Macroeconomics

Debt to equity ratios are important in determining an individual’s financial health. It’s not just the numbers that count but how they are presented. Credit rating services typically takes a look at debt to equity ratios. However, what many people don’t realize is that there are other ratios out there that may be more useful.

One of those ratios is the cash flow to equity ratio, or CFi. The debt to equity ratio can also be used in financial modeling and in understanding risk. The debt to equity ratio calculates the amount of money that will go into a plan. The debt to equity ratio can be calculated as a positive or negative indicator of a firm’s potential for growth.

The debt-to-equity ratio can be compared with the other financial ratios that are often calculated. A simple comparison would be to look at the free cash flow. This is the amount of money left over after a firm has made all its payments. This calculation factors in current assets as well as total liabilities. When it comes to looking at growth potential, it’s important to consider the total assets relative to the total liabilities. When using debt-to-equity ratios in financial modeling, remember that the more current the information, the better.

There are two types of leverage ratios. The first is a debt to revenue ratio, which looks at how much debt a company has versus how much revenue it is generating. The second type of leverage ratio compares financial leverage to the number of shareholders. The larger the number of shareholders, the higher the value of each shareholder. When using leverage ratios in financial analysis, remember that the results depend greatly on how current the information is.

The debt-to-equity ratio looks at how much assets a company has versus how much liabilities it has. In order for a company to use this ratio, it must have access to financial assets such as accounts receivable and inventory. The ratio uses the value of the assets to the total value of the liabilities. When calculating this ratio, it is important to note that the smaller the number of assets or accounts receivable, the larger the percentage used to calculate this ratio.

There are several variables used in the calculation of a debt to equity ratio. These include the company’s current assets, its current liabilities and its long term assets. All three numbers are negative numbers when they are compared to one another. When these numbers are positive, that means the business is at a net worth of zero dollars. The greater the difference between the two, the better the company’s debt to equity ratio.

When a company is trying to analyze its debt-to-equity ratio, it will also need to analyze its liquidity. This refers to the amount of cash available to a business when financing is required. When a company is unable to obtain a loan or obtain any new loans, it may become difficult or impossible to keep its cash balances at a high level. This problem will lead to the liquidation of some assets and will effect the debt-to-equity ratio. The reallocation of assets and funds to other businesses will also have an affect on this number.

Other numbers often used in analyzing debt-to-equity ratios are the weighted average cost of capital (CCO) and the effective interest rate. The weighted average cost of capital is the number of investors that a company has and its current market cap. The effective rate is the annual percentage of premium paid by investors for the company’s common stock. These numbers should all be taken into consideration before a business decides whether or not to finance its operations through debt.

Income per capita, sometimes referred to as per person income, refers to the income that a nation’s people make. The per capita income refers to the average income earned by a population over a particular period of time. For the U.S. the per capita income refers to GDP.

The Gini Index also compares the distribution of income amongst citizens in a country. A country’s level of development has a great effect on the size of its economy. At the highest levels of development, per capita income may account for nearly 70% of a country’s gross domestic product or GDP. At the other end of the spectrum, developing countries have a per capita income that less than 5% of their GDP.

There are many ways to measure income per capita earning power. Some nations, like the United States, rank the level of income by per capita GDP. Other nations, like China and India, calculate income by the Gross Domestic Product (GDP) and Purchasing Managers Income (PMI). Other countries, including the United Kingdom, use some combination of these measures. If no comparable country measures incomes, a country’s rank in this dimension will be derived from the median income per capita.

China’s economy is growing much faster than any other modern economy at the moment. The gap between rich and poor is wider at the time of this writing. The gap between the two countries’ incomes is also wider at the time of this writing. While the Chinese government has been doing all it can to help improve the quality of life for its people, the future still looks particularly bleak for China’s poor. Given the current state of affairs, the income per capita of China will probably see a slight decrease between now and the end of the upcoming decade.

While income per capita income may be important for development, another equally important dimension is that of economic strength. By this I mean the ability to buy the things needed for daily life. China’s poor have yet to overcome the technical challenges they face. China’s economy cannot support an increase in the purchasing power of its people without reducing the quality of life.

One possible way to improve income per capita without reducing the quality of life is through investment. The types and sizes of investments that can raise incomes per capita during the coming decade and beyond are enormous. China’s relative lack of technical advancement in recent years notwithstanding, the country does have a huge number of companies listed on the New York Stock Exchange. A large portion of these companies are small and still developing. Given the potential magnitude of China’s investment potential, and the likelihood that it will become a major provider of technological advancements in the next decades, it is possible to expect a marked improvement in the income levels received by the typical Chinese citizen.

By contrast, even if China were to dramatically increase its current level of development, it would only begin to provide a basic level of income for most of its people. If India were to increase its income per capita during the coming decade, for instance, it would do so by substantially improving the standards of health and education available to its people. At present, almost all of India’s people live in poverty. Only around 5 percent of Indians are well off. If India were to successfully develop technologically, its standard of living would increase significantly, but it would remain far from the standard enjoyed by China’s population.

Growth by itself will not bring about political prosperity. Individual members of a society have to decide what they want as long as growth prospects exist. If the desire to pursue economic growth exceeds the need to pursue such a goal, that individual could become poor through sheer neglect. The current trends in India, where people are becoming ever poorer by the day, provide no examples of people successfully becoming rich through their own effort. India’s current average income per capita is simply too low.

By Ben Collett, Managing Director, Transaction Advisory Services and Jimmy Saunders, Senior Director, Restructuring Advisory, Duff & Phelps

Falling consumer demand, combined with supply chain and manufacturing disruption as a result of COVID-19, all mean considerable challenges lie ahead for the automotive industry. Whilst lockdown measures across the globe are slowly starting to relax following a second wave of restrictions, some of the most affected areas have been major manufacturing hubs that play a key part in the sector’s global supply chain.

As such, the industry will likely continue to face challenges stemming from the impact of the pandemic. The smaller players in the supply chain are arguably the most vulnerable, making it now more important than ever to ensure they’re properly funded, they’re able to react quickly to fluctuating supply and demand, and in good operational shape for what lies ahead.

