What is Financial Due Diligence, and Why Does it Matter?

Financial Due Diligence

In an era where people trust banks and other financial institutions less and less, the importance of due diligence is higher than ever before. But what is due diligence, exactly? And how are financial institutions incorporating it?

“Due diligence” can mean a lot of different things, depending on the industry, but at its core, it means understanding the risks and rewards involved in investing in a company. Due diligence can answer important questions and make the whole investment process go much more smoothly. Big name investment companies such as J.C. Flowers & Co. and A&M make their names in large part based on the due diligence they’re able to provide customers.

According to Investopedia, there are ten different kinds of due diligence that should be taken into account when investing in a new company:

  1. Total value or market capitalization. Is the company’s revenue stream diverse? Traditionally, the bigger the company is, the more avenues it has for making money. With more options for making a profit, a company is less likely to be volatile, which makes it a good investment.
  2. Gross revenue, margins, and return on equity trends. Some investors require the companies they work with to have a combined equity and profit margin of 50 or greater.
  3. Is the company considered a leader in its industry? Is the field growing or shrinking? These are important factors to keep in mind when choosing investments.
  4. Investors in equities measure price-to-earnings ratios and price-to-earnings growth ratios. Investors in real estate often look at how expensive it would be to replace a company’s building compared to the value of the entire property.
  5. Quality of management. How is the company’s management doing? Are they good leaders with a proven track record? How many of the company’s outstanding shares are owned by institutions and mutual funds, and is that number increasing or decreasing?
  6. Balance sheet. Can the company generate enough income to pay its debts? Is it on the NYSE or NASDAQ? Obviously, the more money a company produces, the more likely it’s a solid investment.
  7. Supply and demand. What was the price of the asset three months ago? Six months ago? One year ago? Does it seem likely to go up or down?
  8. Could the company have a second offering on the table in the future? Are any contracts coming up on expiration? Are there new markets the business could enter?
  9. Future expectations. This is particularly important for publicly traded companies. What does Wall Street say about the company’s future? What trends are likely to take off in terms of price and interest rates?
  10. Here’s the big one. What is the worst thing that could happen with this company, and how likely is it? What would investor losses look like? When investing, it’s vital to prepare ahead of time for potential losses.

Experienced teams with a solid background in their industry can offer great investment opportunities, especially if they are willing to provide thorough due diligence to their customers.

Power Underfoot

Solar Road

Paved roads and sidewalks are, generally speaking, intended to be among the more mundane and reliable inventions in modern life. Built to be solid, simple, and easily repaired, they’re meant to be a straightforward means of getting from one place to another with little to no obstacles or impediments. The trouble is, American roads — once the forefront of automotive mediums — have fallen into disrepair. The American Society of Civil Engineers, the United States’ oldest national engineering society, gave American roads a grade of “D” in 2013. In the same report, they noted the Federal Highway Administration’s estimate that $170 billion in annual capital investments would be needed to achieve a marked improvement. With plummeting quality, changing infrastructure needs, and automobile technology moving away from fossil fuels, the question arises: should taxpayer funds be spent restoring roads to their former functionality, or toward a whole new mode?

Innovation-minded entrepreneurs argue the latter, and they’re putting their money and research where their mouths are. One such case involves start-up company Pavegen. Founded in 2009, the company has crowdfunded over $2.5 million for its signature technological development: sidewalk tiles that absorb the kinetic energy of pedestrian footsteps. Pavegen boasts that a network of these devices would harvest potential energy that would otherwise go unused, powering everything from advertising displays, street lights, traffic signals, or even electric vehicles. On that last note, the company has partnered with Tesla to experiment with car charging. While a few steps wouldn’t move a Model S very far, implementing a wide array of tiles in a major urban area could yield impressive results.

Solar Roadways is the product of another successful crowdfunding venture, and intends to apply renewable energy collection to streets rather than sidewalks. The technology consists of glass-topped hexagonal tiles, each one absorbing solar energy. And while part of that energy would be returned to the grid, a lot of it would go toward improving the driving experience as well. Although the project is still in development, the minds behind it claim that each tile would be capable of heating up enough to disperse snow and ice, emitting customizable LED road markings and traffic warnings, and funneling off water deposits. And like Pavegen’s project, Solar Roadways hope to contribute to electric vehicle charging as well.

Decision Making is a Conscious Exercise

Career Decisions

So-called “nudge” psychology purports that it’s best to do your thinking “unconsciously,” at least when it comes to decision-making. Popular psychology books, like Nudge, Thinking Fast and Slow, or Blink argue that it’s best to go with your subconscious, and to not overthink decisions. Essentially, they argue that too much evidence and analysis keeps us from making the best decisions.

