CIA-II basics - Certified Internal Auditor (CIA) Updated: 2024 | ||||||||
CIA-II CIA-II Dumps and practice tests with Real Question | ||||||||
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Exam Code: CIA-II Certified Internal Auditor (CIA) basics January 2024 by Killexams.com team | ||||||||
CIA-II Certified Internal Auditor (CIA) 2019 CIA exam Syllabus, Part 2 – Practice of Internal Auditing 100 questions l 2.0 Hours (120 minutes) The CIA exam Part 2 includes four domains focused on managing the internal audit activity, planning the engagement, performing the engagement, and communicating engagement results and monitoring progress. Part 2 tests candidates knowledge, skills, and abilities particularly related to Performance Standards (series 2000, 2200, 2300, 2400, 2500, and 2600) and current internal audit practices. Domains Collapse All I. Managing the Internal Audit Activity (20%) Cognitive Level 1. Internal Audit Operations A Describe policies and procedures for the planning, organizing, directing, and monitoring of internal audit operations Basic B Interpret administrative activities (budgeting, resourcing, recruiting, staffing, etc.) of the internal audit activity Basic 2. Establishing a Risk-based Internal Audit Plan A Identify sources of potential engagements (audit universe, audit cycle requirements, management requests, regulatory mandates, relevant market and industry trends, emerging issues, etc.) Basic B Identify a risk management framework to assess risks and prioritize audit engagements based on the results of a risk assessment Basic C Interpret the types of assurance engagements (risk and control assessments, audits of third parties and contract compliance, security and privacy, performance and quality audits, key performance indicators, operational audits, financial and regulatory compliance audits) Proficient D Interpret the types of consulting engagements (training, system design, system development, due diligence, privacy, benchmarking, internal control assessment, process mapping, etc.) designed to provide advice and insight Proficient E Describe coordination of internal audit efforts with the external auditor, regulatory oversight bodies, and other internal assurance functions, and potential reliance on other assurance providers Basic 3. Communicating and Reporting to Senior Management and the Board A Recognize that the chief audit executive communicates the annual audit plan to senior management and the board and seeks the board's approval Basic B Identify significant risk exposures and control and governance issues for the chief audit executive to report to the board Basic C Recognize that the chief audit executive reports on the overall effectiveness of the organization's internal control and risk management processes to senior management and the board Basic D Recognize internal audit key performance indicators that the chief audit executive communicates to senior management and the board periodically Basic II. Planning the Engagement (20%) Cognitive Level 1. Engagement Planning A Determine engagement objectives, evaluation criteria, and the scope of the engagement Proficient B Plan the engagement to assure identification of key risks and controls Proficient C Complete a detailed risk assessment of each audit area, including evaluating and prioritizing risk and control factors Proficient D Determine engagement procedures and prepare the engagement work program Proficient E Determine the level of staff and resources needed for the engagement Proficient III. Performing the Engagement (40%) Cognitive Level 1. Information Gathering A Gather and examine relevant information (review previous audit reports and data, conduct walk-throughs and interviews, perform observations, etc.) as part of a preliminary survey of the engagement area Proficient B Develop checklists and risk-and-control questionnaires as part of a preliminary survey of the engagement area Proficient C Apply appropriate sampling (nonstatistical, judgmental, discovery, etc.) and statistical analysis techniques Proficient 2. Analysis and Evaluation A Use computerized audit tools and techniques (data mining and extraction, continuous monitoring, automated workpapers, embedded audit modules, etc.) Proficient B Evaluate the relevance, sufficiency, and reliability of potential sources of evidence Proficient C Apply appropriate analytical approaches and process mapping techniques (process identification, workflow analysis, process map generation and analysis, spaghetti maps, RACI diagrams, etc.) Proficient D Determine and apply analytical review techniques (ratio estimation, variance analysis, budget vs. actual, trend analysis, other reasonableness tests, benchmarking, etc.) Basic E Prepare workpapers and documentation of relevant information to support conclusions and engagement results Proficient F Summarize and develop engagement conclusions, including assessment of risks and controls Proficient 3. Engagement Supervision A Identify key activities in supervising engagements (coordinate work assignments, review workpapers, evaluate auditors' performance, etc.) Basic IV. Communicating Engagement Results and Monitoring Progress (20%) Cognitive Level 1. Communicating Engagement Results and the Acceptance of Risk A Arrange preliminary communication with engagement clients Proficient B Demonstrate communication quality (accurate, objective, clear, concise, constructive, complete, and timely) and elements (objectives, scope, conclusions, recommendations, and action plan) Proficient C Prepare interim reporting on the engagement progress Proficient D Formulate recommendations to enhance and protect organizational value Proficient E Describe the audit engagement communication and reporting process, including holding the exit conference, developing the audit report (draft, review, approve, and distribute), and obtaining management's response Basic F Describe the chief audit executive's responsibility for assessing residual risk Basic G Describe the process for communicating risk acceptance (when management has accepted a level of risk that may be unacceptable to the organization) Basic 2. Monitoring Progress A Assess engagement outcomes, including the management action plan Proficient B Manage monitoring and follow-up of the disposition of audit engagement results communicated to management and the board Proficient Additional noteworthy elements related to the revised CIA Part Two exam syllabus: The syllabus features greater alignment with The IIAs Performance Standards. The exam covers the chief audit executives responsibility for assessing residual risk and communicating risk acceptance. The largest domain is “Performing the Engagement,” which makes up 40% of the exam. A portion of the exam requires candidates to demonstrate a basic comprehension of concepts; another portion requires candidates to demonstrate proficiency in their knowledge, skills, and abilities. | ||||||||
Certified Internal Auditor (CIA) Financial Certified basics | ||||||||
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Financial CIA-II Certified Internal Auditor (CIA) https://killexams.com/pass4sure/exam-detail/CIA-II Question: 480 Confirmations are a highly regarded form of information. Confirmation is most effective in addressing the existence assertion for the A. Addition of a milling machine to a machine shop. B. Sale of merchandise during regular course of business. C. Inventory held on consignment. D. Granting of a patent for a special process developed by the organization. Answer: C When inventories are held by an outside custodian, such as a consignee, the internal auditor ordinarily obtains direct confirmation in writing from the custodian. Confirmation of consigned goods is most likely to be effective for the existence and rights-and- obligations assertions. Question: 481 Observation is considered a reliable engagement procedure, but one that is limited in usefulness. However, it is used in a number of different engagement situations. Which of the following statements is true regarding observation as an engagement technique? A. It is the most effective engagement methodology to use in filling out internal control questionnaires. B. It is the most persuasive methodology to learn how transactions are really processed during the period under review. C. It is rarely sufficient to satisfy any assertion other than existence. D. It is the most persuasive technique for determining if fraud has occurred. Answer: C Observation is effective for verifying whether particular assets such as inventory or equipment exist at a given date. However, it is of limited use in addressing other assertions. Thus, it provides less persuasive information about the assertions of completeness, rights, valuation, and presentation and disclosure. For example, merely observing inventory does not determine whether the engagement client has rights in it. Question: 482 One