A stalling industry

Recent research from The Society of Motor Manufacturers and Traders (SMMT) has uncovered the true impact of the pandemic on the automotive sector. UK car production declined 33.8% year-to-date compared with the same period from January to October 2019. Despite the unprecedented support from the government in the form of the furlough scheme, 14,000 job cuts had been made across the industry, including manufacturing, supply chain and retail by September 2020.

Our research into the automotive sector indicates that while the beginning of the year appeared to be holding up globally, there had been a sustained period prior to the pandemic where auto demand was looking weaker. This meant that by the time the pandemic hit, the sector was already in a vulnerable position and by March, when the pandemic escalated out of China, sales across the world quickly flattened.

However, it was the impact of the economic shutdown and the shuddering halt in car manufacturing that had the most damaging impact on the automotive supply chain both in the UK and globally. Supply chains have to be restarted and the working capital cycle has to be re-established but all this in a new operating environment where nobody really knows who now poses a credit risk. Post-lockdown manufacturing is gradually recovering, but what we don’t know is how much of this is true underlying demand; and how much is a catch-up of pent-up demand from during lockdown. Smaller manufacturers are expected to react to this new volatility in demand and, if not careful, they could find themselves committed to meeting customer orders, but having to trade at a loss to do so.

Support has helped, but challenges remain

To support the economy, the government introduced the Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Corporate Financing Facility (CCFF), and the furlough scheme to help save jobs. Further, the Corporate Insolvency and Governance Act 2020 contains several temporary and permanent provisions to assist companies through COVID-19 and help them avoid insolvency. Yet, while the government-provided stimulus has gone some way in supporting businesses in trouble across the automotive value chain, it is unlikely to be enough to prevent many suppliers and parts manufacturers from facing significant challenges.

The automotive supply chain is incredibly long and complex, with thousands of small suppliers feeding mid-sized suppliers, which, in turn, feed large global manufacturers. The current crisis is not yet over and even with a gradual, recommencement of production, hundreds of businesses across this extended supply chain are now being asked to operate at sub-optimal efficiencies. With limited room to cut fixed costs, many will have low liquidity to power through an extended period of missing revenues.

Brexit and the shift to electric

The challenge of COVID-19 came against the backdrop of wider changes taking place in the automotive sector. Most notably, ambiguity around tariffs and a no-deal Brexit led to a number of manufacturers announcing the transfer of production away from the UK before the pandemic.

Adding further pressure has been the shift in sentiment amongst consumers away from “dirty diesel” and towards electric vehicles, leading many to delay the purchasing of new vehicles. As these pressures continue to mount, investor appetite will likely diminish and debt capacity will reduce, meaning that financing for the sector will likely become more difficult.

An uncertain future

Looking ahead, the industry clearly faces many challenges. For larger manufacturers, replacing a single supplier could delay the reopening of a plant for weeks, while a new provider is identified. If a wave of insolvencies hit the supplier and parts market, larger players higher up in the value chain could really suffer financially. This may lead to OEMs taking greater control of the supply chain in the short term by pushing for larger, more stable supplier groups.

There is no doubt that it is a difficult operating environment for the automotive supply chain, but vehicles will need to be produced and after a period of consolidation and stabilisation there will likely be good opportunities for those remaining.

Collective bargaining is a method of negotiation between a qualified group of workers and an employer aimed at arrangements to regulate working conditions, working wages, terms, and other areas of workers’ rights and compensation. In the United States, collective bargaining has gained in popularity as the result of the recent economic downturn. The decline in real estate values, the resulting loss of jobs, rising unemployment, and decreases in consumer spending all contributed to the growth in the popularity of collective bargaining. Although not all workers are supporters of this particular method of working, the process does tend to provide a modicum of stability for all groups in a situation. Because most negotiations do not go as far as bargaining, however, collective bargaining does not always benefit the employee.

Although collective bargaining does not necessarily benefit all groups within the working environment, there are those that it has benefited. One of the most important things that workers tend to gain from such agreements is stability. With few exceptions, no two workplaces are identical. For this reason, establishing and maintaining healthy working conditions can be quite difficult. By allowing certain conditions to be legally protected, companies are more able to manage their work environments and meet their legal obligations.

Many people associate collective bargaining statutes with protecting civil rights and other progressive issues. This association is undeserved, however. While employers have legal responsibilities to ensure fair labor practices, these laws are also meant to benefit workers by ensuring that they are provided a stable living environment. In addition, workers also have civil rights to seek damages when they are injured on the job. As long as their employer has a legitimate reason for denying them access to the workplace, they should be able to pursue damages in court.

There are two ways that collective bargaining differs from employment relations act. First, the latter establishes and enforces employment standards and objectives through the employment relationship. Collective bargaining, on the other hand, allows workers to engage in independent bargains that do not affect the stability of their employment. This means that, in the case of a strike, for example, a group of striking employees may choose to strike against the company’s pay rate in order to improve conditions of their jobs. Such actions are completely voluntary and do not mandate the involvement of a union.

However, a distinction does exist between voluntary actions by workers and actions forced by a company. In order for a company to be considered guilty of unfair labor practice, it must either discriminate or take action against employees for engaging in collective bargaining. In order for an employee to take advantage of the legal rights protected under the national labor relations act, he must first be forced to join a union. Thus, it is clear that unions cannot be considered the root cause of unfair treatment of workers in a company.

Furthermore, the national labor relations act restricts the National Labor Relations Act to a specified duration during which a state employee can file a complaint. The law also allows a grievance to be filed by an employee even outside of his state. This therefore means that a non-residential, such as a supermarket, can engage in a strike anywhere in the country. A supermarket, therefore, cannot be considered the employer of a set of union workers, even within the confines of a collective bargaining agreement. In other words, the union workers have no exclusive rights to work in a particular location.

On the other hand, the concreteness of the court system and the strength of state law make it very difficult for individual litigants to receive fair representation. As a result, the courts have increasingly become the main venue for collective bargaining disputes. Arbitration is currently the most common method of resolving labor disputes in the private sector. However, it is largely ineffective as it requires the unanimous agreement of a large number of people before reaching any settlement.

