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Corporate Finance Tools in Daily Life
Many of the concepts associated with corporate finance also have applications in everyday life. A range of corporate finance tools are already used in everyday life, often without realization as corporate finance tools are often an extension of common financial practices. More complex corporate finance tools may also provide a great deal of potential to enhance daily life financial management. By looking at task associated with daily life it is possible to see the alignment.
A task undertaken in almost every household will be budgeting for household expenses, for example this will include budgeting for utility bills, insurance, food and travel. The budgeting may take place at different levels, for example, monthly or daily. The main budget will be undertaken each month, accounting for the essential items and liabilities. Where wages are paid on a monthly basis assessing outgoing in the same way is…
East Coast Yachts I
My time horizon is long-run. I would want a diversified portfolio, but can afford to take the risk of equities. So the first decision is to go with 1% equities. I am not interested in company stock at the moment, because I want a diversified portfolio and I only want liquid securities with values set by the market. The company stock does not meet those criteria.
In that case, I would emphasize the Small Cap fund for its growth characteristics -- 5%, and a further 5% in the S&P index fund. The Index Fund has a substantially lower MER than the Large Company fund. The Large Cap has outperformed the market lately, but cannot be expected to do that every year, and it has a lower Sharpe ratio so is a riskier fund that the S&P -- it should outperform. On a risk-adjusted basis,…
0.839*(2.2*.65) + (.161)(8.74) = 1.1977 + 1.407 = 2.60%
This is assuming book value weights. With market value weights, Dell has $36.86 billion in debt, so the weight of debt is 59.7% and equity is 40.3%. The weighted average cost of capital in that case is 0.85 + 3.52 = 4.37%
6. Dell is a poor comparable. Dell does not own its own stores. It might have a similar manufacturing model, but it is almost entirely online, and it is also a much larger company at $62 billion in sales versus $95 million. Moreover, Dell sells mainly to institutional (business) clients, in apparent contrast with Goff. Goff also has a much different capital structure, so is a less risky company. These differences are not insignificant -- the similarities with Dell are more superficial. A better comparable would be a niche electronics retailer, even if that means looking at a company outside the computer industry.
Potential Impacts of an Increasing Interest Rates
Interest rates have a strong influence in the economy. his influence is one reason many central banks utilize interest rates as a monetary tool in an effort to control the supply of money. Since December 2008 the U.S. has seen some of the lowest central bank interest rates, with the Federal Reserve holding down rates in order to help stimulate economic growth. he Federal Reserve may have recently forecast interest rates remaining close to zero until some point in 2013, but at some point they will have to increase (Anonymous, 2011). When the interest rate rise does occur it will impact on a number of areas of the economy; this paper will consider some of those impacts.
Impact on the Financing of Big icket Items
Big ticket items are expensive goods which will often require the purchaser to obtain some type…
The calculation of the present value of an annuity is complex, as this involves discounting the future cash flows into today's value. If interest rates increase the cash flow from the annuity increases (increasing the future value). The present value will depend on inflation, inflation may increase, but if the economy is managed correctly inflation should be held at a rate lower than the proportional increase in interest rates. Theoretically, the present value may also increase, but this will be less pronounced compared to the future value and is dependant on many divergent factors, apart from inflation which may include diverse issues which are not directly related to interest rates, such as the cost of labor and the cost of oil.
Impact on NPV Calculations
Net present value calculations look at the value of an investment in the future by taking the futures cash flows and discounting them into today's value by allowing for the time value of money. The discount rate may be based on the expected rate of inflation; however firms will often base the discount rate on their actual cost of capital (Drake and Fabozzi, 2009). As interest rates increase the cost of capital (which is discussed in the next section) will also increase. Assuming the same cash flows the following tables demonstrate the difference that that an increase in interest rates will have on the NPV. The example of a five-year investment of $10,000 creating an annual return of $3,500 may be used. In table 2 the discount rate
3a) This depends on the project. b) Better than the company or industry average, whichever is higher. C) Higher than the cost of capital. d) e) over 0.
The objection is based on speculation. Since we do not know what the future reinvestment rate is going to be, we must work with the best information we have today.
Again, the objection is the same. A complaint that we have less than perfect information when we are forecasting the future is absurd. We also do not know precisely what the future cash flows will be. We still need to make a decision, and that decision must therefore be made on the basis of the best information that we have today. The criticism has no validity.