engagement procedure for an engagement to evaluate facilities and equipment is to test the accuracy of recorded depreciation. Which of the following is the best source of information that the equipment in question is in service? A. A review of depreciation policies and procedures. B. A comparison of depreciation schedules with a listing of insurance appraisals for the same equipment. C. A comparison of depreciation schedules with the maintenance and repair logs for the same equipment. D. A review of inventory documentation for the equipment. Answer: C The maintenance and repair records provide information that equipment exists and is in use. Equipment in service is more likely to require maintenance than retired equipment. However, the best information is the internal auditor's direct observation. Question: 483 Which of the following documents provides the most persuasive information concerning the existence and valuation of a receivable? A. A credit approval document supported by the customer's audited financial statements. B. A copy of a sales invoice to the customer in the engagement client's records. C. A positive confirmation received directly from the customer. D. A customer's purchase order in the engagement client's records related to the credit sale. Answer: C A positive confirmation by the debtor is the most reliable information other than payment that the receivable is a valid asset and that it is properly valued. This information is especially reliable because the customer has no incentive to confirm a nonexistent obligation and because the documentation has not been under the engagement client's control. Question: 484 A bank internal auditor wanted to verify the accuracy of the general ledger balance of a depository account. One engagement procedure used in this process was to mail positive confirmations to statistically sampled depositors. However, the number of replies received was not adequate to form a valid conclusion about the account's accuracy. What action should the internal auditor take to accomplish this objective? A. Assume that the no replies represent tacit agreements by the depositor, document the results, and perform no further work on this engagement procedure. B. Expand the original confirmation trial to include additional depositors. C. Verify accuracy of the depositors' addresses. Retail confirmation requests a second time with a notation indicating that it is a second request. D. Mail negative confirmation requests to all non-replies and document results of testing. If necessary, telephone depositors to inquire about any disagreement with balances confirmed. Answer: C A positive confirmation asks the debtor for a reply. It may ask the respondent to state whether (s)he agrees with the information given or request that the recipient fill in the account balance or provide other information. The latter type of positive confirmation is called a blank form. The negative confirmation asks for a response only when the debtor disagrees. Positive confirmation is therefore useful when an internal auditor wants to obtain documentary information to verify account balances. If the internal auditor fails to receive positive confirmation, alternative procedures including second and third requests should be employed. Question: 485 Which of the following statements describes an internal control questionnaire? A. It provides detailed information regarding the substance of the control system. B. It takes less of the engagement client's time to complete than other control evaluation devices. C. It requires that the internal auditor be in attendance to properly administer it. D. It provides indirect information that might need corroboration. Answer: D An internal control questionnaire consists of a series of questions about the controls designed to prevent or detect errors or irregularities. Answers to the questions help the internal auditor to identify specific policies and procedures relevant to specific assertions. They also help in the design of tests of controls to evaluate their effectiveness. The questionnaire provides a framework to assure that specific concerns are not overlooked, but it is not a sufficient means of understanding the entire system. Thus, the evidence obtained is indirect and requires corroboration by means of observation, interviews, flowcharting, examination of documents, etc. Question: 486 During interviews with the inventory management personnel, an internal auditor learned that salespersons often order inventory for stock without receiving the approval of the vice president of sales. Also, detail testing showed that there are no written approvals on purchase orders for replacement parts. The results of detail testing are a good example of A. Indirect information. B. Circumstantial information. C. Corroborative information. D. Subjective information. Answer: C Corroborative information is evidence from a different source that supplements and confirms other information. For example, oral testimony that a certain procedure was not performed may be corroborated by the absence of documentation. Question: 487 Which of the following engagement objectives will be accomplished by tracing a sample of accounts receivable debit entries to customer invoices and related shipping documents? A. Sales are properly recorded. B. Sales are billed at the correct prices. C. Accounts receivable represent valid sales. D. Customer credit is approved. Answer: C By vouching sales transactions from the accounts receivable ledger back to the sales invoices, the internal auditor verifies that these accounts receivable are properly supported by sales. These sales should then be vouched back to related customer orders and traced forward to shipping documents. The purpose is to detect fictitious sales and assure that each sale is properly documented and posted to the accounts receivable subsidiary ledger. The latter objective also requires sales invoices to be traced to the accounts receivable subsidiary ledger. Question: 488 Management believes that some specific sales commissions for the year were too large. The accuracy of the recorded commission expense for specific salespersons is best determined by A. Computation of selected sales commissions. B. Calculating commission ratios. C. Use of analytical procedures. D. Tests of overall reasonableness. Answer: A Sales commission is based on the application of a ratio to the amount of the sale. The best information about the accuracy of sales commission expense for specific individuals is to recomputed the amounts derived from a trial of transactions. These tests should be done at the same time as procedures testing accrued liabilities. Question: 489 An internal auditor traces copies of sales invoices to shipping documents to determine that A. Customer shipments were billed. B. Sales that are billed were also shipped. C. Shipments to customers were also recorded as receivables. D. The subsidiary accounts receivable ledger was updated. Answer: B If the invoices in the trial can be correctly matched with shipping documents, some assurance is given that items billed are also shipped. Question: 490 A large manufacturer has a transportation division that supplies gasoline for the organization's vehicles. Gasoline is dispensed by an attendant who records the amount issued on a serially prenumbered gasoline disbursement form, which is then given to the accounting department for proper recording. When the quantity of gasoline falls to a certain level, the service station attendant prepares a purchase requisition and sends it to the purchasing department where a purchase order is prepared and recorded in a gasoline purchases journal. Which of the following engagement procedures best determines whether gasoline disbursements are fully recorded? A. Compare the gasoline purchase requisitions with the gasoline disbursement records. B. Select a number of gasoline purchases from the gasoline purchases journal and compare them with their corresponding purchase orders. Ascertain that the purchases are serially prenumbered, are matched with purchase requisitions, and are authorized by someone independent of employees of the service station. C. Perform analytical procedures comparing this period's gasoline consumption with prior periods. D. Match the quantity of gasoline disbursed according to disbursement forms with an independent practicing of quantity disbursed at the pump. Answer: D Physical information is best obtained through direct observation or inspection by the internal auditor. Because the gasoline disbursement forms are prenumbered, the internal auditor is able to match them with the independent practicing of quantity disbursed at the pump to test the completeness of disbursement records. Question: 491 To control daily operating costs, an organization decreased the number of times a messenger service was used each day. Despite those measures, the monthly bill