MoneyHH Archives | Page 12 of 25

Sep

2023

What Is the Acid-Test Ratio?

By Matthew Warholak | Financial Independence, Growing Wealth, invest, Investing | Comments Off

The acid-test ratio (ATR) is one popular way to calculate a company’s liquidity, or the amount of cash or near-cash assets a company has to deal with immediate expenditures.

In comparing a company’s short-term assets against short-term liabilities, the acid-test ratio shows whether or not a company is well-financed. This ratio is subjective based on industry and the primary fundamentals of certain business models, but is a useful tool for gaining a basic understanding of a company’s liquidity level.

What Is the Acid Test Ratio?

An acid-test ratio (ATR), or quick ratio, is a comparison of a company’s most liquid short-term assets and short-term liabilities to calculate how much money it has to pay for immediate liabilities. In other words, it calculates how well a company can pay for short-term financial obligations with cash or assets that are easy to convert into cash.

The ATR disregards illiquid company financial assets such as real estate and inventory, instead focusing on the company’s ability to pay its current liabilities without needing to sell inventory or secure additional outside funding. This form of fundamental analysis is a more conservative measure than the current ratio, which includes all current assets when accounting for current liabilities.

A higher ATR indicates a company’s better liquidity and financial health, whereas a lower ratio indicates a company is more likely to struggle with paying immediate liabilities such as debts and other expenses. That being said, if a company takes longer to collect accounts receivable than usual or has current liabilities that are due but have no immediate payment needed, the acid-test ratio may not provide an accurate measurement of a company’s financial wellness.

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What Does the Acid-Test Ratio Tell You?

The acid-test ratio shows how financially capable a company is of paying short-term financial expenses. For beginner stock investors, calculating a company’s ATR may be an insightful fundamental analysis to look at a company’s financials.

An acid-test ratio of less than one indicates a company doesn’t hold sufficient liquid assets to cover current short-term liabilities and should be dealt with cautiously. It’s generally held that for most industries, the acid-test ratio should be greater than one.

However, a high ATR is not always best, as it could indicate an excess of idle cash that could otherwise be reinvested, returned to shareholders, or otherwise used productively for the business. For example, some technology companies generate substantial cash flows, which results in above-average acid-test ratios. While this indicates a healthy and productive business, some may advocate that shareholders who invest in the company should receive dividends from the company’s profits.

Recommended: How Do Stock Dividends Work?

If a company’s ATR is significantly lower than the current ratio, this indicates the company’s current assets largely depend on inventory. This isn’t necessarily a negative sign as some business models are inherently inventory-driven, such as retail stores, which typically have low acid-test ratios but aren’t necessarily in poor financial condition.

In such scenarios, it may make sense to consider other metrics such as inventory turnover. While acid-test ratios can vary widely based on industry, comparisons based on acid-test ratios can be more helpful when analyzing peer companies in the same industry.

How to Calculate the Acid-Test Ratio

The acid-test ratio is calculated as follows:
ATR = (Cash + Cash equivalents + Marketable securities + Current accounts receivables) ÷ Total current liabilities

To fully understand the ATR, it’s important to know the significance of each part of the equation:

• Cash and Cash Equivalents: The most liquid current assets on a company’s balance sheets:

◦ Savings accounts

◦ CD with maturity of less than three months

◦ Treasury bills

• Marketable Securities: Liquid financial instruments readily convertible into cash.

• Accounts Receivables: Money owed to the company from providing goods and/or services to customers/clients.

• Current Liabilities: Debts or obligations due within 12 months.

What Does the Numerator Mean in ATR?

The acid-test ratio’s numerator is ultimately a realistic assessment of the company’s liquid assets. This includes cash, cash equivalents, and short-term investments such as marketable securities, treasury bills, and very short-term deposits.

Accounts receivable are generally factored in as well, though there are industry-specific exceptions, such as construction, where accounts receivable may take significantly more time to recover than other industries — which may give the illusion the company’s financial condition is worse than in actuality.

Alternatively, the numerator can be calculated by subtracting illiquid assets, including inventory, from all current assets. This may negatively skew retail businesses’ financial condition because of the amount of inventory they typically hold. Additionally, subtract any other items that appear as assets on a balance sheet if they cannot be used to cover immediate-term liabilities such as prepayments, advances to supplies, and tax-deferred assets.

