RABCPA PC Blog
When I try to explain capital structure to someone, I usually make it personal. For example, when they purchased a car or need a mortgage they had to make a decision between how much to borrow and how much cash to put down. This is the type of thinking that everyone who makes a large purchase goes through. They weigh the pluses and minuses of both the debt and cash. They realize for example they can usually buy a more expensive car or bigger house if they have more debt and use a lot of their cash. They also realize that if their income in the future is not what they expect this could have drastic effect on their lifestyle. Essentially when you think about that you need you think about risk. The more debt the more riskier you are. Most people look at debt as a negative, however I think it’s more complex than that. Think of a family that needs a bigger house because they have a growing family. They cannot afford it based on their income and cash they have the bank, but if they borrow they can afford to have the extra bedroom and the extra bathroom. In addition, having debt makes you more conscious and more alert as to your spending habits and income opportunities. If you have a lot of cash in the bank, people have a tendency to become lazy and waste the cash.
Posted January 22, 2018 by Robert A Bonavito in Forensic Accounting
A bond is just like a mortgage there is a lender and the borrower.
Bonds have a stated interest rate, i.e. 5%. The face value of the bond is usually issued in increments of $1,000. As the bonds trade the value of the bond will fluctuate but the interest rate will say the same. This means the effective rate of the interest on the bond will have to change.
For example, if everybody is buying the bond, the effective rate will probably go down from 5%, and conversely if no one is buying the bond effective rate of the bond will have to increase above 5%. Posted October 25, 2017 by Robert A Bonavito in Educational Videos, Forensic Accounting
In our firm we have many techniques to reconstruct income. Two of the most popular and widely used are, bank deposit analysis and financial status analysis.
Under the bank deposit analysis, we take a look at all your deposits and compare your gross income reported to the total deposits in the bank. This is a simple but straightforward method to get a good idea of any inconsistencies.
The second one financial status analysis, also called the Cash-T analysis. In the Cash -T Analysis we basically reconstruct your lifestyle. Once we know your lifestyle we can figure out how much money you will need to support that lifestyle.
After looking at these two basic methodologies we can then proceed to more complex analysis. Posted October 18, 2017 by Robert A Bonavito in Forensic Accounting