Ch 9-1. Forecasting risk reflects the risk associated with forecasting future cash flows. There is more forecasting risk for a new product than for…
Total asset turnover
eturn on common equity
eturn on total assets
The DuPont equation, according to Besley and Brigham (), can be captured as follows: OE = Net Profit Margin * Total Assets Turnover
In a tabular form, this would be:
Net profit margin
Total assets turnover
The current ratios of Jaedan Industries do not differ significantly from the industry ratios for the two years under consideration. According to Besley and Brigham (2007, p. 52), this particular ratio "provides the best single indicator of the extent to which the claims of short-term creditors are covered by assets that are expected to be converted to cash fairly quickly." Jaedan Industries' current ratios for the two years under consideration indicate that the firm would have no problem settling its short-term…
Besley, S. & Brigham, E. (2007). Essentials of Managerial Finance (14th ed.). Mason, OH: Cengage Learning.
Graham, J., Smart, S. & Megginson, W. (2010). Corporate Finance: Linking Theory to What Companies Do (3rd ed.). Mason, OH: Cengage Learning.
To include: Rangers, Special Forces, Delta Force, Special Air Service, Special oat Service and Navy SEALs. (Dunnigan, 2010) As a result, many people within the U.S. military and the government will often discuss the valuable services that these companies are providing. Where, private security contractors can bring a wide range of experience with them, in dealing with a host of possible security challenges that could be faced within a theater of operations.
However, the main reason why both government and military personal have such favorable views of private security contractors, is because they are professionals and are effective at achieving their objectives. What is happening, is the personnel that private security firms can introduce to a conflict, can help prevent a situation from going to bad to worse. Where, a possible insurgent or terrorist attack that could send most people running; will cause these individuals to remain at their positions.…
Afghanistan Private Security Contractors Banned. (2010). Security Technology News International. Retrieved from: http://www.security-technologynews.com/news/afghanistan-private-security-contractors-banned.html
PMC's. (n.d.). Private Military. Retrieved from: http://www.privatemilitary.org/pmcs.html
Crofford, C. (2006). Private Security Contactors on the Battlefield. U.S. Army War College. Carlisle Barracks, PA: U.S. Army War College.
Dunnigan, M. (2010). Considerations for the Use of Private Security Contractors. Testimony the Committee on War Time Contracting. Washington D.C.
At first, it would seem that debt has more advantages than new equity. However, that is not always the case. The fact is that certain equilibrium between issuing debt and issuing equity has to be found. The cost of debt rises constantly, since the financial risk of a company grows together with the level of debt the company has to face. The cost of debt is the market interest rate that the firm has to pay on its borrowing and depends upon three components: the general level of interest rates, the default premium and the firm's tax rate. The cost of debt rises if the company has other debts, since the degree of risk a creditor takes increases. The company's beta indicator increases, so it does not have access to sources of financing as it once did. Therefore, issuing new equity becomes an interesting alternative.
What a company needs to…
1.Welch, Ivo, the Primer on Capital Structure, Finanzmarkt und Portofolio Management, 1995, welch.econ.brown.edu/academics/capitstruct.pdf
2.Campbell, Harvey, How do CFO's Make Capital Structures and Budgeting Decisions, Duke University, faculty.fuqua.duke.edu/~charvey/Research/Working_Papers/W62_How_do_CFOs.pdf
3.Damodaran, Aswath, "Finding the Right Financing Mix: The Capital Structure Decision, Stern School of Business, chapters 7,8,9 www.stern.nyu.edu/~adamodar/pdfiles/ovhds/ch7.pdf www.stern.nyu.edu/~adamodar/pdfiles/ovhds/ch8.pdf www.stern.nyu.edu/~adamodar/pdfiles/ovhds/ch9.pdf
LN's Financial Plan
The firm, which was conceptualized in 1944 as MPRSA changed to ndesa, in the year 1997. In 2006-2007, both by nel in Italy and Gas natural targeted ndesa. .ON, located in Germany also had interest in ndesa. Despite its smaller size, Gas Natural had backup from the then socialist government. After .ON offered 38.75 pounds to ndesa for each share, they took over the company, among others like SNT. Acciona and nel jointly took over to control ndesa. nel however was the higher bidder, with a share of 67.05% of the entire share capital. In 2009, nel bought the shares of Acciona, assuming ownership with over 92% share capital. It was agreed that some of the assets owned by ndesa, would be sold to Acciona. According to Reuters (February, 21) The nel Corporation was to get funding from different banks, amounting to eight billion, which…
ELEN's Financial Plan
The firm, which was conceptualized in 1944 as EMPRESA changed to Endesa, in the year 1997. In 2006-2007, both by Enel in Italy and Gas natural targeted Endesa. E.ON, located in Germany also had interest in Endesa. Despite its smaller size, Gas Natural had backup from the then socialist government. After E.ON offered 38.75 pounds to Endesa for each share, they took over the company, among others like SNET. Acciona and Enel jointly took over to control Endesa. Enel however was the higher bidder, with a share of 67.05% of the entire share capital. In 2009, Enel bought the shares of Acciona, assuming ownership with over 92% share capital. It was agreed that some of the assets owned by Endesa, would be sold to Acciona. According to Reuters (February, 21) The Enel Corporation was to get funding from different banks, amounting to eight billion, which was to assist in the financing of the company's deals.