continued to increase. What procedure should the internal auditor use to detect whether improper services were being billed? A. Reconcile a trial of messenger invoices to pickup receipts. B. Test the mathematical accuracy of a trial of messenger invoices. C. Scan ledger accounts and messenger invoices. D. Observe daily use of the messenger service. Answer: A When the amount charged for a service increases as an entity reduces its use of the service, the possibility exists that the entity is being charged for service not received. The internal auditor should reconcile a trial of messenger invoices to pickup receipts. By multiplying the number of trips authorized by the charge per trip, any discrepancy can be identified. Question: 492 To determine whether credit controls are inconsistently applied, preventing valid sales to creditworthy customers, the internal auditor should A. Confirm current accounts receivable. B. Trace postings on the accounts receivable ledger. C. Analyze collection rates and credit histories. D. Compare credit histories for those receiving credit and for those denied credit. Answer: D Credit policy should maximize profits by balancing bad debt losses and the increase in sales derived from granting credit. One concern in an engagement to review credit management is whether credit policies and procedures are fairly administered. Question: 493 To test whether debits to accounts receivable represent valid transactions, the internal auditor should trace entries from the A. Sales journal to the accounts receivable ledger. B. Accounts receivable ledger to the cash receipts journal. C. Accounts receivable ledger to sales documentation. D. Cash receipts documentation to the accounts receivable ledger. Answer: C By vouching sales transactions from the accounts receivable ledger back to the sales invoices, the internal auditor verifies that these accounts receivable are properly supported by sales. These sales should then be vouched back to related customer orders and traced forward to shipping documents. The purpose is to detect fictitious sales and assure that each sale is properly documented and posted to the accounts receivable subsidiary ledger. The latter objective also requires sales invoices to be traced to the accounts receivable subsidiary ledger. Question: 494 Cash receipts should be deposited on the day of receipt or the following business day. Select the most appropriate engagement procedure to determine that cash is promptly deposited. A. Review cash register tapes prepared for each sale. B. Review the functions of cash handling and maintaining accounting records for proper separation of duties. C. Compare the daily cash receipts totals with the bank deposits. D. Review the functions of cash receiving and disbursing for proper separation of duties. Answer: C A standard control over the cash receipts function is to require that daily cash receipts be deposited promptly and intact. Hence, the total of cash receipts for a day should equal the bank deposit because no cash disbursements are made from the daily receipts. To determine whether cash receipts are promptly deposited, the internal auditor should compare the daily cash receipts totals with bank deposits. Question: 495 Which of the following engagement procedures will provide the least relevant information for determining that payroll payments were made to bona fide employees? A. Reconcile time cards in use to employees on the job. B. Examine canceled checks for proper endorsement and compare to personal records. C. Test for segregation of the authorization for payment from the hire/fire authorization. D. Test the payroll account bank reconciliation by tracing outstanding checks to the payroll register. Answer: D A payroll account proof tests the completeness assertion. However, it has no bearing on the validity of the transactions. Question: 496 Which of the tests provides the least significant information when testing for suspected fraudulent sales? A. Tracing a trial of inventory removal slips from inventory through billing to the sales journal. B. Performing analytical tests of sales by comparing sales and gross margins overtime. C. Performing analysis of write-offs and sales returns, and comparing the amounts over the past several years. D. Confirming sales transactions with customers and investigating nonresponses. Answer: A Tracing a trial of inventory removal slips is least likely to provide evidence of fraudulent sales because it applies to transactions that have apparently been properly authorized and documented. Question: 497 The most reliable information an internal auditor can assess when determining an organization's legal title to inventories is A. Monthly gross profit and inventory levels. B. Purchase orders. C. Paid vendor invoices. D. Records of inventories stored at off-site locations. Answer: C Mere possession of inventory does not signify that another party does not have a claim to it. For example, the inventory may be held on consignment. Payment of vendor invoices is the culmination of the purchases-payables cycle. The paid invoice evidences the purchaser's ownership of the inventory. Question: 498 An internal auditor has set an engagement objective of ascertaining the reasonableness of the increases in rental revenue resulting from operating costs passed on to the lessee by the landlord. The internal auditor has already inspected the lease contract to determine that such costs are allowed. Which of the following engagement procedures will best meet this objective? A. Inspection of documents. B. Observation. C. Inquiry. D. Analytical review. Answer: D Computation of the rates of increase in operating costs passed through to the lessee from period to period in relation to inflation rates provides an initial view of the reasonableness of the increases. Question: 499 An internal auditor has set an engagement objective of determining whether the planned rate of return on investment in international operations has been achieved. Which of the following engagement procedures will best meet this objective? A. Inspection of documents. B. Observation. C. Inquiry. D. Analytical review. Answer: D By comparing the rate of return achieved with the budget for international operations for the last several time periods, the internal auditor can determine the variances from budget and determine the adequacy of the return on the investment. Question: 500 Which of the following is the most appropriate engagement procedure to test the processing of interbank transfers? A. Analyze a trial of interbank transfers throughout the period including period-end reconciliations. B. Obtain cutoff bank statements for each bank account and reconcile them to accounting records. C. Send bank confirmation requests to each bank in which accounts are maintained and reconcile the completed forms to accounting records. D. Trace all bank deposits recorded in accounting records near the end of the fiscal period to supporting documentation and to bank statements. Answer: A If the engagement objective is to test compliance with processing procedures, the appropriate procedure is to examine a trial of transfers and trace them to the accounting records, including the period-end bank reconciliation for each account. For More exams visit https://killexams.com/vendors-exam-list Kill your exam at First Attempt....Guaranteed! | ||||||||
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff. A certified check is often used for a large financial transaction and is considered a more secure form of payment compared with a personal check. Whether you’re buying a car or closing on a house, understanding the ins and outs of a certified check can help you make informed decisions when it comes to your finances. Here’s a breakdown of the basics of a certified check, including what it is, its uses and its potential risks. Key takeaways