According to psychologist Dr. Magda Osman, at the University of Queen Mary London, this isn’t supported by, well, evidence. In a recent study published in The Psychologist, she argues that there are a number of problems with this recent brand of popular psychology.

All the evidence points to most human decision making being conscious and evidence based: we consider context and what we know about something before we make a decision about it. The argument that we should simply let our subconscious lead our decision making has no evidence to support it, which isn’t all that surprising. For one, most of these books are based on studies that have not been repeated, even if other researchers try to do so.

The basis of the scientific method, the process by which popular consensus about something takes it from a hypothesis to a theory or law (in the scientific sense) requires that results of an experiment be true on more than one occasion. Doing a study once and then writing a book about it does not make it true.

Unfortunately, these arguments are popular, and some governments have even taken the step to engage with them at a policy level. What kind of effects this popularity might have remains to be seen, but it seems like, whether or not such policy decisions are harmful, relying on your subconscious to make decisions isn’t going to work. At the very least, you’re deluding yourself into thinking that you aren’t, in fact, consciously thinking about something, and at the worst, you’re making poor decisions by ignoring evidence.

eBay and Amazon Make Bold Move in Dropping Confederate Memorabilia

Ebay

Last week’s horrific shooting in South Carolina sparked a nationwide debate on race relations and the use of the Confederate flag, with South Carolina governor Nikki Haley calling for its removal from the State Capitol. Businesses are now following suit.

Online auctioning giant eBay has banned and shutdown all sales of Confederate-related merchandise, ridding their stock of thousands of items that have made them money over the years. eBay released a company statement disparaging the use or sales of anything that promotes racism and divisiveness:

“eBay is a global marketplace and community and we continually monitor the approximately 800 million items on our site, and evaluate our policies to ensure they are consistent with our core purpose. This decision is consistent with our long-standing policy that prohibits items that promote or glorify hatred, violence and racial intolerance.”

Amazon has also pulled their Confederate merchandise following an enormous spike in sales. According to Business Insider, Amazon’s Confederate flag sales rose by more than 3000 percent in one day, following the announcement that many companies were going to pull the plug on all merchandise. In fact, Amazon’s top five items with the largest increase in sales on Monday were Confederate flags. Amazon’s website states that the sale of products that “promote or glorify hatred, violence, racial, sexual or religious intolerance” is against company views and is prohibited.

eBay and Amazon have joined Walmart, Sears and Etsy in vocally supporting the removal of Confederate flags from government buildings, businesses and store shelves. A spokesperson for Etsy said the company joined the anti-flag movement after careful consideration and weighing of the balance between the rights of its sellers and establishing a “safe and respectable marketplace.” They decided that the latter was more in-tune with their mission.

It’s too early to tell just how many more companies will follow suit.

What Companies are on Microsoft’s Acquisition Wish List?

 

Earlier this month, VentureBeat contributors Michael Cullen and Mo Marshall predicted the companies that Microsoft has its eyes on, explaining that the tech giant and its CEO, Satya Nadella, “are on the acquisition path.” In the last few months, Microsoft has snatched up 6Wunderkinder, Acompli, and Sunrise, acquisitions that Cullen and Marshall believe lend clues in regards to what other kinds of companies Microsoft is looking to invest in.

According to the authors, “Microsoft is acquiring companies that are aligned with its goal of becoming a mobile first, cloud first organization, that help it to enhance its Office productivity and collaboration offering, and that boost its image as a company that prioritizes user experience and design.” With these factors in mind, Cullen and Marshall believe that Microsoft will look to acquire tech companies DocuSign, Dropbox, and Slack.

Why DocuSign?

Headed by CEO Keith Krach, DocuSign has been pioneering (and dominating) the digital transaction management (DTM) industry since it was founded in 20013. This company allows you to securely sign documents digitally, which has impacted real estate, healthcare, tech, and business industries and beyond. According to Cullen and Marshall, Krach recently announced that Microsoft participated in DocuSign’s latest round of fundraising, which resulted in the company doubling its valuation to an impressive $3 billion. “From the point of view of shared objectives,” the authors write, “[DocuSign and Microsoft] couldn’t be more aligned in terms of enabling workforce mobility and productivity from any device.”

Why Dropbox?

Dropbox is a service that allows people to bring their photos, documents, and videos anywhere, as well as share them easily, because any files that get saved to the Dropbox platform will automatically save to all of your devices, as well as the Dropbox website. Currently, the company has more than 300,000,000 users, and people save 1 billion files to Dropbox every 24 hours. According to VentureBeat, “Dropbox, in particular, has gone to great lengths to ensure that its platform integrates seamlessly with Office,” pointing to just one of many reasons the company would be worth investing in for Microsoft.