The C.E.O of the Enel Company was optimistic about the firm's growth possibilities even during the harsh economic situations. The company's consolidated accounts indicated that the firm's revenue had increased with over 40% increase, due to its strategic business plans, that included the operation of different geographical areas, including the business transactions that were to be done abroad. The firm had a financial plan of generating income, through the new dividend policy, and they had the plan to dispose off most of the assets that were non-strategic. The proper management of the investment plans and the generation of a growing cash flow were the strategies that were to be implemented to recover their stand in the market and economy. This was meant to allow the company realizes its goals and business objectives. Already there was improvement, as proved in 2009 when the subsidiary company, had within months, gained over 300 million Euros. The increase was related to the increase in margins of the divisions of the company.
Additionally, alternative 2 provides the lowest coefficient of variation as well as the lowest standard deviation. The level of risk given the expected return is high and offers stability when compared to the other alternatives.
a. Stock B, stock A, stock C
b. If the market portfolio has a return of 12%, then stock a will realize a return of just below 12% or .096%. Stock b will have a return of 1.4 * 12% or .168%. Stock c will have a return of -.30 * 12% or -.036%
c. If the market portfolio has a negative return of 5%, then stock a will realize a return of -.04%. Stock b will realize a return of -.07%. Stock c will realize a return of -.015%
d. If the stock market were about to experience a decline, then the stock to add to the portfolio would be the stock with…
SeekingAlpha (2009) "Russell 2000 Small Cap Stocks to Watch." http://seekingalpha.com/article/146488-russell-2000-s-small-cap-stocks-to-watch
Moran's retirement annuity would be in perpetuity, with all other terms as equal (Ceteris Paribus), this is to mean that there is not a 20-year period till maturity. Additionally, as there is not a 20-year distribution period, the company will move the funds over to another interest bearing account at 12% yet not expect to have an account balance of $0 at the end of the term.
Generally speaking, actuaries will claim that a perpetuity will be planned for the client to payout its obligations via annuitized payments until the client age of 98 years old. Ms. Moran's current age is unclear, and we only know that her retirement annuity stream would last for 20 years. If she is 50 and retires in 12 years at 62, then her 20-year annuity stream would run out at 82 years old, with the perpetuity having to extend to cover an additional 16…
This gives project B. An I of -0.028%
Using the above assessments each may indicate which investment may be preferred. Using the payback period project a has a payback period of 4 years, whereas project B. has a payback period of 3 years 8 months. If the fastest payback period is preferred than project B. will be chosen.
The NPV which discounts the net revenues into a net present value shows that Project a has a loss of 1,576 and the loss for Project B. is 1,074. If assessed only on this basis, project a makes the greatest loss. However, the basic rule of NPV is that investments should only be made in projects where there is a new positive value, otherwise the firm is not earning the amount it is costing them in payments to support the capital used to fund the project (Weetman, 2010, p269).…
Bennouna, Karim; Meredith, Geoffrey G; Marchant, Teresa, (2010), Improved capital budgeting decision making: evidence from Canada, Management Decision, 48(2), 225-247
Cooper DW; Cornick MF; Redmond a, (2011), Capital Budgeting: A 1990 Study of Fortune 500 Company Practices, Journal of Applied Business Research, 8(3), 20-23
Evans, Dorla a; Forbes, Shawn M, (1993, Fall), Decision Making and Display Methods:the Case of Prescription and Practice in Capital Budgeting, the Engineering Economist 39, No. 1, 87-92
Favaro J, (1996, April), a Comparison of Approaches to Reuse Investment Analysis, Proceedings of the Fourth International Conference on Software Reusability
The curve describing this relationship between risk and return is a hyperbole connecting one and the other. Logically and economically, this also makes sense: if the investor is willing to assume more risks, he is also likely to potentially discover more alternatives and solutions in which to invest his money and open his investment to a greater impact from the market, in a positive sense.
