dipaparkan di muka depan Utusan Malaysia hari ini.

Mariani berkata, sejak kecil anaknya itu gemar membaca buku dan setiap masa terluang tidak pernah dibiarkan begitu saja.

“Memang dari kecil lagi dia minat benar dengan buku. Saya dan suami tidak pernah paksa kakak membaca buku, kadang-kadang paksa dia suruh berhenti sebab sudah masuk Maghrib.

“Sifat ulat buku ini turun kepada tiga adiknya,” tambahnya.

Menurut Mariani, seorang lagi anaknya kini menuntut dalam tingkatan empat di Sekolah Menengah Teknik Bachok, seorang dalam tingkatan tiga di bawah tajaan Permodalan Nasional Berhad di Bandar Salak Tinggi dan yang bongsu di tahun lima Sekolah Kebangsaan Parang Puting di sini.

Ujarnya, sekiranya Nik Nur Madihah meminta wang untuk membeli buku, dia dan suami akan berusaha mencari wang tersebut tetapi selalunya ia tidak diberi serta-merta kerana kesempitan hidup.

“Kakak tidak banyak kerenah dan agak pendiam. Dia pun tidak beritahu kami dia ambil 20 mata pelajaran dalam SPM sehinggalah saat-saat akhir,” ujarnya.

INILAH RUMAH SAYA

Nik Nur Madihah bersama ibu bapanya Nik Mohd. Kamal Hussien dan Mariani Omar di rumah mereka di Kampung Parang Puting, Pengkalan Chepa, Kota Bharu, semalam. – UTUSAN/Hafiz Johar

Hidup tanpa peralatan canggih dan kemudahan sempurna bukan penghalang untuk seseorang menempa kejayaan. Malah kesukaran dan kekurangan itulah yang menjadi pendorong kepada usaha untuk mengubah nasib ke tahap lebih baik sambil membahagiakan ibu bapa.

Siapa sangka rumah yang kelihatan hampir roboh ini menyimpan sebutir permata berharga yang bakal menyinar suatu hari nanti.

Bahkan tidak seorang juga yang terfikir bahawa permata yang berlindung di rumah ini telah mencipta sejarah dengan memperoleh keputusan cemerlang dalam Sijil Pelajaran Malaysia (SPM) yang diumumkan kelmarin. Nik Nur Madihah Nik Mohd. Kamal, 18, mencatat keputusan cemerlang 19 A1 dan satu A2.

Kejayaan pelajar dari Sekolah Menengah Agama Arab Maahad Muhammadi (Perempuan), Kota Bharu, Kelantan ini agak istimewa kerana dia adalah anak seorang nelayan berbanding pelajar cemerlang SPM sebelum ini yang datang dari keluarga yang agak senang.

Dia yang pernah menjadi antara pelajar terbaik peperiksaan Penilaian Menengah Rendah (PMR) peringkat kebangsaan 2006, bertukar menjadi selebriti sekelip mata kerana kecemerlangannya itu.

Malah wartawan yang berpusu-pusu untuk menemu bualnya terpaksa menunggu giliran untuk memasuki rumah yang disewa bapanya dengan harga RM90 sebulan kerana ia terlalu sempit dan agak uzur.

Rumah kecil itu menjadi gambaran kehidupan sukar mereka sekeluarga malah bilik kecil yang dilindungi almari di ruang tamu yang menjadi tempatnya untuk berehat manakala ruang tamu yang mampu memuatkan kira-kira empat orang itu menjadi bilik belajar tetapnya pada setiap hari.

Net Profit Margin

Net Profit MarginThe profit margin tells you how much profit a company makes for every $1 it generates in revenue. Profit margins vary by industry, but all else being equal, the higher a company’s profit margin compared to its competitors, the better. Several financial books, sites, and resources tell an investor to take the after-tax net profit divided by sales. While this is standard and generally accepted, some analysts prefer to add minority interest back into the equation, to give an idea of how much money the company made before paying out to minority “owners”. Either way is acceptable, although you must be consistent in your calculations. All companies must be compared on the same basis.

Option 1: Net income after taxes
-------------------------- (divided by) --------------------------
Revenue

Option 2: Net income + minority interest + tax-adjusted interest
-------------------------- (divided by) --------------------------
Revenue

In some cases, lower profit margins represent a pricing strategy.  Some businesses, especially retailers, may be known for their low-cost, high-volume approach.  In other cases, a low net profit margin may represent a price war which is lowering profits, as was the case in the computer industry in 2000.