By circumventing the statutory limitations on collective bargaining, business owners are able to offer better wages and terms to their private-sector workers that are unreasonably low. It has also been found that arbitration is frequently used in private disputes between business rivals rather than between two independent contractors. Moreover, the collective bargaining laws of the United States have led to numerous cases of worker exploitation, such as the case brought by janitorial services against their employers, which resulted in the employer firing employees for bringing the case to the attention of the company’s management. The arbitrators in such cases have very little power to impose reasonable compensation. They also lack the jurisdiction to make binding decisions. Only a small minority of states have laws that provide any kind of protection to personal-injury victims.

A budget deficit is the difference between actual expenditure and revenue over a designated period of time, called the budget deficit, and the budget surplus, which is the difference between actual revenue and expenditure. The word budget deficit is also used to describe the budget of an individual, company, or government. If there is excessive borrowing by a government it is termed as a public debt. By definition, excessive borrowing by any entity is when that entity exceeds its available credit facilities.

The purpose of regulating budgets is to ensure that the government has enough funds to support economic growth. If the government overspends its revenues, then its deficits become larger than the national credit resources allow. The deficits cause problems for businesses and individuals. When there is a budget deficit, a company must sell assets, reduce working capital, and/or offer financial guarantees to raise capital.

At the end of the last year, the U.S. government owed approximately $icular $ 63 billion in budget deficit debt. This debt was largely caused by unsuccessful congressional budget negotiations and ballooning federal spending and interest charges. The average budget deficit over the past two-decade has been about 3%.

Revenues are the source of revenue and should be able to cover expenses. However, revenues are only consistent when they are collected from income taxes. If revenues are collected in the form of dividends or interest payments, they are not taxable unless they are also paid to the United States government. When revenue is raised through these means, it is termed a budget surplus. A budget surplus is when the government collects more revenue than it needs to support its expenditures.

Interest costs consume a large portion of the budget deficit or surplus. The higher the debt-to-gdp ratio, the higher the cost of borrowing from external sources. The Federal Reserve pays interest on reserves, which contribute to this ratio. If there is an unusually slow economic growth, this ratio will also be higher. In addition, if the tax codes are complicated and the economy is suffering, then this ratio can increase.

The primary reason for budget deficits is long-term interest costs. High long-term interest rates are a major factor in budget deficits because they increase the interest income available to governments. In addition, excessive government spending leads to increases in asset price and the economy suffers when there is excess inventory. In short, an increase in the economy’s potential growth rate reduces budget deficits.

Over the course of history, the relationship between tax revenues and budget deficits has been somewhat stable. Historically, revenues have generally been in positive territory while budget deficits have occurred at times. This relationship is influenced by factors such as economic cycles, inflation, unemployment, and economic volatility. For instance, in a period of economic growth, a rise in tax revenues usually leads to a rise in budget deficits because of the growing economy. Conversely, when tax revenues fall due to economic instability, government spending cuts usually result in budget deficits. Similarly, when economic activity falls significantly (such as during a recession), government spending cuts lead to revenue reduction and deficits.

Historically, budget deficits tend to occur when either the economy or the federal budget is operating below its potential for growth. In other words, budget deficits occur when there is not enough money circulating in the economy to allow it to invest in the necessary infrastructure and provide services for an increasing population. When this happens, the effects of this lack of investment lead to lower economic activity, lower employment, and eventually lower tax revenues. As mentioned, the relationship between tax revenues and budget deficits can vary by time and by policy. Because budget deficits are usually the result of economic conditions that are occurring in a particular region, state, or country over a long period of time (over decades rather than over a few months or weeks), they can be difficult to forecast accurately.

By Charles Cao, EMEA operations and strategy at Conga

Every year, the PWC Annual CEO survey gathers opinion and economic outlook from thousands of CEOs (1,581 CEOs across 83 countries). In 2018, this PWC Annual CEO survey published record levels of optimism. However, only two years later, it has published record levels of pessimism. In those past two years, the percentage of CEOs who believe global GDP growth will decline has increased tenfold from five per cent to 53 per cent. That report was published prior to the pandemic. This goes to show how unpredictable the business and economic environment is, but looking at macroeconomics forces in play, it’s not that surprising. It is clear that the last few years have been unpredictable to say the least, but these times of uncertainty are a reminder that change is the only constant.

Global changes affecting businesses

A growing challenge for businesses is globalisation. Many organisations have built a global supply chain over the last few years to benefit from tariffs, cheap labour, tax benefits, cheap raw materials and so on. There is a lot of rationale to support this approach in a stable and predictable environment, but the moment the environment changes, points of fragility in those supply chains start becoming more obvious. That is what has been happening to global supply chains and service networks in the light of COVID-19. The once prevalent global-sourcing model in product-driven value chains has steadily declined as new technologies and consumer demand patterns tend to encourage regionalisation of supply chains.

Society itself is also changing in terms of its approach to health, environment and to people, and this is impacting society’s consumption. What can be seen as a result is the fracture of long-held social contracts. The new generation doesn’t think and act in the same way as previous ones, and employees, leaders, consumers, the entire society is evolving dramatically.

Technology is everywhere and it is almost impossible not to rely on it. The pace of technological progress is accelerating with communication, transaction technologies, artificial intelligence and machine learning predicted to play a major role in businesses in the near future.

On top of these major changes, COVID-19 has completely transformed the way we live, the way we interact, the way we consume and, little by little, the way organisations sell.

The impact of global change

Constant change has a deep impact on business environments, whether they are global or regional issues, whether it’s a rise in regulations, trading relationships, upskilling challenges, or even climate change imperatives. But do these changes actually impact the way leaders run their businesses? Yes and no. Many organisations know that change is needed but, in many cases, businesses are too set in their ways and don’t implement the day-to-day operational changes that are required to tackle these macro-economic issues. Some of the largest companies in the world are still running their businesses on Microsoft Excel and Word with antiquated ERP-driven operations. Companies continue to do what they have always done: sell their products or services in the same way as usual, to the same old customers, using the same platforms.

