Debt is Good!

The right level of debt for a company is just like Goldilocks’ porridge: it shouldn’t be too hot or too cold. Debt, like porridge, needs to be “just right”.

In the first instance, sharemarket analysts will use the debt to equity ratio to measure current debt levels. This ratio measures the level of debt the company has in comparison to the overall equity value of the company.

This ratio is calculated by the following formula:

Financial debt = Cash / Shareholders’ funds x 100

Now, the debt to equity ratio is very interesting and all, but it’s not much use in isolation.

Again, like many financial ratios, you need to know how to use this ratio for comparison with other companies...

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Stock Market Report - Dividends

Dividends are payments made by a company from its profits to its shareholders, in the form of cash or additional stock.

Most Australian listed companies who pay dividends do so either annually or six-monthly.

Dividends can also be issued with franking credits, which are tax credits that have been paid by the company on your behalf.

So if you receive a fully franked dividend, you may not have to pay any personal income tax on the money received, as tax has already been paid (at the company tax rate of 30%, which you then compare to your personal marginal tax rate to determine if any extra tax is payable).

Not all companies pay dividends.

Often you will find that high growth companies will not pay dividends, as they tend to re-invest their excess profits to continue their growth.

These stocks will typically have a rising share price, so there is little incentive for the business to pay shareholders who are already benefiting from owning the stock, additional cash.

An example of a growth stock is News Corp, which has a low annual dividend yield of less than 1%.

More established shares are usually the ones who will pay dividends to their shareholders.

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Australian Stock Report Article - Fibonacci Numbers

Much has been written about Leonardo Fibonacci, the gifted thirteenth-century Italian mathematician. Born in Pisa around 1170, Fibonacci not only introduced the modern use of decimal points, but also discovered the so-called Fibonacci sequence.

The sequence begins with 0 and 1, and then adds the previous two numbers to produce a third. The sequence then continues onwards to infinity.

These numbers are seen as the "key" to nature, with the reproduction cycles of rabbits, branching patterns seen in plant life, and the "golden mean" used in art and architecture all corresponding to this mathematical sequence.

From rabbits to robots

Fibonacci discovered that the ratios in this sequence not only recur in nature – the most common being 38.2%, 50% and 61.8% – but can also be seen in markets to indicate likely retracement levels.

Moreover, the Fibonacci sequence of numbers is also referred to by Ralph Elliot as the mathematical basis for the "Elliot Wave" principle.

As complex as this trading concept can be in theory, in practice it is readily understandable. A trend is not broken unless the share price has moved by more than 61.8%. So, if in an uptrend the share price falls (retraces) by more than 61.8%, then in theory the uptrend is reversed.

If the share price only retraces by 38.2% or 50%, the pull back is temporary and the trend will continue. Logically, the less the stock retraces the stronger the trend so a 38.2% retracement is not as significant as 50%. The same applies in downtrends

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