What is a certified check?A certified check is a personal check that an account holder’s bank has confirmed is backed by sufficient funds and bears a legitimate signature. The amount of money on a certified check is earmarked solely for the payment of that check. The bank stamps the check or adds some other marking to indicate that it is certified. That’s why a certified check is considered an “official check.” When to use a certified checkCertified checks are typically used in large-dollar transactions, such as a down payment on a car. They are also used in transactions when the buyer and seller don’t know each other. If you’re buying an expensive item from an online marketplace, a certified check guarantees a seller that you have adequate funds for the purchase. A standard check doesn’t offer that assurance. How much does a certified check cost?A certified check will cost more than some other payment options. While personal checks typically cost a few cents each, you can expect to pay $15 to $20 for a certified check. Not only are certified checks more expensive, but it is also difficult to find a bank that offers them. Many banks sell cashier’s checks and money orders, but not certified checks. Even big, traditional banks tend not to offer them. “They’re a feature that banks offer to their customers, but they’re not as readily used, historically, as cashier’s checks (or) money orders,” says Ben Craigie, a vice president of the Massachusetts Bankers Association. “There’s just some banks that don’t have that service.” If you need an official check, inquire at your bank about the payment options it offers. Certified check vs. cashier’s check: What’s the difference?The terms “certified check” and “cashier’s check” are often used interchangeably, but they are not the same thing. A certified check is drawn against the bank customer’s account; a cashier’s check is drawn against the bank’s funds. “Certified [checks] kind of fall into that same umbrella as cashier’s checks in the sense that they’re both considered official check instruments,” says Craigie. A certified check is a personal check from an account that has been certified by a bank. The bank certifies that the account holder’s signature is authentic and that the amount of money needed to make the transaction is in the account and has been set aside for the payment of the check. A signature, stamp or some kind of marking shows that the check is certified. With a cashier’s check, the bank withdraws the money from your account and issues you an official bank check made payable to the person or business you are transacting with. The money is guaranteed by the bank, using its funds. Usually, the bank prints the name of the payee on the cashier’s check before it’s issued. How to protect yourself from fraudA legitimate certified check is as good as cash because the bank has Verified the signatory’s account and signature and set aside the funds to pay it. Even though a certified check is a more secure payment instrument than a standard personal check, counterfeits are possible. When it comes to official checks, which covers certified checks and cashier’s checks, trust but verify, Craigie advises. To protect yourself against fraud, ask the bank that certified the check to confirm that it’s authentic. “You can always call the bank that the check is drawn on and verify the legitimacy of the item in your possession,” Craigie says. Don’t call a phone number that’s on the check, Craigie says. Instead, verify the bank’s phone number on your own. Go to the bank website, visit a branch office or use some other official method. Bottom lineA certified check is a reliable form of payment for large transactions as well as when dealing with unfamiliar parties. While it may be more expensive and not widely offered by banks, it guarantees that the funds are available and the signature is authentic. However, it’s important to remain cautious of potential fraud and verify the legitimacy of the check with the issuing bank. — Bankrate’s René Bennett contributed to an update of this story. You may have to book more sessions after your initial visit, or one might suffice to help you get organized. Heath says, it’s ultimately up to you to determine if you need an ongoing relationship that’s valuable to you and justifies the ongoing fee. “Some clients like the peace of mind and discipline,” he says. “Many couples appreciate having an impartial third party to mediate their financial decisions. Plenty of singles benefit from having someone to talk to candidly about finances in lieu of a partner.” The best way to prep for a financial planning session is to ask the planner what they require from you, and then have your documents ready to meet with them, Heath says. That way you can get the most out of your time together, and come out with a solid plan. 7. Invest in GICs or other investmentsArguably, the best financial gift you can deliver your future self is investments. Depending on where you put your money, you could grow it with compounded interest. GICs, for example, are low-risk investments that are great for saving towards life goals like tuition or a wedding. Putting your money in a GIC is like making a loan to a financial institution. You deposit your money for a set amount of time like 30 days up to 10 years, depending on the term, and the institution gives you back your money plus the interest earned on your deposit at the end of the period. If you think there’s a chance you’ll need the money sooner, consider a cashable or redeemable GIC. The interest rate will be lower than with non-redeemable GICs, but you can cash out anytime. One thing to note is the risk/return tradeoff with investments. Riskier investments like stocks can come with higher potential returns. Many young investors start out with exchange-traded funds (ETFs), which are a basket of assets like stocks. ETFs have built-in diversification, which helps reduce your portfolio risk. If you’ve never invested before and you’re not sure how to begin, consider speaking with a financial advisor and signing up for the MoneySense Invest newsletter. And keep reading. Find out if investing is right for you and how to get started: 8. Make a will and powers of attorneyAn Angus Reid survey found that 80% of Canadians under 35 don’t have a will. If you’re just starting out in your career and haven’t accumulated many assets, you might wonder why you’d need a will. If you were to pass away without a legal will, the government would divide up your estate—your bank accounts, possessions, investments and other assets—between your parents or next of kin. It might not be split up in the way you wish it to be, and if you have a common-law spouse, they would likely be left out. This could cause a lot of worry and distress for your loved ones in an already difficult time. If you want to write a will and you don’t have a complicated tax situation, an online will platform like Willful or Canadian Legal Wills could work. However, if your situation is a bit more complicated, you may wish to speak with a financial advisor or lawyer who works with estate plans. As the New Year approaches, many people are addressing financial resolutions. But a significant number of Americans feel like they’re behind on achieving their money goals. About 80 percent of Americans didn’t increase their emergency savings this year, according to a recent Bankrate survey. Nearly one-third of households (32 percent) have less emergency savings now than at the start of 2023. Generative AI has emerged as a useful tool for financial advice, offering consumers a free way to receive customized guidance on everything from creating a budget to managing an investment portfolio. Key takeaways
AI financial advice data and statisticsDespite a strong economy, many Americans are struggling to achieve their financial goals as 2023 comes to a close. Nearly half of Americans are struggling to be financially secure, according to a Bankrate survey. Still, many of the Americans surveyed are optimistic about their financial future — 46 percent of Americans who don’t feel financially secure believe that they will someday. About 2 in 5 Americans (41 percent) surveyed blamed insufficient retirement funds as the primary factor fueling their feelings of financial insecurity. Building an emergency savings fund is another common aspiration, yet 60 percent of Americans feel they’re behind on meeting this goal, too. More people are now turning to AI platforms, like ChatGPT, as a cost-effective way to manage their finances. The public debut of ChatGPT in November 2022 has boosted consumer awareness of AI’s potential: The chatbot currently has over 100 million users and the website generated 1.6 billion visits since June 2023. Americans and their financial goalsFor many Americans, their financial landscape feels like a battlefield — an on-going struggle to save for major life events while combating rising prices. While inflation is down significantly from the summer of 2021, interest rates remain at their highest level in more than 15 years. From buying a car to purchasing a home to paying down credit card debt, consumers are feeling the impact of broader economic factors on their bottom line. Americans feel behind in achieving their financial goals due to a variety of factors:
For Americans struggling to get ahead, AI offers a way to obtain personalized advice and financial information at home for free. “AI can be a useful tool to understand how to organize basic finances like budgeting, saving, and paying down debt,” says Stephanie Genkin, a certified financial planner and founder of My Financial Planner, LLC in Brooklyn, New York. “While not always 100 percent reliable, it’s a great place to start to gain financial literacy.” AI financial toolsIn the not-so-distant past, managing money often meant sitting down with a financial advisor or conducting your own in-depth research. Information wasn’t always readily available — or free. Flash forward to today, when the financial industry is experiencing a digital revolution. Consumers now have access to easy online banking, handy budgeting apps and even robo-advisors that use complex algorithms to help with investing. While these advancements make money management more convenient and accessible, the advice they offer — if any — is often generic. That lack of personalized guidance is changing with artificial intelligence, specifically AI chatbots. These digital assistants offer the potential to fill the gap between individuals struggling with financial goals and the guidance they need to achieve those goals. Platforms like ChatGPT offer more than just casual conversations with a robot. They provide access to financial planning information and insights once only available for a fee from an advisor. One big advantage of AI is its ability to analyze vast data sets quickly. AI can review your income, expenses, savings, investments and financial goals, offering advice tailored to your unique situation. Users can also get guidance on creating a budget or understanding insurance products. Other AI-driven financial tools include:
Consumers are also getting more comfortable with the idea of AI-integration in financial planning. In fact, nearly 1 and 3 investors would be comfortable using generative artificial intelligence to receive financial advice, according to a report by CNBC. However, it’s crucial to note that while generative AI can be a valuable tool, it can’t replace human judgement. Sure, AI can analyze large amounts of data, but it’s not going to provide you with specific investment recommendations. Certain aspects of your financial life still require a more nuanced approach. Also, OpenAI, the company that developed ChatGPT, warns that the chatbot “sometimes writes plausible-sounding but incorrect or nonsensical answers.” For consumers, AI can enhance financial decision-making but it can’t replace it. Experts recommend finding a reliable source to vet information provided by a chatbot. “I wouldn’t make any big financial decisions without also speaking to a fiduciary,” says Genkin. Keep in mind:While AI chatbots are efficient tools for time-saving activities, some of the content generated can be unreliable or outdated. How AI can be used in financial advisingConsumers aren’t the only ones using AI to manage money. For years, financial firms have utilized the technology for everything from fraud detection to credit scoring. As generative AI evolves, more financial advisors are finding new ways to incorporate the technology into their workflows to streamline everyday tasks such as research, stock market analysis and report generation. Jeremey Finger, a certified financial planner and founder of Riverbend Wealth Management in Myrtle Beach, South Carolina, says he thinks chatbots can be an efficient tool for advisors by helping them simplify tasks like drafting emails to clients. “I think the danger, especially for clients, lies in assuming the information it provides is true,” says Finger. “It also can’t ask a client thoughtful follow-up questions. It only works off the information you put in.” For example, if someone with a disability or terminal illness fails to input those details into a chatbot, the advice they receive won’t be tailored to their needs. “To assume AI is taking those things into consideration is poor judgement,” says Finger. How to choose the right financial advisorRobo-advisor: A type of automated financial advisor that provides algorithm-driven portfolio management and investing services with little to no human intervention. Financial advisor: A professional who is paid to offer financial advice to clients. They typically offer guidance on retirement, personal finances and investments. Rather than turning to AI chatbots, there are other options available if you need personalized financial guidance, including traditional advisors and robo-advisors. The rise of AI has seen a parallel surge in the popularity of robo-advisors. While not a new concept, robo-advisors have become more sophisticated with the integration of AI, offering users a cheaper and more convenient way to invest. But creating a comprehensive financial plan involves more than a data-driven investment strategy. Selecting the right financial advisor, whether human or AI-driven, is an important step in achieving financial goals. Not everyone needs to work with a human advisor, but doing so provides valuable insight and context you might not get with generative AI or even a robo-advisor. Estate planning, which involves drafting legally-binding documents to pass along your assets after you die, is one example of a complex situation that warrants speaking to a human advisor. But how do you select the right financial advisor? Here are a few tips:
If you need expert guidance when it comes to managing your money or planning for retirement, Bankrate can help you get matched with a financial advisor in minutes. Frequently Asked Questions
Both accounting and bookkeeping play an important financial role in business, there is a difference between the two. Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business and cash flow strategies. An accountant can be considered a bookkeeper, but a bookkeeper can’t be an accountant without proper certification. Learn more about the differences between accounting and bookkeeping below. Bookkeeping vs. accountingBookkeeping is a transactional and administrative role that handles the day-to-day tasks of recording financial transactions, including purchases, receipts, sales and payments. Accounting is more subjective, providing business owners with financial insights based on information gleaned from their bookkeeping data. “Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor in the University of Wisconsin-Whitewater Department of Accounting. “Accounting is designed to turn data into information.” Bookkeepers handle the day-to-day tasks of recording financial transactions while accountants provide insight and analysis of that data and generate accounting reports. What does a bookkeeper do?Bookkeeping, in the traditional sense, has been around as long as there has been commerce ― since around 2600 B.C. A bookkeeper’s job is to maintain complete records of all money that has come into and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way. Their records enable accountants to do their jobs. Editor’s note: Looking for the right accounting software for your business? Fill out the below questionnaire to have their vendor partners contact you about your needs. These are some typical bookkeeping tasks:
One of a bookkeeper’s primary duties is maintaining a general ledger, which is a document that records the amounts from sales and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits and credits. [Read our review of QuickBooks and our Xero review to learn more about these tools.] Each sale and purchase your business conducts must be recorded in the ledger and some items will need documentation. You can find more information on which transactions require supporting documents on the IRS website. There are no formal educational requirements to become a bookkeeper, but they must be knowledgeable about financial syllabus and accounting terms and strive for accuracy. Generally, an accountant or owner oversees a bookkeeper’s work. A bookkeeper is not an accountant, nor should they be considered an accountant. Bookkeepers record financial transactions, post debits and credits, create invoices, manage payroll and maintain and balance the books. What credentials does a bookkeeper need?Bookkeepers aren’t required to be certified to handle the books for their customers or employer but licensing is available. Both the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) offer accreditation and licensing to bookkeepers. AIPB certification requires bookkeepers to have at least two years of full-time work experience and pass a national exam. To maintain the credential, bookkeepers are required to engage in continuing education. The NACPB offers credentials to bookkeepers who pass tests for small business accounting, small business financial management, bookkeeping and payroll. It also offers a payroll certification, which requires additional education. To earn the certified public bookkeeper license, bookkeepers must have 2,000 hours of work experience, pass an exam and sign a code of conduct. They must take 24 hours of continuing education each year to maintain their license. A bookkeeper with professional certification shows they are committed to the trade, possess the skills and expertise required and are willing to continue learning new methods and techniques. What does a bookkeeper charge?The salary or rates you’ll pay a bookkeeper depend on your business and its bookkeeping needs. Three main factors affect your costs: the services you want, the expertise you need and your local market.