The supply chain is a big legacy around which companies must build to develop strategies – they can’t change everything overnight; having a strategy is vital. And when it comes to strategies, business management books will have a myriad of strategies with fancy names, but ultimately all those strategies will anchor around three main pillars: product, price, market.

We have seen a common trend towards the ‘as a service’ and to ‘on demand’ models, and more and more companies leverage those models to transfer CAPEX to OPEX. Because the demand for flexible consumption models is increasing, more and more companies must learn to sell that way.

Companies’ offerings must change, the way they present them to their customers, their contracts, terms and conditions, and finally the way they execute revenue against those conditions must all change. Unless businesses can execute those changes and bring them to market, they won’t impact their bottom line and capture that evolving demand.

Whether organisations want to change or adapt their offerings, change their price or penetrate new markets, they will always ultimately need that commercial agility. This idea of commercial agility is really the ability to adapt the way businesses generate revenue in a more flexible way: from product, to price, to quote, to contract and to revenue. Without agility, companies are, more than ever before, at a greater risk of eventually failing. And when they fail, people suffer. Agility is no longer a ‘nice to have’, it is a matter of survival.

We have seen many examples of this recently. If you compare the Top 10 Fortune 500 companies between 2010 and 2020, only three companies are still there. Leaders from yesterday have no guarantee to be the leaders of tomorrow: if they don’t challenge the organisation, they’re more likely to fail.

In today’s world, convention has been challenged and, in this environment, it has been striking how fast many companies have adapted, creating radical new levels of agility, productivity, and end-customer connectivity. In the heat of the coronavirus crisis, organisations have been forced to work in new ways and much of this progress comes from shifts in operating models.

The most successful companies in the world demonstrate high levels of creativity and agility

Netflix started by mailing DVDs to customers in 1997. The CEO Reed Hastings had the vision to stream movies over the internet direct to customers’ screens at home. He had a plan and managed to leverage the environment to gradually get customers used to the idea of streaming rather than playing physical DVDs. Now, with over 183 million subscribers worldwide, it’s hard to imagine not watching video on demand.

Amazon started in 1994 as an online bookstore in Jeff Bezos’ garage in Seattle. Today they are one of the largest internet retailers in the world. They are definitively changing the way we consume, offering home services, fresh food online, one-hour delivery and they even produce video content. How could an online bookstore grow into the second largest company in the world with $280bn in revenue and 800,000 employees?

Dyson showed incredible agility during the pandemic. To support the UK National Health Service with medical equipment during the COVID-19 crisis, the company created the Dyson ventilator that addresses the explicit clinical needs for COVID-19 patients. It is bed-mounted, portable, efficient in conserving oxygen and doesn’t need a fixed air supply. The UK government placed an order for 10,000 ventilators from the company.

Were these companies the first to have these ideas? No, but they were able to effectively bring them to market.

To become commercially agile, businesses need HEART: Hunger, Eyesight, Attitude, Rationale and Technology.

Hunger

As seen throughout the COVID-19 pandemic, when it is a matter of survival, companies unlock those self-inflicted limitations to go beyond what convention defines as possible to achieve the impossible without letting convention get in the way.

Eyesight

In 2019 PWC’s Strategy& conducted a survey[1] of 6,000 executives from companies of various sizes and industries in which only 43 per cent of leaders said their company is “very clear” about how they add value to customers. Successful organisations such as Netflix, Amazon, Dyson have a clear vision. They know what makes them unique and their commercial agility is only a component of their uniqueness.

Attitude

People need to believe. Still referring to PWC’s Strategy& survey, only 35 per cent of executives think their company’s strategy will lead them to success. It is important to spend time with business leaders, commit to the strategy and get them to buy in.

Rationale

Organisations need a process: commercial agility requires a large shift in process, technology and people. To make it successful, businesses need alignment, adoption and method. A transformation team or transformation partner is required to change people’s habits, perceptions and, ultimately, to change their results.

Technology

In the Fortune 500 CEO report, the percentage of CEOs who believe that technology transformation will be accelerated by current context was 75 per cent. McKinsey Global Institute points out that companies that are digital leaders in their sectors have faster revenue growth and higher productivity than their less-digitised peers do. For many, it is an imperative to reduce IT costs and make them variable. Technologies such as CPQ (Configure Price Quote) or contract management are the cornerstones of commercial transformation and the same applies for managing documents: document transformation can be overlooked as a strategic area of improvement with fast time to value.

Responding to a continuously evolving market

With the continuous obstacles that businesses will face in the years to come, it is the organisations that demonstrate a high level of commercial agility that will be the ones to navigate the demands of an ever-evolving marketplace. For this, they must have the right hunger, vision, attitude and rationale to achieve their business goals and the right technology to help them along the way. By responding well to change and continuing to implement improvements to the day-to-day operations throughout the organisation, businesses will continue to re-invent themselves and evolve with the world around them.

Survey from payments provider Mollie reveals how small-mid-sized merchants are preparing for the UK’s exit

Mollie, one of the fastest-growing payment service providers, has today announced the findings of a survey which explores the readiness of UK and EU merchants ahead of Brexit. The study reveals the differences between small-mid-sized UK merchants versus their counterparts in the EU and the opportunities and challenges that are expected come December 31st.

The data paints a positive picture for British firms who expect to face challenges when the UK formally leaves the EU but are optimistic about their ability to adapt. Conversely, EU firms felt unprepared but confident in their current strategy and believe Brexit is unlikely to bring any new problems. Both UK and EU businesses said that Brexit has resulted in a shift towards domestic activity rather than international commerce.

Key findings:

Despite headwinds, British SMEs are standing strong

• 42% of UK merchants and 32% of EU firms expect to overcome any Brexit-related challenges by the end of 2021.
• UK businesses feel they have adapted fairly well, rating themselves 3.3/5 when asked about their progress in addressing new challenges. EU businesses were slightly less optimistic rating themselves 2.9/5 for the same question.
• And 69% of UK merchants said that they will be ready for Brexit on or before Dec 31st.

A more regional and personalised approach will help SMEs bounce back

• Finally, British merchants are more optimistic than EU merchants with 22% saying that Brexit encourages them to focus on most profitable channels like e-commerce or technology-focused retail, versus 11% for EU retailers.
• 18% of UK firms also said relaxed regulation makes it easier to operate and 16% said it encourages a local and specialised approach that provides customers with a greater degree of personalisation.