What Does the Denominator Mean in ATR?

The acid-test ratio’s denominator is composed of all current liabilities, defined as debts and financial obligations, due within 12 months.

Though time is not factored into the acid-test ratio formula, it can be a relevant variable. For example, if a company’s accounts payable are due sooner than its receivables are expected, the ratio may not factor for this time discrepancy that may arise, thus worsening the company’s financial health.

On the other hand, time can also be a benefit if accounts receivable are more frequent and regular than accounts payable, providing more frequent cash infusions to a possible undersupply of short-term assets.

Pros and Cons of the Acid-Test Ratio

When it comes to assessing the usefulness and accuracy of the ATR, there are both pros and cons.

Pros

1. It removes inventory from calculation, providing a more accurate picture of the company’s liquidity position.

2. It removes Bank Overdraft and Cash Credit from current liabilities because they are usually secured by inventory, thus making the ratio more tangible.

3. It’s not handicapped, as there is no need for valuation of inventory.

Cons

1. The ATR is not the sole determinant of a company’s liquidity. It’s commonly paired with other liquidity formulas such as current ratio or cash flow ratio to form a more complete and accurate assessment of a company’s financial condition and liquidity status.

2. ATR disregards inventory in calculating the ratio because inventory isn’t generally considered a liquid asset. However, for businesses that are able to quickly sell their inventory at market price, inventory would qualify as a near-cash asset.

3. It doesn’t provide information regarding time frame and degree of cash flows—fundamental factors in accurately calculating a company’s ability to satisfy its accounts payable when due.

4. It assumes accounts receivable are readily available, which may not be as easy as anticipated.

The Takeaway

The Acid-test ratio is an insightful and relatively accurate analysis of a company’s liquidity status. It’s one of the many methods for analyzing businesses, reviewing business fundamentals and company financials.

By comparing the company’s cash on-hand, near-cash equivalents, and easily convertible short-term assets against its current liabilities, one can surmise how readily prepared a company is to satisfy short-term liabilities. The formula determines how liquid a company is based on a variety of assets and expected cash flows versus expected accounts payable. This ratio, though not designed to be used solely, ultimately determines if a company is well capitalized or under financial strain. For an investor, this can help shine a light on whether or not a company may or may not be a promising investment.

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Sep

2023

Understanding Diluted EPS

By Brian Nibley | Growing Wealth, invest, Investing, Terminology | Comments Off

Diluted earnings per share (EPS) is a measure of earnings per share that includes a company’s convertible securities. Convertible, or dilutive, securities are stocks or bonds that could potentially become common shares. Basic earnings per share only considers existing common shares.

Diluted EPS, then, includes in its calculation the factor of convertible bondholders, convertible preferred stockholders, and options holders potentially deciding to turn their securities into common shares. If this were to happen, the number of shares outstanding would increase, with earnings staying the same, resulting in lower earnings per share. Diluted EPS will therefore tend to be lower than basic EPS.

Basic vs. Diluted EPS

What is diluted earnings per share, and how does it differ from basic EPS? Simply put, basic EPS tends to be a higher number than diluted EPS. Basic EPS doesn’t factor in the existence of convertible securities of the impact if they were to be converted into common shares.

Instead, the most basic calculation of earnings per share only takes a company’s net income minus any preferred stock dividends and divides that number by the number of shares outstanding. Convertible securities aren’t factored into the equation.

Because of this, sometimes it’s beneficial to look at a calculation of earnings per share that assumes all possible common shares have been brought into being through existing convertible securities. Doing so gives investors a more realistic view of earnings while assuring no future surprises.

Imagine an investor doing all their homework on the fundamental analysis of a company using only basic earnings per share. EPS, which measures the value that a company delivers to individual shareholders, might look high and the stock pays a good dividend, so the investor might decide the stock is a good one to buy.

But then she learns that the company has been issuing convertible bonds to raise capital and giving new employees stock options to make working there more attractive.

All of a sudden, for some reason, bondholders decide to convert their bonds to common shares, and employees decide to exercise their stock options.

Now this investor’s shares have been diluted, since a bunch of new shares have popped into existence practically overnight. As a result, earnings per share have decreased, and dividends likely have done the same (because the same dividends now have to be paid out to additional shareholders).

