The Time Value of Money & Record Profits

Market Buzz – For “ABC” Record Profits Come as Simple as Q1, Q2, and forward Q3

Toronto’s main index scraped and clawed its way to a meager 11.89 point gain this Friday to 11,722.07 as investors continued to react to figures released Thursday, which showed an unexpected rise in weekly U.S. jobless claims to half a million and a big drop in manufacturing activity in the Philadelphia region. For the week however, the S&P TSX Composite was quite strong posting a 1.68 per cent gain.

The poor jobs data was once again the focus and again, we think the focus is where it should be. For the current fiscal stimulus-led recovery to morph into an organic sustainable economic recovery, North American has to create jobs. This continues to be a challenge and so should the recovery.

In other news, Statistics Canada reported that the country’s annual inflation rate rose to 1.8 per cent in July, up from one per cent. The agency said new harmonized sales taxes in Ontario, British Columbia and a higher HST rate in Nova Scotia affected consumer prices in July – and let us all collectively give another loud cheer for this much loved tax.

For better and brighter news, we look to Asia Bio-Chem Group Corp (ABC:TSX-V), from our Canadian Small-Cap Universe (www.keystocks.com). The company manufactures and sells cornstarch and related products in the Peoples Republic of China (PRC).

This past week, the company reported that its revenues for the quarter ended June 30, 2010, jumped 144.1 per cent to $56.88 million from $23.30 million in the same period of the prior year. Perhaps more impressive, net income jumped 937 per cent to $4.5 million, or $0.06 per share, compared to $0.4 million, or $0.01 per share, in the corresponding period of 2009.

During the quarter, total production increased by 143.5 per cent to 172,611 tonnes from 70,894 tonnes in the same period of the prior year.

This coming week, we look forward to the Q1 2011 release from MOSAID Technologies Inc. (MSD:TSX). Based in Ottawa, Ontario, MOSAID is one of the world’s leading intellectual property companies. The company licenses patented intellectual property in the areas of semiconductors and telecommunications systems and develops semiconductor memory technology.

The company will issue a news release on its first quarter results for fiscal 2011 on Thursday, August 26, 2010, after market close. An analyst conference call and webcast will begin at 5:00 p.m. Eastern Time.

Net income for the period increased 41.4 per cent to $63.7 million, or $0.26 per share, in Q2 2010 compared to $45.0 million, or $0.23 per share, in the same period in 2009.

Looniversity – The Time Value of Money

A dollar should always be worth a dollar right? Not necessarily. The value of a dollar changes dramatically depending on when you take control of the dollar and invest it. The critical variable in the exact value of a dollar is time.

If someone owes you a dollar, do you want him to pay you today or next year? The answer is “today.” With inflation consistently destroying the purchasing power of a dollar, a year from now, a dollar will be worth slightly less than it is today. “Inflation” is an economic term used to describe the gradual tendency of prices to rise over time. If inflation is 2% per year, that means that prices, on average, will rise 2% over the next year, which means that your dollar can purchase $0.02 less in a year than it can today. That’s right, all you mathematicians out there – with 2% inflation, a dollar today is worth only $0.98 in a year.

However, if you got the dollar back today, you could invest it. If you invested it and your investment returned 10% over the course of the year, then you’d have $1.10 at the end of the year. So your money would be growing instead of shrinking and you’d be staving off the negative effects of inflation.

Put it to Us?

Q. I have a daughter who just turned four and I would like to start educating her about money and finance in general. Where is a good place to start?

– Warren Reynolds; Calgary, Alberta

A. A great lesson to start with your little one involves explaining, “Where does money come from?” An ideal time to begin teaching your child about the basics of money is when she first begins to notice it. Typically, in a child’s world, money comes from Mom and Dad’s pockets and when Mom and Dad are tapped, a machine magically spouts dollars after merely pushing a few buttons. It’s natural for her to assume that money is readily available whenever it’s needed.

When she can’t understand why you can’t meet her every demand – and you’re about to use a standby response such as, “Money doesn’t grow on trees” – remember that a more constructive explanation may serve both of you better.

Even very young children can begin to understand the concept of earning money. Explain to your child that money is earned by working and that you should only spend what you earn. To help her understand what it’s like to get paid on a schedule, begin paying an allowance. Then, help her set goals for how she spends and saves her allowance. It’s important, however, to make sure that you stick to the payment schedule, otherwise the lesson may be lost.

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