EU merchants have been unable to plan but anticipate few new challenges

• Although more than a third (36%) of EU merchants admitted they had been unable to plan for Brexit, almost the same proportion (34%) said there will be no new challenges for them once the UK leaves the European Union.
• In fact, one in five (21%) EU firms expect to face no impact at all from Brexit and 43% said their strategy has remained unchanged.

“Brexit has been looming in the background for the last four years and has been expected to hit businesses hard,” said Ken Serdons, Chief Commercial Officer at Mollie. “Yet, small-mid sized merchants are feeling confident and prepared to tackle Brexit head-on. With our focus on simplifying financial services and creating localised payment experiences, Mollie is well poised to help customers navigate this shift and continue to grow internationally. In particular, merchants with a growth mindset – who believe that their capabilities can be developed through dedication and hard work – will bounce back most successfully.”

By Rowland Park, CEO of Limeglass on Macroeconomic Research

Every asset class is impacted by what central banks do. In turn, the central banks are affected by what the economy is doing. This relationship impacts some asset classes, like FX, money markets and bonds, more than others, but ultimately everything derives from here. Equities and commodities are other great examples. Everything at its core is tied back to macroeconomic data and to the reality that data represents.

Identifying macro themes and topics presents a unique problem. To put it simply, there isn’t a ‘code’ or ‘ticker’ for say monetary or fiscal policy, like there are tickers with equities or instruments. You can’t just type in IBM or VOD and look at a real-time tracker like you’d do for IBM or Vodafone stocks. Frankly, you can’t even type in ‘GDP’ as you would miss ‘growth’ and if you typed in ‘growth’ you would get all sorts of results about growth which have nothing to do with economic growth. Even refining that search to ‘GDP Growth’, would present you with the similar issues.

After you’ve gone to all that trouble, it’s also the case that GDP on its own is fairly meaningless if you don’t associate it with a country, say the US. Yet having made that search, if a document has a sentence mentioning that ‘the Fed’ is worried about ‘growth’ would your search be able to pick it up?  Would it even be the right type of growth? It could well be that the article is discussing growth of the Fed’s balance sheet which again, has nothing to do with GDP.  Add into this what I like to call the ‘alphabet soup of macroeconomics’ – HICP, HICPxT, RPI, RPI-X, RPI-J, CPI, CPI-F, CPI-H –  then it can be really difficult to get to the heart of the matter, not least as some of those acronyms are company tickers too!

All this means that given the huge impact that macroeconomic trends have on every aspect of the economy, particularly during this pandemic, disambiguating these terms and supporting macroeconomic research is more vital than ever.

What are the real pain points for financial professionals managing and distributing macroeconomic research?

Don’t tell me you don’t feel frustrated about the time you spend trying to search for something you need to understand better: the irritating, never-quite-perfect search terms, the endless list of documents, opening each one individually only to find that it isn’t what you are looking for.

We stop the pain you experience whenever you’re trying to find the information you need.

Imagine a future where you could type in just one search term to immediately have all of the most relevant information at your fingertips and imagine having that on your desktop tomorrow. What we offer really is that simple.

Our goal is to provide relevant and timely information on something that will affect any instrument by helping you to understand the thinking of a central bank or of other market participants. We want to give you a head-start in anticipating that thinking, in being a step-ahead of a market move and ultimately in understanding topics better and faster, saving you huge amounts of time. Limeglass offers a number of different tools within its software to do just that, but two that are worth highlighting are: Rich NLP and Synonyms.

What is Rich NLP, and how does it help with macroeconomic research?

Macroeconomic documents tend to be based around multiple geographies, if you are trying to use traditional techniques to analyse these documents then all the software is typically basing its deductions on is, put simply, the proximity of words to one another. However, if the country is derived from a sub-title or inferred by the discussion of a specific topic like former-Supreme Court Justice Ginsburg, then that system doesn’t work. We have designed a form of Rich NLP which is capable of identifying the flow of the article, titles, subtitles, styles and formatting in a manner closer to how a human would read it, to smart tag all the way down to paragraph level.  This provides much more accurate results, saving the reader time, enhancing their research with accurate and appropriate linkages to other documents.

Seeing more than one document at once, by picking out these relevant paragraphs, seems like a simple innovation but it enables people to understand the macroeconomic landscape of any country, supports them in building a fuller picture from which to make a decision and enables them to do so much faster and much more efficiently.

How can technology understand Synonyms?

Given the complexity of macroeconomic discussion and its international nature, many different terms are used to describe similar things. We think it’s critical to pay such close attention to synonyms. If you search ‘US-China trade war’ you need to see results for trade tension, trade spat, protectionism, anti-dumping measures, minimum import prices and tariffs – just to name a few! You also need to avoid anything to do with the word ‘trade’ when it refers to an investment decision as opposed to the exchange of goods and services between the US and China. The synonyms are a vital part of our proprietary Rich NLP, which doesn’t rely exclusively on crude techniques such as stemming as other solutions tend to do.

The macroeconomic agenda is news-driven. How can technology help market participants to react?

One good recent example is the resignation of Shinzo Abe as Japanese Prime Minister. We’ve designed our technology so market participants can rapidly familiarise themselves with the political situation in Japan, likely successors to Abe, and the impact that their policy preferences would have on macroeconomic trends. ‘Suganomics’ was just one of those synonyms that helped identify key material.

But, that’s ultimately reactive. If you were proactively looking to develop a strategy around APAC investments, you need to ensure you aren’t missing key information, through its taxonomy, ontology and contextual awareness. You need the technology and tools to highlight what is being written about and provide you with a tool to find different terms for the same thing, different anglicisations, and ensure you are well-versed on Malaysian monetary policy before taking that Malaysian position.

We need to go beyond specific asset-class expertise to focus on entire geographies and macroeconomic trends.