Why Slack?

According to the authors, “When it comes to messaging and team communications, nothing is hotter in the SaaS space right now than Slack,” of how the new company is quickly developing a massive following. Slack is incredibly user-friendly, and hels facilitate conversations and collaborations in professional settings with ease. As the authors point out, Slack offers a lot of things that Microsoft already does, but “in a much more user-friendly and highly mobile-focused way.” For Cullen and Marshall, Microsoft choosing to invest in Slack just makes sense.

Trans-Forming Foods

Trans Fats

Trans fats, the incredible, edible, flexible, partially hydrogenated jack-of-all-trades in the realm of high-production food stuffs, are on the way out. Following years of condemnation and increasing public awareness of the oil’s detrimental nutritional details, the FDA has finally banned it altogether. In a June 16 release, it began, “Based on a thorough review of the scientific evidence, the U.S. Food and Drug Administration today finalized its determination that partially hydrogenated oils (PHOs), the primary dietary source of artificial trans fat in processed foods, are not ‘generally recognized as safe’ or GRAS for use in human food.” This is something of a culmination, beginning with a 2006 requirement to list trans fats on a product’s Nutritional Facts panel, and continuing with a 2013 preliminary determination about the fat’s safety. Food manufacturers will have three years to phase out the ingredient.

Developed in the 1930s by adding hydrogen to vegetable oils, PHOs enjoyed widespread use for some time due to their combination of sturdy consistency at room temperature and longevity on the shelf. The solid yet creamy texture delivered the iconic center of Oreo cookies, while the nigh-endless shelf life meant “buttered” microwave popcorn that could sit around for ages before being popped. Add the fact that it could be used for frying and that it was a cheap alternative to natural fats, and the result is a product that could do just about anything. Besides contribute to human health, unfortunately. Between raising LDL cholesterol and thereby increasing the risk of coronary heart disease, increasing the risk of insulin resistance and diabetes, and possibly impairing infant growth, the FDA determined that “there is no longer a consensus among qualified scientific experts that PHOs, the primary dietary source of industrially-produced trans fatty acids, are safe under any condition of use in food.”

Lending a Motorized Hand

Robot arm

Robotic exoskeletons occupy a place in the human imagination generally reserved for drama and heroics, with Iron Man’s flashy flying suit of armor being perhaps the most familiar example in modern pop culture. Occasionally something more practical is envisioned, like the rig used in the movie “Aliens” for handling extremely heavy cargo and supplies. While it may be sometime before the former has a chance to enter reality, the researchers at Fraunhofer IAO are hard at working realizing the latter.

The Robo-Mate prototype exoskeleton has been demoed as a manufacturing-minded piece of equipment that would make a worker’s load “up to ten times lighter to lift or carry.” While more and more production tasks are handled by completely automated machinery, there are still many things a bit too complex, nuanced, or unpredictable for a robot to handle. The Robo-Mate assists workers by increasing their capabilities while simultaneously reducing the risk of injury. “Workers engaged in production and disassembly tasks often lift and carry several tonnes of material in a day. Damage to the spine and long-term health problems are an almost inevitable consequence,” the institute observed. “In addition to the worker’s personal suffering, this also creates high costs for the healthcare system.” The system consists of three distinct modules working in concert: arm, trunk, and leg. The arm modules lighten a load by a factor of ten, making a 15 kilogram car seat feel like a mere 1.5. Of course, strong arms are only as good as the back and legs that support them. The trunk module protects the back and spinal column by stabilizing a worker into a proper lifting posture, preventing slipped discs and other potential back-related injuries. The leg modules address the inner thigh, stiffening into something like a seat when the wearer enters a squatting position.

While the prototype is a successful proof-of-concept, the developers at Fraunhofer IAO plan on streamlining the design further before rolling it out. Professor Wernher van der Venn remarked, “The prototype is functional, but its appearance is still off-putting – you can see all the technology and the wires. It’s probably a bit scary for people.” Dr. Leonard O`Sullivan added that whatever they go with, it won’t be terribly flashy: “We’re not looking to make superheroes.”

What do you think of the Robo-Mate prototype exoskeleton?

Sell in May and Go Away

Trading stocks

One thing that stock traders commonly say is “sell in May and go away.” But what exactly does this saying mean, and does this advice have any impact on a stock trader’s performance—for good or for bad? Next, we will explain the meaning of “sell in May and go away” and provide a few examples of when it has and hasn’t worked out.

What does it mean?