Advantages of a bookkeeperThere are several advantages to hiring a bookkeeper to file and document your business’s financial records. Here are a few to consider:
What does an accountant do?An accountant analyzes the financial data a bookkeeper records and provides business owners with important business insights and financial advice based on that information. These are some typical accountancy tasks:
“Accountants look at the big picture,” explains John A. Tracy in his book Accounting for Dummies. “[They] step back and say, ‘We handle a lot of rebates, they handle a lot of coupons. How should they record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount, too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.” The accounting process produces reports that bring key aspects of your business’s finances together to deliver you a complete picture of where your finances stand, what they mean, what you can and should do about them, and where you can expect to take your business in the near future. There is a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you if you get audited by the IRS. CPAs have passed the Uniform CPA exam ― a challenging exam that tests knowledge of tax laws and standard accounting practices. Are bookkeepers accountants?Generally, accountants must have a degree in accounting or finance to earn the title. Then, they may pursue additional certifications, such as the CPA. Accountants may also hold the position of bookkeeper. However, if your accountant does your bookkeeping, you may be paying more than you should for this service as you would generally pay more per hour for an accountant than a bookkeeper. What credentials does an accountant need?Accountants’ qualifications depend on their experience, licenses and certifications. To become an accountant, they must earn a bachelor’s degree from an accredited college or university. There are several types of accounting certifications that accountants obtain to expand their skill sets and gain positions within larger organizations. In addition to CPA credentials, other common accounting designations are chartered financial analyst (CFA) and certified internal auditor (CIA). CPA credentials A CPA is an accountant who has met their state’s requirements and passed the Uniform CPA Exam. They must also meet ongoing education requirements to maintain their accreditation. When interviewing for a CPA, look for an accountant who understands tax law and accounting software and has good communication skills. They should understand your industry and the unique needs and requirements of small businesses. CFA credentials Awarded by the CFA Institute, the CFA certification is one of the most respected designations in accounting. In this program, accountants learn about portfolio management, ethical financial practices, investment analysis and global markets. To complete the program, accountants must have four years of relevant work experience. CFAs must also pass a challenging three-part exam that had a pass rate of only 39 percent in September 2021. The point here is that hiring a CFA means bringing highly advanced accounting knowledge to your business. CIA credentials A CIA is an accountant who has been certified in conducting internal audits. To receive this certification, an accountant must pass the required exams and have two years of professional experience. CPAs can perform some of the same services as CIAs. However, you might hire a CIA if you want a more specialized focus on financial risk assessment and security monitoring processes. What does an accountant charge?According to the BLS, the median salary for an accountant in 2021 was $77,250 per year or $37.14 per hour. However, their years of experience, your state and the complexity of your accounting needs affect the price. Accountants will either quote a client a fixed price for a specific service or charge a general hourly rate. Basic services could cost as little as $20 an hour while advanced services could be $100 or more an hour. Advantages of an accountantHiring a small business accountant yields significant benefits. Here are some advantages to hiring an accountant over a bookkeeper:
Accounting software: An alternative to hiring an accountant or bookkeeperYour business’s accounting needs might not require the in-depth expertise of a hired professional. You might also be watching your company’s list of expenses and wondering where to reduce spending. In either case, consider handling the accounting yourself or delegating this responsibility to one or a few of your current employees. Accounting software allows you and your team to track and manage your business’s expense reports, invoices, inventory and payroll accurately and efficiently. To choose accounting software, start by considering your budget and the extent of your business’s accounting needs. Many accounting programs have free versions that cover basics such as tracking income or generating financial reports. Wave Financial, for example, offers most of its services for free and allows an unlimited number of users to collaborate on financial projects. [Read our Wave Financial review for more information.] Other programs charge annual or monthly fees and offer advanced features such as recurring invoices or purchase orders. While these services come at a cost, they can maximize the accuracy and efficiency of vital financial management processes. Check out their reviews of the best accounting software for small businesses so you can create invoices, record payments, collect receivables and run reports that help you manage your financial health. When to hire a financial professionalIt can be difficult to gauge the appropriate time to hire an accounting professional or bookkeeper ― or to determine if you need one at all. While many small businesses hire an accountant as a consultant, you have several options for handling financial tasks. For example, some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to the accountant on a weekly, monthly or quarterly basis for action. Other small businesses hire a bookkeeper or employ a small accounting department with data entry clerks reporting to the bookkeeper. When looking for a certified bookkeeper, first decide if you want to hire an independent consultant, a firm or a full-time employee if your business is large enough. Ask for referrals from friends, colleagues or your local chamber of commerce or search online social networks like LinkedIn for bookkeepers. You can also look at the American Institute of Certified Public Accountants to find CPAs with skills in certain areas, such as employee benefits or personal finance. It may take some background research to find a suitable bookkeeper because, unlike accountants, they are not required to hold a professional certification. A strong endorsement from a trusted colleague or years of experience are important factors when hiring a bookkeeper. 3 signs you need a bookkeeper or accountantAre you still not sure if you need to hire someone to help with your books? Here are three instances that indicate it’s time to hire a financial professional:
Whether you hire an accountant, a bookkeeper or both, ensure they’re qualified by asking for client references, checking for certifications or performing screening tests. Don’t leave your books untendedAccountants and bookkeepers both can offer valuable insight into your business’s financial situation, helping you make better decisions around cash flow and stay prepared when it comes to tax liabilities. For small businesses, adept cash management is a critical aspect of survival and growth, so it’s wise to work with a financial professional from the start. If you prefer to go it alone, consider starting out with accounting software and keeping your books meticulously up to date. That way, should you need to hire a professional down the line, they will have visibility into the complete financial history of your business. Tejas Vemparala and Shayna Waltower also contributed to this article. Some source interviews were conducted for a previous version of this article. Balancing a checkbook. The basics of taking out a business loan. The impact of a home mortgage. For the average high school student, these don’t sound like exciting concepts. And in adulthood, they don’t get much more exciting. But they are essential. And state legislators want all high school students to be able to take a class that will help them understand the basics of finances. Part of Senate Bill 843, the omnibus education bill approved last week in Pennsylvania, includes a provision that high schools offer a stand-alone personal finance course. “I think it’s a fantastic idea,” said Gennaro Piraino, superintendent in the Franklin Regional School District. “We offer a personal finance course, and we’re now looking at different places where they can put it into their curriculum. They have some business courses and we’re looking at offering components of this in their family and consumer science courses at the high school.” Pennsylvania becomes the 25th state to certain access to basic financial education literacy, according to nonprofit Next Gen Personal Finance. State Sen. Chris Gebhard, R-Lebanon County, sponsored the original bill. “An alarming number of their high school students are currently entering adulthood and the workforce without an appropriate knowledge of basic financial