By Wayne Snyder, VP, Retail Industry Strategy, and Alan Duncan, Senior Director of Industry Strategy (Manufacturing) at Blue Yonder

“T’was the night before Christmas, when all through the house not a creature was stirring, not even a mouse. The stockings were hung by the chimney with care, in hopes that St. Nicholas soon would be there.”  The famous opening lines from the nineteenth century poem by Clement Clarke Moore.

How different will this year’s visit from St. Nicholas be?

Stockings will still be hung by the chimney; children will still go to bed filled with excited anticipation of the gifts and fun of Christmas Day.

But will we hear the “clatter” of Santa’s sleigh and his eight reindeer?  For this year St Nicholas’ Christmas operations will, like most of the rest of the world, have to cope with the increased complexities and restrictions imposed to curtail the spread of COVID-19.  Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donner and Blitzen: will Santa and his 8 reindeer need to abide by the “rule of 6”?  Which of them will be furloughed?  How will Santa deliver the “sleigh full of toys” if he is not able to enter the homes of all the expectant children?  After all, he cannot be in a social bubble with every child in the world.  His usual attire of “fur from his head to his foot” won’t be enough to prevent the spread of this evil virus.  Fully decked out in PPE, mask, gloves and high-vis jacket adorning his traditional red and white,  carrying hand-sanitiser for use before entering every home, if you catch a glimpse of this jolly old gentleman this year you will be forgiven for being startled.  But it’s for our own good.

St Nicholas should be the patron saint of logistics.  For centuries he has been able to achieve more than any other global logistics operation could ever dream of.  Who else can, single handed, deliver over 500 million parcels to addresses across the entire globe in 24 hours?  The British Royal Mail (one of the oldest postal service in the world) delivers fewer parcels in a year.  Amazon delivered 10 million per day in 2019 – only 2% of the volume Santa deals with on Christmas Eve, and Amazon has tens of thousands of helpers to deliver for them.

But this year, in the year of COVID-19, on the “night before Christmas” St Nicholas is preparing for a very different delivery service.   It’s been a challenging year for everyone, and Santa was not immune to the effects of the virus that incapacitated the planet for many months.  In a normal year he was able to meet children at his Grottos to help sense demand and “take orders” from boys and girls everywhere.  In 2020, due to social distancing restrictions and lockdowns, the grottos have remained closed and Santa is having to use alternative methods of prediction.  Just as others have done, Santa switched some of his market intelligence gathering online – taking to Microsoft Teams, Zoom, Facetime and other video conferencing to talk to children across the globe about their hopes and wishes for Christmas 2020.

But we know that Santa had to start planning long before the delivery date to ensure had the right level of inventory to satisfy all the children.  This year, forecasting has been even more difficult than the usual experience of trying to keep up with the fads and ever-changing wants of children. However, we understand that for the first time, Santa has introduced some new technology to aid him.  Prompted by Mrs Claus’ warning that “You cannot let the children down this year,” Santa has invested in AI demand forecasting capabilities to ensure he can meet the demands of all his important recipients.  So, what is he seeing? LEGO is predicted to remain popular as we continue to stay indoors. Jigsaws and board games saw a resurgence during lockdown as we all looked to get through the boredom, but will this continue through to Christmas?    Parents seem to be wanting their children to receive more bigger gifts this year as some compensation for the loss of experiences suffered at the hands of the pandemic.  But can Santa even make everything on time as goods are restricted due to demand spikes and supply restrictions?  Santa has needed to increase his flexibility to respond quickly as things continue to change before he can finish his lists, check who has been naughty or nice and prepare for the final deliveries.

Seasonal peaks are a feature in many businesses and Saint Nic manages the greatest peak of all.  But in 2020 some of the Elves have had to work from home.  ‘Elf and safety in the workshop has been paramount, with social distancing rules significantly reducing output.  Santa and his highly adaptable elves have had to look at different production techniques to combat the efficiency drops and counter the challenges of poorer demand visibility.  Inventory pre-builds, product redesign for late configuration, range reduction are all strategies that Santa has employed just to get through the extraordinary circumstances.  Like many businesses, the efficiencies that Santa’s single sourcing at his Lapland elf workshops has enjoyed in the past has been exposed for its lack of resilience in 2020.  Spokes-elves have indicated that Santa may be considering moving to a more global/local sourcing strategy in the future.  Food for thought for the night after Christmas.  Remaining COVID-19 compliant whilst supporting his many elves working from home, ensuring they continue to collaborate has been tough, but Santa Claus knows, this year, more than ever, he needs to bring joy to every child.

And what of the new complexities of delivering those millions of parcels during a pandemic?  Fewer families will be allowed to get together so there will be more delivery points; differing COVID-19 related regulations and restrictions in place from country to country to consider; the need for Santa, the elves and the reindeer to socially distance (and social bubbles are already in place); the “Rule of 6” in place in many countries means that the sleigh cannot be pulled by the usual 8 reindeer so sleigh-power is reduced. This will place a greater need on efficiency: Santa must do more with less.  Luckily for the children, Mrs Claus is on the case and has bought him his own Christmas present (please do not tell him it’s an AI powered logistics control tower!) to ensure he has complete visibility of his delivery network and can mitigate issues before they happen.

Network and route optimisation software will be used for the very first time and, after running various scenarios, Mrs Claus is confident that Santa will deliver all the gifts on time and in full. With the reduced sleigh pulling power and more delivery drops, Santa has to change his approach.   Insider elves have leaked that Santa has trained one of the senior elves to drive a second sleigh to a secret location on or around the Greenwich Meridien where Santa will swap sleighs with the slickness of a Formula 1 team, mid-journey around midnight GMT.  The decision about which reindeers are to be used on each leg of the journey remains a closely guarded secret although leg 1 is expected to use only 4 reindeer and, given the more dense population of the Western hemisphere, Rudolf is expected to be drafted in to boost the leg 2 team up to 5.

Those who track Santa’s progress through the NORAD or Google control towers will not see any interruption: the sleighs are said to be fitted with identical GPS tracking devices to ensure full visibility throughout the journey.