Net Profit Margin ExampleIn 2002, Donna Manufacturing sold 100,000 widgets for $5 each, with a COGS of $2 each.  It had $150,000 in operating expenses, and paid $52,500 in taxes.  What is the net profit margin?

First, we need to find the revenue or total sales.  If Donna's sold 100,000 widgets at $5 each, it generated a total of $500,000 in revenue.  The company's cost of goods sold was $2 per widget; 100,000 widgets at $2 each is equal to $200,000 in costs.  This leaves a gross profit of $300,000 [$500k revenue - $200k COGS].  Subtracting $150,000 in operating expenses from the $300,000 gross profit leaves us with $150,000 income before taxes.  Subtracting the tax bill of $52,500, we are left with a net profit of $97,500.

Plugging this information into our formula, we get:

$97,500 net profit
--------------(divided by)--------------
$500,000 revenue

The answer, 0.195 [or 19.5%], is the net profit margin.  Keep in mind, when you perform this calculation on an actual income statement, you will already have all of the variables calculated for you; your only job is to plug them into the formula.  [Why then did I make you go to all the work?  I just wanted to make sure you've retained everything we've talked about thus far!]

Baca Lanjut...

Return On Equity - ROE

What Does Return On Equity - ROE Mean?
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. 

ROE is expressed as a percentage and calculated as:



Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.

Also known as "return on net worth" (RONW).

Investopedia explains Return On Equity - ROE
The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

There are several variations on the formula that investors may use:

1. Investors wishing to see the return on common equity may modify the formula above by subtracting preferred dividends from net income and subtracting preferred equity from shareholders' equity, giving the following: return on common equity (ROCE) = net income - preferred dividends / common equity.

2. Return on equity may also be calculated by dividing net income by average shareholders' equity. Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a period to the shareholders' equity at period's end and dividing the result by two.

3. Investors may also calculate the change in ROE for a period by first using the shareholders' equity figure from the beginning of a period as a denominator to determine the beginning ROE. Then, the end-of-period shareholders' equity can be used as the denominator to determine the ending ROE. Calculating both beginning and ending ROEs allows an investor to determine the change in profitability over the period.

Debt to Capital at Book

Debt to Capital at Book measures the risk of the firm's capital structure in terms of amounts of capital contributed by creditors and that contributed by owners. It expresses the protection provided by owners for the creditors. In addition, low Debt/Equity ratio implies ability to borrow. While using debt implies risk (required interest payments must be paid), it also introduces the potential for increased benefits to the firm's owners. When debt is used successfully (operating earnings exceeding interest charges) the returns to shareholders are magnified through financial leverage. Depending on the industry, different ratios are acceptable. The company should be compared to the industry, but, generally, a 3:1 ratio is a general benchmark. Should a company have debt-to-equity ratio that exceeds this number; it will be a major impediment to obtaining additional financing. If the ratio is suspect and you find the company's working capital, and current / quick ratios drastically low, this is a sign of serious financial weakness. Risky businessOn top of the risk associated with potential valuation disparity, investing in low-P/B companies exposes investors to greater market risk. In his book Investment Fables, Aswath Damodaran compares low-P/B stocks (defined as stocks with a P/B of less than 0.8) with the rest of the market on three different measures of risk: standard deviation, beta, and debt-to-capital ratio, where capital is defined as the book value of equity plus debt. His analysis showed that as a group, low-P/B stocks exhibit a lower beta (implying less risk) than the rest of the market, but have a higher standard deviation and debt-to-capital ratio. Standard deviation is a measure of how much a stock fluctuates over time. From a statistical standpoint, it's measured as the square root of a security's volatility. Beta takes this one step further, comparing the volatility of the underlying security with that of the overall market. In essence, it's measuring how changes in the market will affect a stock's price -- the higher the beta, the greater the effect. Investors who hold stocks with higher standard deviations and betas have a greater chance of being "in the red" at some point in time on their investment, which is why some people use these metrics to quantify market risk. For those who aren't overly concerned about the daily fluctuations of their investments, the higher debt-to-capital ratio of low-P/B stocks is the most disconcerting risk. A high debt-to-capital ratio indicates that a company cannot generate adequate returns on its assets, relying heavily on debt instead. There's nothing wrong with companies taking on debt to reduce theircost of capital. However, the more debt a company takes on, the more leveraged it becomes, adding to its risk of default. Whatever your definition of risk may be, when selecting investments from a pool of low-P/B stocks, it's important to determine whether the potential for excess returns outweighs the additional risk. It's easy to see why many investors are drawn to stocks that trade below their book value. Still, it's important, as always, to not get tied up in a single metric. Although these types of investments have generated excess returns in the past, it would be small-f foolish for someone to blindly choose a portfolio of low-P/B stocks without first considering the potential valuation disparity caused by accounting procedures, and the additional risk associated with such investments.