“Sell in May and go away” is a well-known adage that warns investors to sell their stock holdings in May to avoid seasonal decline in equity markets. The strategy assumes that an investor who sells their stocks in May and gets back into the equity Market around November would be much better off because they would avoid the volatile May–October season.

Does it work?

If “Sell in May and go away” is such a well-known adage, it would stand to reason that it must work, right?

Whether or not this old adage is good advice or not depends on whom you ask. The adage is built on historical evidence, with many of history’s worst economic crashes occurring in the volatile May—November season. However, there are those who don’t always believe in the wisdom of these words, especially in light of this year’s strong performance in May.

One such critic is Dan Loeb of Third Point. At the end of April, he promised to disregard the market proverb. He stuck to his word, and it really paid off for him. Third Point rose 1.9 percent in May, and is up 5.7 percent in 2015 overall.

Loeb isn’t alone. The S&P 500 closed out May with monthly gains of 1.1%, one of their best results of the year so far. Meanwhile, the Dow Jones Industrial Average went up 1% and the Nasdaq climbed 2.6%. In fact, economists expect that the economy added 210,000 jobs in May.

Of course, neither May’s recent success story nor the historical evidence of a volatile season prove that “sell in May and go away” is sound advice or not. This question is not simple to answer—if it were, we might not need talented business minds and stock traders at all.

What do you think of this popular adage? Do you think it holds up to scrutiny, or not? Let me know in the comments section below!

Learn more about the history and significance of “Sell in May and go away” by visiting Investopedia.

A Rift in Virtual Reality

Virtual reality has long existed as either an object of fantasy or a stylistic flourish. Films and television depict it in vast strokes, such as the grid from Tron, the digital world of The Matrix, and Star Trek’s holodeck. Consumer-grade fare, meanwhile, has done little more than sprinkle some of the aesthetics on standard entertainment: 3D glasses, Nintendo’s failed, headache-inducing Virtual Boy console, and pricy simulators in theme parks (think Disneyland’s Star Tours attraction, or Universal Studio’s similar Back to the Future “ride”). The idea of experiencing something like actual simulated reality remains far, far out of grasp, an idea that will remain in the future indefinitely.

Oculus VR’s “Rift” headset seeks to take a major step in dismantling that pessimistic outlook. Crowdfunded as an independent project on Kickstarter in 2012, purchased by Facebook in 2014 for $400 million and $1.6 billion in stock, and partnered with Microsoft in 2015, the Rift is designed to create an immersive audio-visual experience. Although Facebook CEO Mark Zuckerberg intends to broaden the device’s use into social media, its initial application will be as a medium for video games.

Users enter a digital environment through the headset’s video display goggles and a pair of headphones with an “integrated VR audio system.” The video display projects a slightly different image to each eye in 1080p, replicating depth perception with crisp detail. A cylindrical stand-mounted sensor placed in front of the wearer helps translate head movements into digital motion; turning one’s head to the right means looking in the same direction inside a game. Although consumers will be able to purchase the Rift with one of Microsoft’s XBox One controllers bundled in, Oculus VR is also developing a virtual reality controller: a pair of independent handheld units with motion sensing and haptic feedback, meaning that a gamer can reach out within a game and feel a vibration upon “touching” something.

The Rift is due to release in the first quarter of 2016.

Removing Friction in Potential Nanomachines

Nanomachine

Nanomachines are tiny mechanisms built using components the size of single molecules. They’re still largely theoretical at this point, but a recent study by researchers at MIT may bring us one step closer to realizing such devices.

Part of the problem with nanomachines is friction. Any time two surfaces come into contact, there’s friction. Everyone is used to friction in their day to day lives, it helps us hold on to things, for example, but that force can be extremely strong at the atomic level. So strong in fact that nanomachines would likely experience wear and tear at a much higher rate than normal sized machines performing similar tasks.

However, at the atomic level, friction can also disappear, a state known as superlubricity. In superlubricity, surfaces glide along each other without friction, and that state would be idea for getting as much work out of nanomachines as possible.

Researchers at MIT recently figured out how to simulate friction at the smallest scale and, while doing so, figured out how to create some level of superlubricity within the lab. By working with ion crystals and optical lattices, they were able to create superlubricity at the atomic level.

In the future, if this technology can be applied to such a thing as nanomachines, this research will be a good start on making that technology as efficient as possible. Even before then, learning more about superlubricity tells us more about the universe around us, and deepens our understanding of physics. It might also be helpful in developing new structures or materials that create less friction at a larger scale, though it’s unlikely that frication can be eliminated for any surfaces we can actual see with the naked eye. This research could lead to better artificial joints, or more efficient tires. The possibilities are endless.

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