And what next for St. Nicholas?  With the likelihood of a vaccination for COVID-19 soon, he is hopeful that this year’s challenges will be short lived.  However, there’s no rest for the world’s greatest logistics team.  St. Nicholas and his team of management elves are already looking to 2021, weighing up the implications of Brexit and the change in US President.  What will be the impact on global tariffs? Will more suppliers move to production nearer to Lapland? How will Brexit impact the free movement of elf labour from UK to his workshops in Lapland (inside the EU)?  How can Santa Claus, the reindeers and elves drive toward carbon neutrality and a circular supply chain?  And what will be next year’s favourite toy?

• Collaboration with UCLouvain to advance efforts towards a circular economy through the creation of a new PhD focused on key impact indicators in the circular economy field and the creation of a circular economy barometer
• Partnership with Vlerick Business School to create the Centre for Sustainable Finance. Inaugural research project will focus on the use of artificial intelligence (AI) in measuring scope 3 greenhouse gas emissions.
• Transitioning to a more sustainable world will require further investment in world-class research and academic economic thinking
• New academic partnerships complement CANDRIAM’s existing collaborations with some of the world’s leading academic institutions including: the London School of Economics (LSE), Imperial College London, Kedge Business School and Libera Universita Maria Ss. Assunta (LUMSA).

3 December 2020 – CANDRIAM, a global sustainable and multi-asset focused investment manager, is pleased to announce two new partnerships with UCLouvain and Vlerick Business School. This reflects CANDRIAM’s ongoing commitment to collaborate with the world’s leading academic institutions to advance the investment industry’s efforts towards a sustainable and inclusive climate recovery.

Partnering to advance academic efforts towards a circular economy

CANDRIAM has partnered with UCLouvain to further develop the Chair in Regenerative Economics by expanding teaching and research on the circular economy. The world is currently only 8.6% circular, demonstrating the breadth of opportunities available for investors.^[1] Resource depletion and inefficient waste management are among the key concerns due to their significant and costly effect on the economy, society and ecosystem.

The partnership, led by Louvain Management School Professor, Yves de Rongé, with Wim Van Hyfte, Global Head of ESG Investments and Research at CANDRIAM, will prioritise several projects including:

• Developing a PhD focused on key impact indicators within the circular economy;
• Developing a circular economy barometer, with the aim of measuring corporate progress;
• Developing an in-depth analysis of different sectors to identify circular practices of companies and measurements of circularity; and
• Developing circular economy reports and collaborating with the CANDRIAM environmental advisory board.

Yves de Rongé, Professor responsible for the Regenerative Economics chair at UCLouvain commented: “As we move towards a regenerative and circular economy, I am delighted to announce our new partnership with CANDRIAM. By identifying the best circularity practices developed by companies and expanding indicators and measures of circularity performance, we hope to raise awareness about the importance of a circular economy for companies, investors and policymakers.”

 Collaborating on Big Data and sustainable finance

CANDRIAM has also joined forces with Vlerick Business School to create the Centre for Sustainable Finance. Professor David Veredas will direct the Centre in Brussels as part of a new three-year partnership. CANDRIAM will support and participate in the Centre’s academic research to help the industry gain a deeper understanding of sustainable finance. The first academic research project will focus on the role of Artificial Intelligence (AI) in measuring Scope 3 greenhouse gas emissions from global economic business activities. The project will aim to map the linkages of scope 3 emissions, leading to a more accurate, consistent and transparent public reporting of corporate value chain emissions.

Scope 3 emissions include all indirect emissions, both upstream and downstream, that occur in the value chain of a company. Emissions along the value chain often contribute most significantly to a company’s greenhouse gas footprint, so it is important that businesses proactively collect and measure their Scope 3 emissions. Assessing Scope 3 emissions can also help organisations identify potential energy risks and reveal opportunities to improve supply chain performance.

Professor David Veredas from Vlerick Business School commented: “This partnership is very exciting to us. Sustainability is going to define our society and economy during the next decades. Fundamental political decisions will be taken, like those that are required to implement the EU Green Deal. Yet, many questions remain open that can only be answered with rigorous academic research. That is what we will do with the support of CANDRIAM, a world leader in sustainable investments.”

 Commenting on the new partnerships, Wim Van Hyfte, Ph.D., Global Head of ESG Investments and Research, CANDRIAM, said: “As we strive to promote a net-zero carbon and more circular economy, it is vital that we support world-class research and foster new academic economic thinking to support our transition towards a more sustainable world. CANDRIAM is proud to announce two new partnerships with UCLouvain and Vlerick Business School and we look forward to collaborating with these prestigious institutions.”

 These new academic partnerships complement CANDRIAM’s existing collaborations with leading academic institutions including:

• The London School of Economics (LSE), to develop the Sustainability, Investment, Inclusion and Impact (SI3) initiative, focused on developing research, improve communication and promote the exchange of ideas on climate action that delivers positive social impact.
• Imperial College London, where CANDRIAM sponsors The Climate Investment Challenge run by the Centre for Climate Finance and Investment at Imperial College Business School.
• LUMSA (Italy) where CANDRIAM launched a Master’s in Management of Sustainable development Goals with Lumsa Università; and
• Kedge Business School (France), to create a research chair dedicated to sustainable finance.

By Paul Ridden, CEO of SmartTask

 Manual processes such as using spreadsheets to design run-sheets, passing paper run-sheets to drivers and crossing off the jobs by hand as they are completed in the control room, could be costing security firms dear. Using technology to streamline these tasks can save hours each week in admin, enable firms to provide a better service to customers, and keep staff happy.  CEO of SmartTask, Paul Ridden explains how local and regional security businesses can make clever use of tech to improve many aspects of their business.

 There are countless examples in the sporting world about the power of marginal gains. Saving one or two percent doesn’t sound much, but when you make those gains across several different areas, you are soon into improvements of double digits, 10% plus and that makes a positive difference to any business.

Saving time with Run-sheets

An obvious example of this is automating run-sheets, making them easy to replicate each day, each week, and then to make changes on the fly. This alone could be saving hours each week, but the benefits are so much more than just time savings for the control room – although that in itself is worthwhile.