concepts,” Gebhard said. “I want them to have the best foundation possible as they start their own lives — far too often, the financial decisions their younger generations are making have led to unintended consequences that have put them at an economic disadvantage later in life.” Colten Oakes of Murrysville graduated from Franklin Regional in 2019. He did not take the personal finance class and said most of his guidance about managing money initially came from his parents. “I did take some classes like that during my time at Point Park University,” he said. “It did feel very beneficial and I did come out with a better understanding of debt and how to tackle it.” Pennsylvania school districts will be provided with resources and training to effectively implement the course, including from the Department of Education, who will collaborate with experts and educators to share high- quality course materials and model curriculum. The course requirement will go into effect with the 2026-27 school year. It would include syllabus such as budgeting, saving, credit management, investing, loans, interest rates and other entry-level financial concepts. Monessen High School teacher Joanne McClellan is busy familiarizing her first class of juniors with those concepts. The district added a mandatory financial literacy course to its 11th grade curriculum this year. “Every school should offer it,” McClellan said. “When I left high school, I had no idea what I was getting myself into.” She said conversations with students have generated a lot of questions and interest, “even with students who wouldn’t normally engage otherwise.” “A lot of kids didn’t realize that, if you’re getting paid $15 an hour, you’re not really getting that much after the deductions,” she said. “We talked about labor laws. Some of my students found out they’d been asked to work at times when they shouldn’t have been.” After the holiday break, McClellan’s class will discuss income taxes and the impact of large purchases, such as cars and homes, to round out the semester-long course, before a fresh group of students takes their seats. “I really think it’s a good thing,” Piraino said. “It won’t solve all the financial literacy problems they have, but at least students will have a basic understanding of things like filling out a check, what something like a car really costs, or if I get a 30-year mortgage, what is the real long-term impact of that?” Patrick Varine is a Tribune-Review staff writer. You can contact Patrick by email at pvarine@triblive.com or via Twitter . Dec. 27—Financial Advisor Jaclyn Wangen of the financial services firm Edward Jones in Austin, has received the Certified Financial Planner or CFP, certification, granted by the Certified Financial Planner Board of Standards (CFP Board). Becoming a CFP professional expands a financial advisor's knowledge base in the following areas: * Financial management * Tax-sensitive investment strategies * Retirement savings * Insurance planning * Education planning * Estate Considerations In addition to the education and examination components of certification, Wangen also has committed to abiding by the CFP Board's Code of Ethics and Standards of Conduct. Wangen's office is located at 1405 15th Ave NW in Austin. She and branch office administrators Mary Flaherty and Shelby Hullopeter can be reached at 507-437-7601. You can also visit her website at www.edwardjones.com/jaclyn-wangen. New certification underscores Regent Education's commitment to helping customers comply with a wide range of security certification and policies FREDERICK, Md., Dec. 19, 2023 /PRNewswire/ -- Regent Education, a leader in SaaS-based financial aid and scholarship management solutions, announced today that the Regent Education product suite received TX-RAMP Level 2 Certification. This certification, applicable to institutions within the state of Texas, demonstrates Regent Education's ability to help customers manage security and risk and comply with policies beyond the basics that many solutions meet. Adhering to security certifications and mitigating risk continues to be top-of-mind for colleges and universities nationwide. Regent Education's TX-RAMP Level 2 Certification reinforces its commitment to delivering solutions that provide institutions with peace of mind, taking into account the confidentiality and integrity of the data, the availability of its solutions, and the specific privacy policies and compliance requirements issued by state and national governing bodies. "Regent Education takes its role in mitigating cybersecurity risks and protecting customers' systems and data very seriously," said Ron Dinwiddie, Chief Product Officer at Regent Education. "We are excited to demonstrate this commitment through their TX-RAMP Level 2 Certification, and look forward to working with institutions in the state of Texas as they implement their suite of financial aid and scholarship management solutions." Regent Education automates the financial aid and scholarship management lifecycle across all enrollment and educational models. Designed by financial aid experts, Regent's holistic, cloud-based, SIS-agnostic platform integrates with key campus systems, enabling institutions to increase efficiency, deliver students greater transparency into borrowing options, and make every institutional scholarship dollar count. As a result, institutions can better meet - or exceed - their enrollment goals. While TX-RAMP Certification is specific to institutions in Texas, Regent Education is committed to helping institutions manage security and risk and to comply with a wide range of certifications and policies, including SOC I and SOC II compliance. If you have questions about certifications or policies specific to your state or institution, please reach out. We're happy to explore how they can help. About Regent Education Media Contact: View original content to get multimedia:https://www.prnewswire.com/news-releases/regent-educations-financial-aid-and-scholarship-management-product-suite-receives-tx-ramp-level-2-certification-302018937.html SOURCE Regent Education Stock & Industry SnapshotLet's kick off 2024 with my first research note, returning back to the financials sector again and a relatively under-covered insurance company out of Canada. Some quick facts about Manulife Financial (NYSE:MFC) are that it has been around for +130 years, provides solutions in the realm of insurance and investments, and in 2018 it became the first Canadian life insurer to underwrite using artificial intelligence. My prior rating in mid-July called for a strong buy, and since my bullish call the share price has risen +14%. Also worth mentioning is that the financials sector has also shown a near 6% improvement in the last month, and nearly 30% from 3 years ago, according to key market data. This sector bullishness may be a contributing factor to individual stocks' rise but not always, although something to think about. Scoring MatrixWe use a 9-point scoring method that looks at this stock holistically and assigns a total rating score, using a score matrix. Today's RatingBased on the score total in the score matrix, this stock is getting a rating of hold. Compared to my prior rating, this is a slight downgrade. Compared to the consensus rating on Seeking Alpha, my rating is somewhat more cautious than the consensus which looks very bullish on this stock now. Dividend Income GrowthThis chart shows the 10-year dividend growth : To keep this discussion simple, what they can learn from this data is a proven and steady dividend growth that went from $0.52/share annually in 2014 to $1.08/share /yr in 2023. That is a nice 107% growth in 10 years. My outlook for dividend growth going forward is a positive one, on the basis that the income statement shows not only continued profitability each quarter but also YoY earnings growth, and the cash flow statement has shown positive cash flow (both levered and unlevered) in the last two quarters, which does not certain a dividend increase in 2024 but shows strong ability to do so. A strong buy in this category. Dividend Yield vs PeersThe following chart shows the dividend yield of Manulife vs three peers that are big in the life insurance space: What it can tell is that Manulife leads the pack with a trailing dividend yield of 4.87%, while peer Prudential Financial (PRU) is close behind at 4.82%. Even life insurance giant MetLife (MET) can boast a +3% yield. The chart trend also shows that Manulife's yield has come down since this summer when it was breaking the 6% mark. Could it be correlated to the share price going up? They will discuss the share price chart in a bit so stay tuned. I am calling this a strong buy to take advantage of this nearly 5% yield before it comes down further which I expect it to, as this company's strong revenue and earnings growth record could continue to provide tailwind for the share price to go up further if that trend continues, along with continued bullishness in the financials sector. Revenue GrowthLooking at the income statement, they can see some solid numbers from this firm. For instance, total revenue in the last reported quarter ending September was $6.16B, vs $5.17B in Sept 2022, a 19% YoY growth. It's a pretty straightforward business model to explain in a few words. They collect lots of cash from policy premiums each year, try to manage risk effectively so there is much more left over than they need to pay out in claims, and after expenses most of the extra cash left over is invested in things like interest-earning assets to make even more money. This is why well-established insurance companies like this are cash-generating machines and why I cover them often. They are not the "hip" Silicon Valley wonderchild, but they do have strong business fundamentals. For instance, in the September quarter their revenue from premiums went up to $4.7B, vs $4.02B in Sept 2022. At the same time, interest/dividend income on assets went up to $2.16B vs 900MM in Sept 2022, a 140% YoY growth. My future outlook is generally positive since I think insurance policies tend to be "sticky" especially life insurance. Due to the double-digit revenue growth, I will call this a strong buy. Earnings GrowthUsing data from the November 8th earnings results (Q3) they can paint a picture looking forward to 2024. So far, from the income statement they know that earnings grew to $883MM in Q3, vs $282MM in Sept 2022, a 213% YoY growth. In the Q3 earnings release, the firm's CFO Colin Simpson pointed to higher interest rates as a key driver of their performance:
When you think about it, unlike a bank who usually has to pay higher rates on customer deposits to stay competitive, an insurance company like this does not hold customer deposits. However, keep in mind that it may see higher interest expense on its corporate borrowings. In fact, that is just what happened, as interest expense went up to $306MM vs $223MM in Sept 2022, a 37% YoY increase. Some relief may be in store later in 2024 as CME Fedwatch predicts a 73% probability the Fed's policy rates will start coming down after the March meeting, which I think could spill over into other interest rates, making borrowing cheaper by the end of 2024. So, it could pose a double-edged sword as borrowing becomes cheaper for this firm but potentially lower interest-income as well. That is just the nature of interest rate risk, a double-edged sword. More importantly is that it can continue to grow new policy premiums since that is its bread-and-butter. Being globally diversified, I think it will continue to see growth beyond its home market. The firm in its Q3 results spoke of decent growth figures from the Asian market, with "APE sales increased 20% compared with 3Q22 as a result of growth in Hong Kong and Asia Other." Here is what the Asia market looks like for this firm in the following graphic showing core earnings growth: I will call it a buy rather than a strong buy in this category, because on the one hand the firm has shown triple-digit YoY earnings growth and strong premiums growth but it is also exposed to interest-rate risk since it holds so many interest-earning assets as well as having to borrow in a high rate environment which is not expected to cool off before spring at least it seems. Equity Positive GrowthWhen it comes to the balance sheet, it tells us a story of the equity situation at this firm, and I use this because I believe having positive equity is a basic business fundamental. In Q3, total equity declined to $36.1B, vs $40.7B in Sept 2022, an 11.3% YoY decline. We can also see a declining trend in equity since Sept 2022. At the same time, they can see a rising trend in long-term debt going up to $20.02B in Q3 vs $18.22B in Sept 2022, a 9.8% YoY debt increase. Looking beyond equity decline, I see other more positive capital metrics to mention. In Canada, regulatory authorities have established the LICAT ratio to assess if a life insurer has adequate capital, with a minimum total ratio of 90%. Manulife goes well beyond that, according to its Q3 slides, with "strong capital position with 137% LICAT ratio." In this category, I would rate it a hold, for the fact that equity has declined by double digits and debt has increased, while at the same time the firm is maintaining really strong capital ratios that are well above regulatory minimums. Share Price vs Moving AverageUsing the yChart, I want to see if the current share price is a buy, sell, or hold opportunity right now. What the chart shows us is the price as of Friday's close was $22.10, a jump of +16.3% above the 200-day SMA/simple moving average (orange trend line). This spike seems to have come off its autumn lows and also correlates with the decline in dividend yield and the bullishness in the financials sector. My portfolio strategy usually looks for dips below that long-term moving average, as long as there is also growth in revenue, earnings, and equity. In this situation, they see a massive price spike along with double and triple digit growth in revenue and earnings, while equity showed a slight decline. They also see proven dividend income growth from holding stock in this firm. In this case, I am compelled to call it a hold. If the share price had been just a point or two above the moving average I may have said buy, but a 16% premium vs the average is a bit overbought in my opinion, despite the strong revenue/earnings figures. A hold also anticipates further bullishness in this sector, by the way, which is why I wouldn't call it a sell just now. Please share your own opinion in the comments section whether you think this share price presents a buy opportunity at this price premium? Valuation: Price-to-EarningsFrom valuation data, they can see the forward P/E ratio is 11.72, which is +4.8% above its sector average. Comparing this price multiple with is nearly 12x earnings, with my earlier discussion on share price and earnings, I think the data shows the elevated multiple is driven by an overly bullish share price. At the same time, earnings showed a triple-digit YoY growth. Also, positive earnings should continue to be sustainable I think due to strong top-line revenue. We can see from the following graphic that the firm has a proven earnings-per-share growth over the last year. Compared to its US-based life insurance peer Prudential Financial, that firm has an even higher price-to-earnings multiple at 16.94x earnings, while posting a quarterly net loss in Q3. Another peer, MetLife, actually had a YoY earnings decline so its P/E multiple of 21.83x earnings appears overvalued. In this context and based on the data, I would call Manulife a buy at this price multiple since although price is high the earnings have grown nicely too, while this is not the case at two major peers in this sector. Valuation: Price-to-Book ValueAlso from valuation data, they can see a forward P/B ratio of 1.31. This is about 8% above the sector average. In the context of share price spiking by double-digits above its moving average, and the equity (book value) slightly declining, I think this price multiple of 1.3x is slightly more than I would consider justified. Had the equity grown on a YoY basis, I may have said otherwise, but you have a rising share price and falling equity here. This would be more of a hold. Risk AnalysisThe risk in this business that I want to look at is exposure to asset risk. Here is the mix of assets this firm invests in: We can see from the graphic above that around half (49%) of their portfolio is exposed to government and corporate bonds, which are fixed-income (interest earning) assets. They also state that 70% of the bonds are graded A or higher. Only about 13% of the portfolio consists of mortgages, which I bring up out of concern for the higher risk that real estate mortgages can pose vs investment-grade bonds. Their other assets are diversified across a basket of other assets, which surprisingly also includes timberland/farmland. What I want to point out is the old concept that interest rates and bond values travel in opposite directions, so with rates expected to come down next year it could lead to higher bond values and hence could help the value of a bond portfolio. The company also does not make mention of heavy exposure to a higher-risk real estate asset like office property, which they have seen talked about a lot lately due to increasing default risk, something I brought up in several of my articles on this portal. However, I would like to see greater exposure to equities, since the portfolio only has about 6%, and somewhat less exposure to bonds due to the interest-rate risk it presents. I would have had 10% in equities, ones that pay strong dividend yields for instance. In this case, I think the evidence points to this being a hold rather than a buy or sell. On the one hand, half of the asset risk is tied to investment-grade bonds and not much in higher-risk real estate like offices, but the heavy bond exposure also presents greater interest-rate risk which they have seen in that last few years when high rate environments can lead to falling bond values, and selling off bonds at a loss. Quick SummaryTo reiterate, my overall rating today is a hold, which is a downgrade from my strong buy this summer. The key drivers of my cautious sentiment today were positive factors like strong revenue and earnings growth along with proven dividend growth and a high yield, offset by factors like a share price trading at a double-digit premium over its moving average and an overvaluation on price-to-book value. My portfolio hold strategy on this stock would be to hold for stable dividend income and growth, and expected further price growth and capital gains. | ||||||||
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