Current Ratio

Definition

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-termfinancial strength. If current liablities exceed current assets, then the company may haveproblems meeting its short-term obligations. For example, if XYZ Company's total current assets are $10,000,000, and its total current liabilities are $8,000,000, then its current ratio would be $10,000,000 divided by $8,000,000, which is equal to 1.25. XYZ Company would be in relatively good short-term financial standing.

Current Liabilities

What Does Current Liabilities Mean?
A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

Investopedia explains Current Liabilities
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.

Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities.

http://www.investopedia.com/terms/c/currentliabilities.asp

How to Read a Balance Sheet: Current Liabilities

By Motley Fool Staff 
August 21, 2008 |

Current liabilities are what a company currently owes to its suppliers and creditors. These are short-term debts, all due in less than a year. Paying them off normally requires the company to convert some of its current assets into cash.

Beyond simply being bills to pay, liabilities -- confusing as this might sound -- are also a source of assets. Any money that a company pulls from a line of credit, or postpones paying from its accounts payable, is an asset that can be used to grow the business.

There are five main categories of current liabilities:

• Accounts payable
• Accrued expenses
• Income tax payable
• Short-term notes payable
• Portion of long-term debt payable

Accounts payable
This is the money the company currently owes to its suppliers, partners, and employees -- the basic costs of business that the company hasn't yet paid, for whatever reason. One company's accounts payable is another company's accounts receivable, which is why both terms are similarly structured. A company has the power to push back the due dates on some of its accounts payable. Paying those debts later than expected can often produce a short-term increase in earnings and current assets.

Accrued expenses
The company has racked up these bills, but not yet paid them. These are normally marketing and distribution expenses that are billed on a set schedule and have not yet come due.

Income tax payable
This is a specific type of accrued expense -- the income tax a company accrues over the year, but does not have to pay yet, according to various federal, state and local tax schedules. Although they're subject to withholding, some taxes simply are not accrued by the government over the course of the quarter or the year. Instead, they're paid in lump sums whenever the bill is due.

Short-term notes payable
The company has drawn off this amount from its line of credit from a bank or other financial institution. It needs to be repaid within the next 12 months.

Portion of long-term debt
This represents a chunk of a company's longer-term obligations that may come due in a given year or quarter. That's why it's counted as a current liability, even though it's called "long term."

Share buy back

What Does Buyback Mean?
The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake.

Investopedia explains Buyback
A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. Buybacks can be carried out in two ways:

1. Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.

2. Companies buy back shares on the open market over an extended period of time.

http://www.investopedia.com/terms/b/buyback.asp

The Benefits of Stock Buy Back Programs

The Golden Egg of Shareholder Value

By Joshua Kennon, About.com

http://beginnersinvest.about.com/cs/newinvestors/a/060401a.htm

All investors have no doubt heard of corporations authorizing share buy back programs. Even if you don't know what they are or how they work, you at least understand that they are a good thing (in most situations). Here are three important truths about these programs - and most importantly, how they make your portfolio grow.

Principle 1: Overall growth is not nearly as important as growth per share

Too often, you'll hear leading financial publications and broadcast talking about the overall growth rate of a company. While this number is very important in the long run, it is not the all-important factor in deciding how fast your equity in the company will grow. Growth per share is.

An over-simplified example may help. Let's look at a fictional company:

Eggshell Candies, Inc.

$50 per share

100,000 shares outstanding

-------------------------------------------

Market Capitalization: $5,000,000

This year, the company made a profit of $1 million dollars.

==================================

In this example, each share equals .001% of ownership in the company. (100% divided by 100,000 shares.)

Management is upset by the company's performance because it sold the exact same amount of candy this year as it did last year. That means the growth rate is 0%! The executives want to do something to make the shareholders money because of the disappointing performance this year, so one of them suggests a stock buyback program. The others immediately agree; the company will use the $1 million profit it made this year to buy stock in itself.