If our imaginary investor had used diluted EPS in her calculations, she could have prepared for this kind of scenario at some point. But because this make-believe company created the potential for its stock to be diluted by issuing convertible securities, basic EPS did not provide the full picture.

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How to Calculate Diluted EPS

The formula for diluted EPS is a company’s net income minus any preferred stock dividends, divided by the company’s average outstanding shares minus its dilutive shares. Or:

Diluted EPS = (Net Income – Preferred Stock Dividends)/(Average Outstanding Shares – Dilutive Shares)

The diluted EPS formula is calculating the amount of earnings per share there would be if dilutive shares were to become common shares. The formula is exactly the same as that of calculating basic EPS, but with one important extra step – adding the number of dilutive shares to the number of average outstanding shares (in the bottom half of the equation).

The sum of both existing common shares and the possible dilutive shares creates a larger number on the bottom half of the equation, while the top half remains the same.

Therefore, diluted EPS tends to be lower than basic EPS, as the company’s net income (minus preferred stock dividends) is being divided by a larger number of shares.

For example, let’s say a company makes $1,000,000 in net income and pays no dividend. There are 800,000 common shares outstanding, 100,000 call options, and 100,000 convertible preferred shares.

The diluted EPS formula would yield a result of $1.00 per share in this example, as we would be dividing 1,000,000 dollars in net income by 1,000,000 total potential shares.

Basic EPS, on the other hand, would be calculated as $1,000,000 divided by the 800,000 current shares, yielding a result of $1.25 per share.

While it’s not difficult to calculate EPS and diluted EPS, many companies share the figures with investors in their earnings reports.

Why Is Diluted EPS Important?

Diluted EPS reveals what a company’s earnings per share could look like if holders of convertible securities were to decide to exercise their right to hold common shares, and it’s an important consideration during an investor’s analysis of a stock.

Since companies often issue convertible securities like stock options, convertible bonds, convertible preferred shares, a company’s earnings per share could appear higher than reality when not factoring in the potential for dilution.

Convertible securities might be held by people inside or outside of the company, and they may not be turned into shares anytime soon. But what happens when everyone decides to turn in their convertible securities for shares?

For example, if a company’s stock were to rise in price suddenly, and the company had paid several of its employees bonuses in the form of stock options, those employees might choose to exercise those options.

Now there are more common shares than before, but earnings have not increased. Therefore, in a theoretical example like this, earnings per share will have decreased.

A company issuing employee stock options isn’t always a negative thing, however. If the options keep high-quality employees, the result could be positive for the company over the long run. Using options also reduces expenses that come from paying employee salaries, which could free up capital to help the company grow.

Diluted EPS provides a more conservative earnings per share number since it shows what EPS would be in the event of more new shares coming into existence. Basic EPS could appear to be deceivingly high because it doesn’t calculate for this possibility, so it could be a less reliable indicator of when to buy, sell, or hold a stock.

Of course, there might also be times when diluted EPS is unnecessary. Young companies that are still small and growing might not have had the chance to issue any convertible securities yet, so earnings per share might look the same either way.

The Takeaway

Diluted EPS is a measurement of earnings per share that factors in the potential stock dilution that occurs when convertible securities are converted to common shares. Understanding diluted EPS is important so that investors don’t get caught off guard in the event of new common shares being created through the conversion of securities such as stock options, stock warrants, convertible bonds and convertible preferred shares.

When this happens, earnings per share decline, and those who had only been looking at basic EPS in an attempt to determine the profitability of a company will find they made a miscalculation. In some cases, the difference between basic and diluted EPS might not be that different. If a company hasn’t issued convertible securities, or has issued very few convertible securities, then not much dilution would be possible.

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Sep

2023

What Investors Should Know About Spread

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

A spread represents the difference between any two financial metrics. The type of spread depends on the type of security that’s being traded. For example, when trading bonds, the spread can refer to a difference in yields between bonds of varying maturity lengths or quality.

Further, while there are many differences between bonds and stocks — spread is just one of them. With stocks, though, spreadgenerally refers to differences in price. Specifically, it measures the gap between the bid price and the ask price. Understanding what is spread and how it works can help you more effectively shape your investment strategy.

What Is Spread in Finance?

As noted, spread is the difference between two financial measurements. When talking specifically about a stock spread, it is the difference between the bid and ask price.

