Robert A. Bonavito, CPA PC

RABCPA PC Blog

The Sharpe Ratio

I often hear clients discuss how they are earning 10%, 15% or even 20% on their investments. I tell them that is only half the story, the real story is what type of risk they are taking to earn that return. For example, I can invest money in a government bond that would earn 4% and be risk-free or a biotechnology company that has a return of 20%; which one is more likely to result in loss of my investment?.  When calculating the risk related to returns, I use the Sharpe Ratio. This ratio compares returns over their risk. I realize how much risk I am taking to obtain a certain return. The formula is expected return minus risk-free rate over the standard deviation of the investment.

Posted May 19, 2018 by Robert A Bonavitp in Business Valuations

Divorce Steneken

Steneken is always an interesting case that I like to revisit, mainly because it is accused of being the “double dip” case in divorces. The main concern with this case is that it involves the dividing of a business. When a business owner is getting divorced and his business value is being subject to equitable distribution some sticky issues arise when dividing his income between the business value and alimony. This seems like an obvious double dip, but if done correctly it should not be. The way I look at this case is that the business value after deducting reasonable compensation would be split between the moneyed and non-money spouse. Alimony would be calculated based on the reasonable salary earned through the business. In this way you would not be double counting.

Posted May 10, 2018 by Robert Bonavito in Matrimonial & Divorce

Bank Accounting

People with accounting backgrounds may not be familiar with how bank accounting operates. When you think of bank operations you have to remember that the primary income of the bank is interest income. The main operating expense is interest that they pay out to customers. After subtracting the interest income from the interest expense, you then have operating income before the banks expenses.  For example, banks are required by regulatory agencies to keep a certain amount of money on hand as reserves. In addition, banks have two sources to borrow; one is the Federal Reserve and the other is banks.

Posted April 19, 2018 by Robert A Bonavito in Educational Videos