Additionally, spending more money on the open market can even involve the investor in the decision making process, essential in determining the way the business is likely to evolve in the future. Putting your money at more risk than another investor will bring about higher returns.
The investments in securities or in a business are just as much subjected to the impact of inflation as the time deposits are. There are however important temporal differences. With the investment in a business or in securities, the…
1. Keown, Arthur; Martin, John; Petty, William. Foundations of Finance. Pearson Prentice Hall. 2006. 5th Edition
2. Gelinas, Mark. White Paper: The Lost Art of Interest Calculation. 2006-2008. On the Internet at http://www.margill.com/white-paper-interest.htm.Last retrieved on November 26, 2008
3. Campbell, R. McConnell. Microeconomics. McGraw-Hill Professional. 2004.
Analysts' independence refers to the ability of the analyst to publish opinions about the stocks they cover, free from corporate interference or oversight. In this pre-SOX example, analysts were under pressure from the investment banking arm of their parent company to run downgrades past management. The implication is that the analyst loses independence, that his or her views are going to be sterilized by senior management to avoid offending a current or potential future customer for some of the other services that the bank offers.
Maintaining a buy recommendation after a stock's price falls is not evidence that the analysts' independence is compromised. If the analyst thought the stock was undervalued before the drop, surely the analyst thinks the stock is still undervalued at the lower price point. The independence of an analyst cannot be judged on the basis of his or her recommendations. Independence is an input…
It does not appear that Target's credit card portfolio is out of line with its historic norms. Target has always had a credit card portfolio that is among the riskiest in the business, and this is built into the company's cost structure. Target knows that a relatively high percentage of total loans will be written off, but it makes provision for that, and as a result it has never reported losses greater than expected. Thus, the current policy does not seem to be anything particularly different.
The other factor is the timing of the concern, which was at the outset of the recession in 2008. At that time it was believe that Target should reduce its loans because more customers were going to struggle to repay them. The strategy that Target took, however, is somewhat the opposite. By extending credit, it would be able to engender greater brand loyalty among existing customers and also to attract new customers who would be otherwise unable to shop elsewhere. It is worth noting that Kmart enacted a similar strategy with its credit products as the result of the recession. Target's approach has not created too much trouble for the company, and its ability to identify good people to which to lend money does not appear to have waned. If that confuses some analysts, so be it. Target sometimes lends to riskier customers, but it has priced that into its credit policy.
It is important to note, from the onset, that for some projects, NPV may be more effective than I as far as discounting cash flows is concerned. This is particularly the case given that one of I's key limitations is its utilization of only a single discount rate in the evaluation of investments. Essentially, I would most likely work perfectly in those instances where, for instance, the two projects being evaluated have a discount rate that is common, have similar risks, and have cash flows that are predictable. It is, however, important to note that over time, discount rates do change. Essentially, with no modification, I doesn't capture the flexible discount rates. In the final analysis, therefore, I cannot be seen as being appropriate for long-term projects whose discount rates keep changing. I users could also face challenges in those instances where the discount rate is unknown. Further,…
Baker, H.K. & Powell, G. (2009). Understanding Financial Management: A Practical Guide. Malden, MA: Blackwell Publishing.
Peterson, P.P. & Fabozzi, F.J. (2004). Capital Budgeting: Theory and Practice. New York, NY: John Wiley and Sons.
Or that he is to make expenses on dropping pollution outside the quantity that is in the best welfare of the business or that is mandatory by law in order to add to the social objective of improving the atmosphere (Friedman, 1970).
Corporate culture has been established as an administration tool. Corporate culture can aid to attain corporate objectives comprising profit enlargement. Advocates of corporate culture as a tool propose that bureaucratic control should be substituted with culture control in that the management of rewards should be exchanged for the management of culture comprising principles, philosophies, language, ceremonial and legend. This procedure of socialization can comprise: selection at entrance level that makes applicants ask if they are good enough; humility-inducing familiarities in the first months; advancement tied to established record; consideration to corporate values and strengthening legend (Van den Berghe and Levrau, 2004).