The bid price is the highest price a buyer will pay to purchase one or more shares of a specific stock. The ask price is the lowest price at which a seller will agree to sell shares of that stock. The spread represents the difference between the bid price and the ask price.

A good way to visualize spread may be to think of buying a home. As a home buyer, you may have a set price that you’re willing to pay for a property, based on what you can afford and what you’ve been pre-approved for by your mortgage lender.

You search for homes and eventually find one that has everything on your wishlist. When you check the listing price, you see that the seller has it priced $10,000 above your budget. In terms of spread, the maximum amount you’re willing to offer for the home represents the bid price, while the seller’s listing price represents the ask.

What Does Spread Mean?

Aside from stock spread, spread can have a variety of applications and meanings in the financial world.

As mentioned earlier, bond spread typically refers to differences in yield. But if you’re trading futures, the spread can measure the gap between buy and sell positions for a particular commodity. With options trading, it can refer to differences in strike prices when placing call or put options.

Spread can also be used in foreign currency markets or forex (foreign exchange market) trades to represent the difference between the costs for traders and the profits realized by dealers.

With lending, spread is tied to a difference in interest rates. Specifically, it means the difference between a benchmark rate, such as the prime rate, and the rate that’s actually charged to a borrower. So for example, if you’re getting a mortgage there might be a 2% spread, meaning your rate is 2% higher than the benchmark rate.

Bid-Ask Price and Stocks Spread

If you trade stocks online, it’s important to understand how the bid-ask price spread works and how it can affect your investment outcomes. Since spread can help gauge supply and demand for a particular stock, investors can use that information to make informed decisions about trades and increase the odds of getting the best possible price.

Normally, a stock’s ask price is higher than the bid price. How far apart the ask price and bid price are can give you a sense of how the market views a particular security’s worth.

If the bid price and ask price are fairly close together, that suggests that buyers and sellers are more or less in agreement on what a stock is worth. On the other hand, if there’s a wider spread between the bid and ask price, that might signal that buyers and sellers don’t necessarily agree on a stock’s value.

What Influences Stock Spreads?

There are different factors that can affect a stock’s spread, including:

• Supply and demand. Spread can be impacted by the total number of outstanding shares of a particular stock and the amount of interest investors show in that stock.

• Liquidity. Generally, liquidity is a measure of how easily a stock or any other security can be bought and sold or converted to cash. The more liquid an investment is, the closer the bid and ask price may be, since it can be easier to gauge an asset’s worth.

• Trading volume. Trading volume means how many shares of a stock or security are traded on a given day. As with liquidity, the more trading volume a security has, the closer together the bid and ask price are likely to be.

• Volatility. Measuring volatility is a way of gauging price changes and how rapidly a stock’s price moves up or down. When there are wider swings in a stock’s price, i.e. more volatility, the bid-ask price spread can also be wider.

Why Pay Attention to a Stock’s Spread?

Learning to pay attention to a stock’s spread can be helpful for investors in that they may be able to use what they glean from the spread to make better decisions related to their portfolios.

In other words, when you understand how spread works for stocks, you can use that to invest strategically and manage the potential for risk. This means different things whether you are planning to buy, sell, or hold a stock. If you’re selling stocks, that means getting the best bid price; when you’re buying, it means paying the best ask price.

Essentially, the goal is the same as with any other investing strategy: to buy low and sell high.

Difference Between a Tight Spread and a Wide Spread

As discussed, a tight spread could be a signal to investors that buyers and sellers are more or less in agreement that a stock is valued correctly. A wide spread, on the other hand, may signal that there isn’t necessarily a consensus on what the stock’s value should be.

There’s no guarantee, of course, that that inclination is correct, but when looking at tight or wide spreads, it can be yet another useful piece of information to help inform decisions.

Executing Stock Trades Using Spread

If you’re using the bid-ask spread to trade stocks, there are different types of stock orders you might place. Those include:

• Market orders. This is an order to buy or sell a security that’s executed immediately.

• Limit orders. This is an order to buy or sell a security at a certain price or better.

• Stop orders. A stop order, also called a stop-loss order, is an order to buy or sell a security once it hits a certain price. This is called the stop price and once that price is reached, the order is executed.

