Podcast Summary
Saving Money: Discounted Diamonds, Affordable Mobile Plans, and Repairing Items: Invest in discounted diamonds, save on mobile plans, and repair items to save money and the environment
There are various ways to save money and make wise financial decisions. At Blue Nile, you can invest in beautiful and scientifically-grown diamonds, which are independently graded and identical to natural diamonds, with a discount using the promo code "listen". Meanwhile, Mint Mobile offers a significant price drop on their unlimited mobile plan, saving customers $15 a month. In the world of investing, veteran investor Terry Smith warns against companies with creative accounting methods, using AstraZeneca as an example, whose return on capital employed has been declining and whose share price took a hit due to a drug trial setback. Lastly, repairing items instead of buying new ones can save both money and the environment, as explored in the phenomenon of "restart parties".
Assessing a company's profitability with ROCE: ROCE measures a company's profitability by calculating net profit from capital employed. Investors use it to evaluate financial health by assessing returns above cost of capital.
Return on capital employed (ROCE) is a crucial financial metric for investors to assess the underlying health of a company's finances. Companies, like individuals, need to generate returns that exceed their cost of capital to increase in value over time. However, determining a company's cost of capital can be challenging, making ROCE a less frequently used metric. AstraZeneca and Tesco serve as examples of companies that have experienced significant capital expenditures with mixed results. AstraZeneca's ROCE peaked at 40% but is now around 11%, while Tesco's peaked at 20% and dropped to roughly half that level. Both companies have invested heavily in expansions, resulting in negative returns for Tesco in the U.S. and China, and little to no return for AstraZeneca from the MedImmune acquisition. ROCE measures a company's profitability by calculating the net profit generated from the capital employed in the business. By examining ROCE, investors can assess a company's ability to generate returns that exceed its cost of capital. Companies that consistently generate returns above their cost of capital will increase in value, while those that fall short will decrease in value. Despite the challenges in determining a company's cost of capital, it's essential for investors to make an educated estimate to effectively evaluate a company's financial health. By focusing on ROCE, investors can gain a better understanding of a company's profitability and potential for long-term growth.
AstraZeneca's Dividend Safety and Future Uncertainty: CEO Terry Smith raises concerns about AstraZeneca's dividend safety due to earnings progression being uncertain, suggesting the company may not be able to maintain it. Older investors seek tax-efficient relief on AIM, making it more attractive for them despite its previous volatility.
The future of AstraZeneca for investors is uncertain, particularly regarding the company's dividend. Terry Smith, the founder and CEO of Fundsmith, expressed concerns about the dividend's safety due to earnings progression being in doubt and the dividend only being covered just over one time by earnings. Smith also suggested that the company may not have the luxury of maintaining the dividend. However, the irony is that a company with a questionable track record of capital allocation could benefit investors by returning their capital and letting them invest in a more effective company. Older investors are increasingly turning to AIM, London's alternative investment market, for its tax-efficient wrapper, specifically the inheritance tax relief, which is attractive to them. AIM has become less volatile than it once was, making it more similar to a typical small to mid-cap market.
Business Property Relief: A Tax Break for Small Businesses and Farmers on AIM: The Business Property Relief, introduced in the 1970s to help small businesses and farmers avoid inheritance tax, has become a controversial tax freebie for larger companies on AIM, potentially costing the Treasury billions annually.
The Business Property Relief (BPR) is a tax break introduced in the UK in the 1970s to help small and medium-sized family businesses and farmers avoid inheritance tax. This relief was initially intended for businesses with a market value under £50 million, which often struggled to raise capital and turned to markets like AIM for funding. As some of these companies grew larger and were quoted on AIM, they continued to benefit from the BPR relief despite being technically private companies on a venture market. However, the popularity of this tax break among private investors, especially since the ISA rules changed, has led to concerns that it could be a significant tax freebie, potentially costing the Treasury billions of pounds each year. Critics argue that the relief was not intended for companies worth hundreds of millions on AIM and question its continued validity.
Business Property Relief for AIM ISAs: Uncertain Future: Investing in AIM ISAs comes with higher fees and risks, but potential significant long-term returns. The future of Business Property Relief for these funds is uncertain, so monitoring Treasury developments is crucial.
While Business Property Relief (BPR) for AIM ISA funds remains open for now, it could be subject to review and potential elimination by the Treasury due to budget constraints. These funds, which have been increasing in number over the past few years to make investing in smaller businesses on AIM easier, come with higher fees due to the labor-intensive process of ensuring the stocks qualify for BPR. Investors should be aware of the higher risk associated with investing in AIM stocks, which can produce significant returns over the long term but also involve substantial volatility. Despite the risks, these funds could be a worthwhile consideration for those interested in investing in smaller, growing companies. However, it's essential to weigh the potential rewards against the fees and risks involved. The future of BPR for AIM ISAs remains uncertain, so keeping an eye on any developments from the Treasury is crucial for those considering this investment route.
Understanding Business Property Relief and Repairing Items: Hold BPR investments for over 2 years and consider repairing broken items to save money and reduce waste.
Business Property Relief (BPR) investments are marketed as long-term tax planning tools with a time horizon of 5 to 15 years. It's crucial to hold these investments for more than 2 years to qualify for inheritance tax relief. However, there's no guarantee that every stock labeled as BPR allowable will be accepted by HMRC at the time of death. Meanwhile, in a different context, repairing broken items instead of buying new ones can save money and reduce environmental waste. At restart parties, people bring their broken devices to be fixed by volunteers, extending the life of their belongings. The motivation behind this trend includes financial savings, environmental concerns, and personal attachment to items.
Empowering Individuals to Repair Their Own Possessions: The right to repair movement encourages individuals to repair their broken items, learn new skills, reduce waste, and extend the life of their possessions, despite the unavailability of repair manuals and spare parts from manufacturers.
The right to repair movement encourages individuals to overcome their fear of repairing their own broken items, making it a cooperative and learning process. This movement is gaining global momentum as people become frustrated with the unavailability of repair manuals and spare parts from manufacturers, who often push consumers to buy new products instead. The restart project, which originated in Europe and Africa, is just one of many organizations promoting this cause. The EU has also started passing directives encouraging environmental criteria for goods, which may eventually include recyclability and repairability. Overall, the right to repair movement is about empowering individuals to extend the life of their possessions, reduce waste, and learn new skills.
Supplemental insurance and skincare for a healthier you: UnitedHealthcare's Health ProtectorGuard plans help manage healthcare costs, while Osea's skincare offers high-quality ingredients for a radiant appearance and peace of mind
Being a little extra can be beneficial, especially when it comes to managing healthcare costs and taking care of your skin. UnitedHealthcare's Health ProtectorGuard fixed indemnity insurance plans, underwritten by Golden Rule Insurance Company, provide supplemental coverage to help individuals manage out-of-pocket costs. On the other hand, Osea's clinically proven mega moisture duo offers a luxurious skincare experience with high-quality, face-level ingredients for the body. This vegan, cruelty-free, and climate neutral certified skincare line helps you glow from the inside out. Confidence comes from within, and taking care of yourself in these ways can lead to a more radiant and nourished appearance, as well as peace of mind. Remember to get in touch with the FT Money team with any financial questions or story ideas, and use code "glow" for a 10% discount on your first Osea order.
