Self-Employed Question: Qualifying business definition

[PeterWils]

In the application for PR - Business Immigration as Self-Employed person I found the following definition for qualifying business:

Definitions

Full-time job equivalent: Defined as 1,950 hours of paid employment.

Qualifying business: A business—other than a business operated primarily for the purpose of deriving investment income such as interest, dividends or capital gains—for which, in each of any two years in the period beginning five years before the date of application and ending on the date of the interview decision, there is proof of any two of the following:

That the percentage of equity multiplied by the number of full-time job equivalents is equal to or greater than two full-time job equivalents per year;
That the percentage of equity multiplied by the total annual sales is equal to or greater than $500,000;
That the percentage of equity multiplied by the net income in the year is equal to or greater than $50,000; and
That the percentage of equity multiplied by the net assets at the end of the year is equal to or greater than $125,000.

How do I do this math?. My financial equity is $120,000 (I don't have any mortgages) and my income is $40,000 per year

So, is my percentage of equity 100%? should I multiply 100 x 40,000 ?

Shouldn't it be the sum of equity plus annual sales? I'm confused, any help on this would be appreciated.

PW

 

[WillBCanuck]

man, this is really confusing... Does this means my business needs to be worth a minimum of $125,000?? anybody has a clue?

 

[me2land]

If your total business is worth $120,000 and you have no loan then your equity is 100% so you are looking at satisfying 2 of the following 4 conditions (fill your numbers in the red font)

1. [100% x (number of hours your put in your business per year)/1950] should be equal to or greater than 2


2. [100% x sales] should be equal to or greater than $500,000


3. [100% x 40,000] should be equal to or greater than $50,000 --you are failing this one

4. [100% x net assets] should be equal to or greater than $125,000


¬m2l

 

[bob02]

what is the definition of "percentage of equity"?

 

[me2land]

what is the definition of "percentage of equity"?

Percentage of equity would be the percentage of the business that you actually own. If a quarter of your business is financed by loans then your percentage of equity is 75%. If you fully own your business with no loans then percentage of equity is 100%.

¬m2l

 

[bob02]

Good definition!!

Your definition makes sense..since we know that;

Equity=Assets + Liability..so..we can think of it as;
Equity=My money + My payables

There fore..if its all my money than its 100% my equity other wise its a split between my and others money!!

Thanks for the help

 

[Phantoo]

Formula to calculate equity multiplier ratio

Equity Multiplier = total assets / shareholders equity.

Equity multiplier ratio definition and explanation:

The equity multiplier ratio discloses the amount of investment leverage.

The equity multiplier ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

How to calculate the equity multiplier
Step 1

Gather together the information needed.

Total assets = $11,400
Total equity = $9,000
.
Step 2

Plug the information into the equation. This is not a complex or difficult financial computation.

equity multiplier = total assets/total equity
equity multiplier = $11,400/$9,000

Step 3

Solve the formula to find the equity multiplier.

equity multiplier = $11,400/$9,000
equity multiplier = 1.27

The equity multiplier is 1.27.

Step 4

Understand the solution. The equity multiplier is 1.27. This means that for every dollar of equity the company has $1.27 of assets. Since total assets = total equity + total debt, the amount of debt the company carries can be obtained in the following fashion.

assets = total equity + total debt
$11,400 = $9,000 + total debt
$2,400 = total debt
total debt = $2,400

Because total assets are the sum of total equity and total debt, the total debt ratio, the debt-equity ratio, and the equity multiplier all are interrelated and each can be used to find the value of the other using simple algebra.

 

[Diferentmed]

For the business point of view qualifying ratios like front and back ratio can also be useful in which first can be discussed as it the monthly payment for a loandivided by the loan applicant's qualifying monthly income. Used in the mortgage underwriting process as one measure of the risk that the applicant will default on the loan. Contrast with back-end ratio.
we take a example , The Jameses applied for a mortgage to buy a new home. The loan required a $500 monthly payment (including escrow payments). Mr. James earns $3,000 per month, and Mrs. James does not have an income. The lender calculated a front-end ratio of 16.7%, which is well within the maximum for this type of loan.
The second is as it is one of several criteria used to qualify home buyers or owners for mortgage loans. The back-end ratio takes into account existing long-term debt of the loan applicant. Contrast with front-end ratio.
example can be like that , Many lenders apply a back-end ratio of 36% when originating conventional loans. This means an applicant's total monthly debt payments, including existing debt and the loan applied for, must be no more than 36% of the applicant's gross monthly income.

 

[sckel]

I am not an immigration expert but my interpretation is as follows:

You must be able to show at least two of the following (being self employed I am making the assumption that you solely own the business):

2 full time job equivalents - Payroll records showing paid work for 1950hrs x 2
Net Sales - Must be equal to or greater than $500k per year
Net income - The net income for the business must be equal to or greater than $50k
Equity - The total equity of the business (assets minus liabilities) must be equal to or greater than $125k.

I believe that the % factors are really for businesses that have more than one owner. For example, if you owned 50% of a company, then total sales for that company would have to have been $1m (your 50% share = $500k) total equity would have to have been $250k (your 50% share = $125k) etc... in order for you to qualify.

Regarding some of the terms i.e. Net income, Equity etc.. there are many useful websites that offer clear definitions for these terms.
Hope this makes sense.

 

[Wedding]

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[Carpet]

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[Digital5]

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[Toronto1]

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