• Buy stop orders. Buy stop orders are used to execute buy orders only when the market reaches a certain stop price.

• Sell stop orders. A sell stop order is the opposite of a buy stop order. Sell stop orders are executed when the stop price falls below the current market price of a security.

Stop orders can help with limiting losses in your investment portfolio if you’re trading based on bid-ask price spreads. Knowing how to coordinate various types of orders together with stock spreads can help with getting the best possible price as you make trades.

Other Types of Spreads

While we’ve mostly discussed spread as it relates to stocks, there are other types of spreads, too.

Options spreads, for instance, involve buying multiple options contracts with the same underlying asset, but different strike prices or expiration dates.

Under the options spread umbrella are several spreads as well. Box spreads are one example, and they are a type of arbitrage options trading strategy in which traders use some tricks of the trade to reduce their risk as much as possible.

There’s also the debit spread, which is an options trading strategy in which a trader buys and sells an option at the same time — it’s a high-level strategy, and one that may not be suited to investors who are mostly investing in stocks or bonds.

Note, too, that there is something called a credit spread (similar to a debit spread, but its inverse) and that there are some differences traders will need to learn about before deciding to utilize a credit spread vs. debit spread as a part of their strategy. Again, options trading requires a whole new level of market knowledge and know-how, and may not be for all investors.

Investing With SoFi

The more investing terms an investor is familiar with, the better able they’ll be to invest with confidence. Spread is a term that means different things in different situations, but when it comes to stocks, spread is the difference between the bid price and ask price of a given stock. Being able to assess what a spread might mean can help inform individual trading decisions.

As you learn more about stocks, including what is spread and how it works, you can use that knowledge to create a portfolio that reflects your financial needs and goals.

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FAQ

How do you read a stock spread?

A stock spread is the difference between the bid and ask price, so calculating it is a matter of subtracting the bid from the ask price. It’s typically expressed as a percentage.

What is the average spread of a stock?

The average spread of a stock ranges between 13% and 18%, but can vary wildly depending on what types of stocks or market segments are being looked at.

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Sep

2023

What Is a Credit Default Swap (CDS)?

By Laurel Tincher | Financial Independence, Growing Wealth, invest, Investing | Comments Off

Credit default swaps (CDS) are widely used financial derivatives, or contracts, that give investors the ability to “swap” their credit risk with another investor. They’re a popular type of investment, especially for institutional investors.

Investors use CDS for many types of credit investments, including mortgage-backed securities, junk bonds, collateralized debt obligations, corporate bonds, emerging market bonds, and municipal bonds.

Credit Default Swaps, Explained

Credit default swaps are the most common type of credit derivative, and they help investors reduce the risk that borrowers on the securities they own will default on their loans. To reduce their risk, the investor purchases a CDS from another investor, who will pay the lender back if the borrower defaults on the loan. There is generally an ongoing payment as part of the contract, which serves as an insurance policy.

The investments used to create credit-default swaps include many types of credit, such as mortgage-backed securities, junk bonds, collateralized debt obligations, corporate bonds, emerging market bonds, and municipal bonds. However, while the contract references a specific security or set of securities, it is not actually connected to it. Most CDS investors are institutional investors, such as hedge funds, due to the securities’ complex and risky nature.

The credit-default swap contract lays out the responsibilities of the seller in the event that the borrower experiences a credit event or defaults on their loan. Credit events can include failure to pay, bankruptcy, moratorium, repudiation, and obligation acceleration. If any of these events occur, the buyer of the CDS may terminate the contract and the seller will need to pay. The specifics of these credit events are outlined in the contract that both parties sign.

The agreement between the borrower and the lender is separate from the lender’s agreement with the CDS seller, in which the lender becomes the CDS buyer.

Here’s a credit default swap example: A company sells a $200 bond with a 20-year maturity term. An investor buys that bond from the company, who agrees to pay back the money to the investor plus interest within 20 years. However, the company can’t guarantee its ability to pay back that money and the interest. This is the risk involved in investing in a bond.

In order to mitigate the risk, the investor who bought the bond purchases a CDS, which guarantees they will get their investment back if the company defaults on the loan. Just as with other types of insurance, the CDS buyer makes regular payments, typically every quarter, on the contract. The CDS seller is usually a bank, insurance company, reporting dealer, or hedge fund.