Example marginal gain: An hour per day per person on a 40 hour week is a saving of 12.5%

Saving time for Officers

Once run-sheets are generated digitally, they can be sent to officers in the field digitally too. There are now Apps that can be installed on most smart phones (iOS and Android), so that when an officer starts work they receive their run-sheet automatically. They can also receive any assignment instructions or other special instructions at the same time. Using an App, they can tick off jobs as they go, taking photos if required, and attaching them to the log for the job. As jobs are completed the control room can see exactly what is happening on the ground. The control room can also be alerted of any missed check in calls, helping with Duty of Care responsibilities. This makes life a lot smoother for officers, as well as for the control room.

Example marginal gain: One extra activity per day, because officers spend less time on admin, or travelling to the office to collect/drop off paperwork

Streamline Alarm Responses

Visibility of operations on the ground in real time enables control rooms to streamline alarm responses. When an alarm call comes in the controllers can see where all their officers are located, so can organise a response much more efficiently. Directions and assignment instructions can be sent to the smartphones of officers required to attend. After the alarm response has been dealt with it is much easier provide the customer with full details of all services provided.

Example marginal gain: Officers are on site quicker, providing a more effective service for the customer, and the officer can then resume their patrols and other activities

Proving BS7984-3:2020 Compliance

Managing Keyholding and Alarm Response contracts more efficiently enables businesses to prove compliance with BS 7984-3:2020.  Paper based systems can be used to track where keys are held and who has had access to them and when, but this is prone to error and takes a lot longer than using software designed for the purpose.

Example marginal gain: Much easier and quicker to prove compliance, and faster, less stressful SIA audits

Invoice for all services provided

With a digital system the accounts department is not reliant on paper time sheets that can be difficult to read leading to mistakes when rekeying or simply lost. Software provides an easily accessible and complete audit trail of what services were provided for each alarm response ensuring that nothing is forgotten. So businesses can invoice for ALL services provided.

Example marginal gain: How much would one invoice for an extra call out per day add to the bottom line?

Improve Customer Service

Automating systems not only saves time in many areas of the business, it enables firms to focus on providing a better service to customers. As well as more detailed customer information, they benefit from a faster and more efficient service which in turn helps the business to attract and retain more customers.  And, providing good technology to staff is also a great way to attract and retain the best talent.

Example marginal gain: Gaining one extra customer due to strong reputation for excellent customer service

When you add up all of these improvements to be made from harnessing technology, for your staff, your customers and for the business, there is a very compelling case for marginal gains.

Read how City Security Services has adopted workforce management software to better manage and safeguard its team of 650 officers that handle a wide range of static, mobile, reception and firewatch services at over 100 sites across London and the home counties.

 By Thomas Wardle, Wills, Trusts and Tax Solicitor at Aaron & Partners

When thinking about your estate and preparing your Will, it is quite easy to overlook your digital assets. However, failing to make adequate provision for these assets can cause numerous problems for your executors when the time arises to administer your estate.

The Extent of the Problem

A recent study by Direct Line Life Insurance revealed that, in the last 12 months, probate specialists struggled to find all of the financial accounts tied to an estate in 28% of cases, due to the shift towards online banking and electronic record keeping. Any online assets or accounts which your executors do not know how to access (and which they may not even know the existence of) are at risk of becoming irretrievably lost once you pass away.

To take the popular crypto currency Bitcoin as an example, it is estimated that somewhere between 3 and 4 million coins have been irretrievably lost (i.e. the private key required to access these coins cannot be located) and the market value of these locked coins would be in excess of £20bn based on current prices.

Even if you do not believe that you hold digital assets which have a monetary value, information held within emails may still be important to your executors. You may also have photos or videos stored digitally which are of great sentimental value to your family and friends and which you do not wish to see lost or inadvertently deleted.

Thomas Wardle

It was for this very reason that Rachel Thompson was forced to take Apple to court recently in the UK. Ms Thompson’s husband had passed away in 2015 without having made a Will or addressing his digital assets and this gave rise to the need for litigation after Apple had refused to allow Ms Thompson access to her late husband’s iCloud account in order to retrieve precious family photos and video recordings. This was despite Ms Thompson being the only person entitled to the estate under the intestacy rules and her having obtained a Grant of Letters of Administration, which provided her with the authority necessary to manage her late husband’s estate. Eventually, Ms Thompson won her case in 2019, but it took over three years of exertion and thousands of pounds in costs in order for her to finally reach this position. Administering  a family member’s estate can always prove to be a difficult time, but here the added distress and costs stemming from the court proceedings with Apple could have been avoided if her husband had made provisions for his digital assets from the outset.

Ensuring Digital Assets Are Accounted For

It is highly recommended to securely keep a physical copy of all of the details required to access your digital resources and to ensure that this record is kept up to date. Different online platforms will have different policies with regards to what can happen to your digital assets in the event of your death and it is important that you familiarise yourself with these policies to ensure that your executors can comply with this.

For some assets, it will also be necessary to identify whether or not they are actually capable of forming part of your estate. For services such as Spotify or Amazon, for example, although you are purchasing media on these platforms, from a legal standpoint you have only acquired a licence to access the songs or videos in question. In these cases, the licence will terminate as soon as you pass away and it will not be possible to assign the licence itself, or the media that your account had access to, to another person after your death.

Also, it is important to check the Terms of Service for any social media sites that you use, as these will often contain provisions for who could access your account in the event that you pass away. Facebook, for example, allow you to appoint a “legacy contact” to manage your profile after you pass away or allow you to choose to have your page memorialised instead.

In terms of your email accounts and any cloud storage accounts that you may use, it is recommended that you familiarise yourself with their Terms of Services too. Often, these will contain provisions that will specify that your account will be deleted after being inactive for a prescribed period of time. Dropbox, for example, will declare free users’ accounts to be inactive if no logins have taken place for 12 months and will then permanently delete all of the files that you have stored following a further 90 days of inactivity. In some cases it is possible to revive an inactive account, but this depends on the service provider and it is advisable to ensure that you made a physical log of the details required to access your accounts, rather than running the risk of them being permanently deleted due to inactivity.

By taking steps now to ensure that your digital assets are accounted for and that the information required to access them is in a format where it will be available to your executors when you pass away, you can mitigate the risk of your online assets becoming lost in an information vacuum.