What is Foregone Earnings?

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Foregone earnings represent the difference between earnings actually achieved and the earnings that could have been achieved with the absence of fees, expenses, or lost time. As such, a large portion of foregone is represented by the amount that the investor spent on investment fees, which often make up a sizable percentage of investment earnings.The assumption is that if the investor had been exposed to lower fees, they would have automatically earned a better return. The concept of foregone earnings is typically used when referring to sales charges, management fees, or total expenses paid to funds.

Definition

Lost earnings represent the difference between the actual realized returns and the potential returns that could have been achieved without fees, expenses, or time delays. It is often used to describe the amount investors spend on investment fees, which can significantly impact investment returns.

Origin

The concept of lost earnings originated from studies on the impact of investment fees, particularly in the late 20th century, as the diversification of investment products and services led investors to focus on the effect of fees on net returns.

Categories and Features

Lost earnings are mainly divided into two categories: direct fees and indirect fees. Direct fees include management and sales fees, which are usually explicitly listed. Indirect fees may include opportunity costs, such as potential returns missed due to choosing high-fee funds. The characteristics of lost earnings include their implicit and cumulative nature, which can significantly affect investment returns over the long term.

Case Studies

Case Study 1: Suppose an investor chooses a fund with a 2% management fee, while another similar fund has a 0.5% fee. Under the same market conditions, the low-fee fund may yield higher net returns over the long term. Case Study 2: An investor pays high advisory fees when selecting an investment advisor, which further reduces net returns when the portfolio underperforms.

Common Issues

Investors often underestimate the impact of fees on long-term returns, mistakenly believing that high fees necessarily lead to high returns. In reality, lower fees can often enhance net returns. Additionally, investors should regularly review investment fees to ensure the cost-effectiveness of their portfolios.

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Lisbon Treaty

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Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

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Negotiable Instruments

A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.

Renewable Resource

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Renewable Resource

A renewable resource is a resource that can be replenished naturally over time. As a result, it is sustainable despite its consumption by humankind.Renewable resources for the production of energy are considered especially important for their potential to replace non-renewable, or finite, resources. Additionally, renewable resources can offer cleaner energy solutions than those provided by non-renewable resources such as coal and fossil fuels.Examples of renewable resources include the sun, wind, water, the earth's heat (geothermal), and biomass.

Feasibility Study

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Feasibility Study

A feasibility study is a detailed analysis that considers all of the critical aspects of a proposed project in order to determine the likelihood of it succeeding.Success in business may be defined primarily by return on investment, meaning that the project will generate enough profit to justify the investment. However, many other important factors may be identified on the plus or minus side, such as community reaction and environmental impact.Although feasibility studies can help project managers determine the risk and return of pursuing a plan of action, several steps should be considered before moving forward.