These sellers protect themselves against risk by diversifying their sales into many different companies, industries, or sectors. If one of their sales falls through, they have income from all the others to carry on their business.

Riskier Credit Default Swaps

The higher the risk of default, the more expensive a CDS will be. Some investors use credit-default to speculate on the credit quality of a company. Essentially, people use the CDS system to place bets on the bond issuer through the CDS system.

Investors can also switch sides on CDS if they come to decide that a borrower might default. The CDS seller can buy its own CDS or sell it to another bank. This makes it extremely difficult to track the market and decide how to invest in it.

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The Benefits of Credit Default Swaps

The main reason that people choose to buy CDS is as an insurance policy against the risks of loans in their portfolio. Using a CDS allows the investor to transfer some of the risk to the seller of the CDS or an insurance company.

The credit risk does not disappear with a CDS, the seller simply takes on that risk. However, if the borrower defaults on their loan, the seller of the CDS will default on the contract, and the debt goes back to the buyer.

One benefit of CDS is that they enable bond investors to buy into riskier ventures than they otherwise would, since they know they have some protection. This helps funds go towards innovative and unexplored ideas, which help grow the economy and solve world problems.

Downsides of Credit Default Swaps

Although there are several benefits to credit default swaps, they have some significant downsides as well. CDS are an investment focused on managing risk, and it can be difficult to figure out which ones are safer investments due to the complexities of the market.

Introduced in 1994, the CDS market went largely unregulated until the financial crisis of 2008, and was a key contributor to the problems that led up to it. Since it wasn’t regulated, CDS sellers often did not have the money available to pay the buyer in the case of a default. Many sellers only held a fraction of what would be needed to pay back all their buyers.

As long as nobody defaulted, this system worked, but in 2008, this resulted in a massive financial meltdown. Large scale sellers of CDS, including some of the largest financial institutions in the United States were unable to make good on theirCDS contracts, creating a wave of economic effects around the world and requiring multiple bailouts by the Federal Reserve.

Dodd-Frank Reforms

After the 2008 financial crisis, regulators stepped in to try and prevent the same thing from happening again.

The Dodd-Frank Wall Street Reform Act of 2010 required the regulation of swaps by the Commodity Futures Trading Commission and the Securities and Exchange Commission. It also mandated reporting of all credit-default swaps and imposed capital requirements on CDS sellers.

The Takeaway

Credit-default swaps are complicated securities, but some institutional investors can use them to reduce the risk of other investments or to bet that another company might be close to default.

While credit-default swaps are complex investments, they may have a place in a diversified portfolio. However, due to their complexity, it may be a good idea to consult with a financial professional before diving in.

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Sep

2023

Importance of Joining a High School Club

By Brandi Lucey | Student Loans, student_loan | Comments Off

If you are gearing up to go to college, you are likely focused on maintaining a good GPA and prepping for the SAT or ACT. However, those aren’t the only factors that will get you into your dream school. Getting involved in extracurriculars in high school is often just as important as academics.

One type of extracurricular that you may want to consider is joining a club. High schools usually have a variety of clubs available for students to join. Joining a club comes with many benefits and can also make your high school experience more fun and memorable. Read on to learn more about why clubs are important and how to get involved.

Benefits of Joining a Club

The list of things-to-do while in high school can seem pretty overwhelming at times, especially when you add college preparation to the mix. There are classes to stay on top of, events and parties to attend, and soon enough college applications roll around. Balancing coursework and a social life can be a struggle, but one way to combine social life with college preparation is by joining a club.

There are a lot of benefits to joining a high school club. Many colleges like to see that applicants are well-rounded, so academic success isn’t the only way to stand out among other applicants. Clubs provide colleges with insight into what a student’s interests and passions are. In addition, they help students develop time management skills and responsibility.

Learning to balance work and fun while in high school can help make it easier to maintain that balance after entering college.

Joining a club in high school can also provide an opportunity for students to relax and have some fun. Having fun is a vital piece of creating a memorable high school experience and it can help students perform better in class.

Not only is the social time enjoyable for some students, but participation in clubs can also help students develop their “soft” skills, such as effective communication and learning to work with others.

In addition to making friends, being in a club gives students the opportunity to bond with their faculty advisor, who is usually a teacher. Building a relationship with teachers during high school is important for getting quality letters of recommendation to add to those college applications.