So the very next day, the CEO goes and takes the $1 million dollars out of the bank and buys 20,000 shares of stock in his company. (Remember it is trading at $50 a share according to the information above.) Immediately, he takes the shares to the Board of Directors, and they vote to destroy them so that they no longer exist. This means that now there are only 80,000 shares of Eggshell Candies in existence instead of the original 100,000.

What does that mean to you? Each share you own no longer represents .001% of the company. Instead, it represents .00125%; that's a 25% increase in value per share! The next day you wake up and find out that your stock in Eggshell is now worth $62.50 per share instead of $50. Even though the company didn't grow this year, you still made a twenty five percent increase on your investment! This leads to the second principle.

Principle 2: When a company reduces the amount of shares outstanding by declaring a stock buy back program, each of your shares becomes more valuable and represents a greater percentage of equity in the company.

If a shareholder-friendly management such as this one is kept in place, it is possible that someday there may only be five shares of the company, each worth one million dollars. When putting together your portfolio, you should seek out businesses that engage in these sorts of pro-shareholder practices and hold on to them as long as the fundamentals remain sound. One of the best examples is the Washington Post, which was at one time only $5 to $10 a share. It has traded as high as $650 in recent months. That is long term value!

Principle 3: Stock buy back programs are not good if the company pays too much for its own stock!

Even though buybacks can be huge sources of long-term profit for investors, they are actually harmful if a company pays more for its stock than it is worth. In an overpriced market, it would be foolish for management to purchase equity at all, even in itself.

Instead, the company should put the money into assets that can be easily converted back into cash. This way, when the market swung the other way and is trading below its true value, shares of the company can be bought back up at a discount, ensuring current shareholders receive maximum benefit. Remember, even the best investment in the world isn't a good investment if you pay too much for it.

Inventories

When looking at a company's current assets, you need to pay special attention to inventory.  Inventory consists of merchandise a business owns but has not sold.  It is classified as a current assets because investors assume that inventory can be sold in the near future, turning it into cash.

To come up with a balance sheet amount, companies must estimate the value of their inventory.  For instance, if Nintendo had 5,000 units of its new video game system, the Game Cube, sitting in a warehouse in Japan, and expected to sell them to retailers for $300 each, they would be able to put $1,500,000 on their balance sheet as the value of their current inventory (5000 units x $300 each = $1.5 million). 

This presents an interesting problem.  When inventory piles up, it faces two major risks.  The first is the risk of obsolesce.  In another year, few stores will probably be willing to buy the Game Cube video game system for $300 simply because a newer, faster, and better system may have come along.  Although the inventory is carried on the balance sheet at $1.5 million, it may actually lose value as time passes.  When you hear that a company has taken an inventory write-off charge, it means that management essentially decided the products that were sitting in storage or on the store shelves weren't worth the values they were stated at on the balance sheet.  To correct this, the company will reduce the carrying value of its inventory.

If a year passes and Nintendo still has 3000 of the 5000 units in storage, the executives may decide to lower their prices hoping to sell the remaining inventory.  If they lower the Game Cube's price to $200 each, they would have 3000 units at $200.  Before, those 3000 units were stated at a value of $900,000 on the balance sheet.  Now, because they are selling for less, the same units are only worth $600,000.  The risk of obsolesce is especially present in technology companies or manufacturers of heavy machinery. 

Another inventory risk is spoilage.  Spoilage occurs when a product actually goes bad.  This is a serious concern for companies that make or sell perishable goods.  If a grocery store owner overstocks on ice cream, and two months later, half of the ice cream has gone bad because it has not been purchased, the grocer has no choice but to throw it out.  The estimated value of the spoiled ice cream must be taken off the grocery store's balance sheet.

The moral of the story: the faster a company sells its inventory, the smaller the risk of value loss.

Calculating Asset Turnover

Calculating Asset Turnover
The asset turnover ratio calculates the total sales [revenue] for every dollar of assets a company owns. To calculate asset turnover, take the total revenue and divide it by the average assets for the period studied. [Note: you should know how to do this. In lesson 3 we took the average inventory and receivables for certain equations. The process is the same; take the beginning assets and average them with the ending assets. If XYZ had $1 in assets in 2000 and $10 in assets in 2001, the average asset value for the period is $5 because $1+$10 divided by 2 = $5]. A quick exercise would benefit your understanding.