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Building Wealth through Saving and Investing

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Little Known Canadian Benefit Programs – I (Learning Bond, CPP, Grants, NRC)

The federal government offers a number of benefit programs for Canadians – Old Age Security (OAS), Guaranteed Income Supplement (GIS), etc. are well-known while some of them are relatively unheard of. This series will look at a few of the little-known (at least to me) programs in place for our benefit. Please note that this series will only deal with federal programs and each province may offer additional benefits and grants.

Canada Learning Bond

The Canada Learning Bond, through Human Resources and Skills Development Canada, offers $500 to modest-income families with a child born in or after 2004 to start saving for their education after high school. On top of the one-time $500 grant, families will also receive an extra $100 annually until the child turns 15. So, a family is eligible to receive $2000 (excluding compounding), without having to contribute any of their own money for the cause, plus $25 to help with the cost of opening an RESP account. The money can be used to pay for the child’s education (full-time or part-time) in a trade school, college, or university but the money will have to be returned to the government if the child does not pursue post-secondary education.

Canada Pension Plan (CPP) Child-Rearing Provision

A parent may be forced to quit work or reduce their working hours to take care of their toddler. If such a parent’s income stopped or was reduced due to their need to become the primary caregiver for their child under 7 years of age, then they are eligible to apply for the CPP child-rearing provision. Upon approval, the years spent by the parent as the caregiver are excluded from CPP calculations to ensure that they will receive the highest possible payment.

Grant for Students with Dependents

This grant offers financial assistance to persons who are students while supporting dependent children under the age of 12 at the period of the study start date. Any full-time post-secondary study of at least 12 weeks leading to a diploma, certificate or degree at a designated institution is eligible. Other eligibility criteria include applying and qualifying for the Canada Student Loan and being part of a low-income family as set forth by the Canada Student Loans Program.

If a person qualifies for the Canada Student Loan, then they will automatically be assessed to determine their eligibility for the Grant for Part-Time Studies through which a part-time student may be able to receive up to $1200 per academic year.

NRC Student Employment Program

The National Research Council Canada (NRC) provides post-secondary students with practical work experience in challenging environments through their Student Employment Program. Students gain access to excellent tools, facilities and knowledge-base in various fields including research and development, marketing, sciences, etc. These positions are available on a full-time and part-time basis to students of a recognized institution who possess a high school diploma with at least a B+ average. NRC entertains online applications throughout the year.

Common Experience Payment

The Common Experience Payment (CEP) is part of the Indian Residential Schools Settlement Agreement that acknowledges the experience of studying at an Indian Residential School and its significance. Applicants who qualify may receive $10,000 for the first residential academic year at one or more residential schools; additionally, they may be eligible to receive $3000 for each following academic year spent at one or more residential schools. All former student residents from a recognized school, who were alive on May 30, 2005, will be eligible for the CEP, provided they did not opt out or were deemed to have not opted out of the settlement agreement.

Have you qualified for any of the above benefits? Did you encounter any obstacles in applying for and receiving them?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism.  You can read his other articles here.

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How Key Stock Ratios Work

One large component of fundamental analysis is reviewing key stock ratios to evaluate the companies profitability, liquidity, performance and value.

It should be noted however that any single ratio should not be used to determine whether or not it’s a good company to own.  In my opinion, a combination of ratios should be used along with your own discretion as to whether or not it’s a good opportunity to own the company.

Price to Earnings (P/E)

The P/E or Price to Earnings ratio is perhaps the most common valuation tool used.  It displays the ratio of the stock price relative to its earnings.  The lower the ratio, the cheaper the stock.  The one issue with the P/E ratio is that “earnings” can be manipulated by accounting tricks, so it shouldn’t be used as the end all be all of determining value.  As well, the P/E ratio range varies between sectors/indexes.  For example,  the small cap index will likely have a higher P/E ratio than the large cap index as the expected growth rate is higher.

Price to Earnings to Growth (PEG)

To improve the P/E ratio, Peter Lynch came up with the Price to Earnings to Growth ratio, or the PEG ratio.  This ratio is simply the P/E ratio divided by the expected earnings growth of the stock.  The lower the number, the more appealing the stock (according to Mr. Lynch).  Growth rate can be taken from company forecasts (which I don’t like), or simply taking the earnings per share (EPS) growth over the past 5.

Price to Book Value (P/B)

Book value is the net worth of the company.  In other words, it’s the Assets minus the Liabilities.  Book value is often compared to the price of the current stock which is simply the price per share divided by the book value per share.  Value investors often look at book value gauge how much the company would be worth if they had to liquidate their assets.  Companies with a P/B ratio of 1 means that the company’s net worth or shareholder’s equity is equal to the current asking price of the stock – in other words, possibly cheap!

Current Ratio

The current ratio is a solvency ratio and indicates the companies ability to cover liabilities due in the near future (12 months).    The higher the ratio, the better off the company is able to pay their upcoming liabilities.  However, too high of a current ratio could mean that the company is holding too much cash which is not being used to generate more profit.  A ratio of 1 means that they have $1 of current assets for $1 of current liability.  A common threshold for evaluation of a minimum current ratio of 2.

The formula is:  current ratio = current assets/current liabilities.

Generally speaking, current assets are assets that are relatively liquid which means they can be converted to cash in a relatively short period of time.  This can include cash, inventory, accounts receiveable.

Current liabilities is cash that is due to the paid back within a 6-12 month time frame.  This can include, payroll, accounts payable, portions of long term debt and short term debt.

Like the other ratios, chances are you don’t need to dig into the balance sheet to pull current assets/current liabilities, there are a lot of websites out there, like stockhouse.ca or msn money that display current ratio already calculated.

Quick ratio

There are some sectors that have huge inventory costs, but inventory on the balance sheet can be slow to move.  The issue with this is that inventory is often counted as a “current asset” but can skew the current ratio if the inventory value relatively large.

To adjust for this, you can use the quick ratio which is simply:  (Current Assets – Inventory)/Current Liabilities.   Many investors like to see the quick ratio to be 1 or greater.

Conclusions

What to take away from all this?  Value investor guru Benjamin Graham would typically look for companies with a current ratio of 2.0 or greater, a Price/Earnings of 15 or less, Price/Book of 1.5 or less (among other criteria).  Here is my article on Canadian Stock Screeners that can help you identify stocks with these ratios.

Do you use stock ratios when evaluating your investments?

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