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Common High School Clubs

The list of high school clubs that are available at each school will differ. Generally, a school will have a variety of clubs available. These can range from clubs that are academic, like a foreign language club, to clubs that are artistic, like a creative writing club, or something that’s related to a student’s hobbies, like a video games club.

Usually, high schools will also have clubs that participate in some kind of volunteer work or community service. These can be clubs that do work in the community hospitals, in meal programs for the homeless or elderly, and much more.

Some clubs are high tech, like the robotics club, and some are more old-school, like the chess club. Schools will usually have a lot of variety in the types of clubs that exist, and there may be some clubs that are unique to just your school. Since students can often start their own clubs, there isn’t one set list of clubs that will exist at every school.

Starting a Club

If students don’t like the selection of clubs available at their school (why doesn’t every school have a waffle club?) then they are generally able to start their own. Starting a new club has a lot of benefits for the students who choose to put in the work to get one up and running.

There is no list of “correct” clubs to start in high school, most colleges value students who show commitment to something they care about. It’s about the quality of the activities they spend time in, not the quantity.

Seeing that a student has started a new club will show college admissions that the student has developed leadership and organizational abilities. Starting a club shows initiative, and sometimes, students who start clubs will end up in one of the leadership positions, like President, Vice President, Secretary, or Treasurer.

Each school will have its own process for starting a club, but there are a few steps that will be the same everywhere. The first step is, of course, figuring out what the club is about. Is it going to focus on community service, something academic? Will it be focused more on fun and entertainment?

After a topic for the club is chosen, students should figure out what the purpose and goals of the club are. If the club is about chess, will students be learning how to play? Will club members be entering tournaments together? Figuring out the purpose of the club and what its goals are before members join will help limit confusion and manage everyone’s expectations.

At most schools, the club will have to get registered after its name and purpose are defined by founding members. Registering the club makes it official and once this step is complete students can actually begin enjoying their club.

What’s next? Gaining new members and planning the first club meeting. Once the club is official and ready to start, it’s time to focus on recruitment and preparing for the first meeting.

Students should choose a date, time, and location for the first meeting before recruiting, that way they have information to give interested students on when activities will be beginning.

Before the meeting, club members should know what they plan on discussing with the new recruits and how long they want the meeting to last. Usually, the first meeting is a good time to go over the club’s purpose and goals and to get contact information from the new members.

Sometime in the first few meetings, it may be a good idea to assign leadership roles for the club. These usually include President, Vice President, Secretary, and Treasurer. The way these roles function can differ from club to club, but their usual responsibilities are as follows:

•   The President will lead the club and supervise meetings and activities.
•   The Vice President assists the President and takes over their roles whenever the Present isn’t available.
•   The Secretary takes notes during meetings and helps keep all members up to date on the club’s plans.
•   The Treasurer will manage the club’s budget and keep track of expenses.

Assigning leadership roles will help keep the club running smoothly and make it easier for the club to meet its goals.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

Planning Ahead for College

It’s really never too soon to start planning, as well as saving, for college. The process of researching schools and then applying can be time-consuming, so the earlier students begin their research, the less last-minute cramming they’ll have to do.

A vital piece of planning for college is figuring out how to finance college. Most schools come with a pretty large price tag, but there are a variety of ways that students can help fund their college tuition.

To apply for federal financial aid, students will need to fill out the Free Application for Federal Student Aid (FAFSA). This will allow you to find out if you are eligible for different forms of financial aid, including grants, scholarship, federal student loans, and work-study. Grants and scholarships usually do not need to be repaid, whereas loans do need to be repaid.

It’s recommended that students exhaust their federal aid options before looking into private student loans. Federal loans come with certain benefits that private loans do not.

If students are not eligible for federal aid, or the financial aid they receive is not enough to meet their needs, there are other options, such as private scholarships and private student loans.

Scholarships are widely available and the eligibility criteria varies for each one. Some scholarships are need-based, while others are merit-based. Scholarships are available through schools, local communities, and corporations.

Taking out private student loans is another option for helping to fund a college education. These loans are available through private lenders, including banks, credit unions, and online lenders. Rates and terms vary, depending on the lender. Generally, borrowers (or cosigners) who have strong credit qualify for the lowest rates.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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