Over the last several years, numerous Vietnamese…
Anh, Nguyen Hoang. 2008. Business Ethics in Vietnam- Reality and Perspective. [online]
Available at [Accessed 2 January 2011].
Chhabara, Rajesh. 2008. Intel in Vietnam -- Solving Vietnam's corruption logjam. [online] Available at < http://www.ethicalcorp.com/content.asp?ContentID=5694 > [Accessed 2 January 2011].
Corporate Governance in Vietnam -- the Beginning of a Long Journey. 2006. [online] Available at < http://www.ifc.org/ifcext/mekongpsdf.nsf/AttachmentsByTitle/PSDP-22-Eng-Exe/$FILE/PSDP-22-Eng-Executive-Summary.pdf > [Accessed 2 January 2011].
This is a particularly useful metric for retailers, because the fixed assets are typically the stores and land. The greater the degree to which the retailer can convert the stores and land to sales, the implication is that the retailer is a superior merchandiser. For al-Mart, the sales/net fixed assets ratio is 3.25. The RMA for this metric holds that 7.3 is "worst." This indicates that al-Mart is doing a relatively poor job by industry standards of converting its fixed assets (buildings and land) into sales.
The fourth profitability ratio is the sales/total assets. This metric takes the sales/net fixed assets ratio and adds back the other forms of assets. The value of this ratio to the creditor is that it provides an indication of the degree to which the firm converts all of its assets into sales. This is also similar to the ROA, except that it focuses on…
Loth, R. (2011). Financial ratio tutorial. Investopedia. Retrieved October 31, 2011 from http://www.investopedia.com/university/ratios/
Wal-Mart 2011 Annual Report. In possession of the author.
However, in such a case, USUS would still maintain its competitive advantage for a considerable time, as its technology is already tested and working, while the others are in the development and marketing process. The advantage of unique technology is therefore a unique position in a market where demand is rapidly increasing as energy providers continue to look for alternative sources of power for their clients.
In terms of its nearest competitor, the company's technology also places it in a favorable position in terms of earnings. Green Chemical Corporation for example has shown a decrease in its market share and a rise in its debt level. This has depressed earnings. USUS on the other hand has several products creating a variety of income streams. In addition, it is running at full capacity to produce UF6. Thus, the company is able to maintain its 30% market share in shipments, with the…
Cascade Water has the following cost of capital. The total value of the company is apparently going to be valued using market value. Normally, you wouldn't do that but ok. The market value of common stock is $1.26 billion. The market value of the debt is $461, 695, 000, which gives the total market value of the company as $1,721,695,000. The weight of equity is therefore 73.1%, which means that the weight of the debt is 26.9%.
The weighted average cost of capital is calculated as the weight of equity multiplied by the cost of equity, plus the weight of debt multiplied by the cost of debt. The cost of debt can be determined using a yield to maturity calculator. For this to work properly, you would need to know how much time is left to maturity, but since we don't have that we'll have to kludge our…
Guillermo Corporate Finance
Examining Guillermo Furniture: The Principles of Corporate Finance
Guillermo Furniture, a furniture manufacturer, wholesaler, and retailer located in Sonora, Mexico is faced with a choice. The company is facing increasing competition from overseas competitors that employ newer technologies in the manufacturing process that allow them to reduce labor costs without significantly sacrificing the quality of their products. With a rather substantial initial investment, Guillermo Furniture can purchase the equipment necessary for them to also move to a more automated manufacturing process, which would solve the problem of increasing labor costs in Sonora but which would also drastically change the company and its relationship with the people of the region. Guillermo could also shift from manufacturing to distribution, again drastically changing his company and his workforce relationship yet employing more individuals with lower initial costs. An application of the principles of corporate finance to this case can help…
It is also interesting to comment on the article's evaluation of the potential future trends for the companies in developing countries. The article evaluates a closer integration of these companies in the global market. This is something that is potentially bound to happen. Indeed, these companies are already playing a more important role on a regional level by investing in neighbor economies. Recently, a Kazakh corporation purchased a Romanian fuel processing company, which, in turn, had operations in the entire alkan Peninsula. Mol, from Hungary, was another corporation that had bid on the deal. This is all possible not because of the financial assets that these companies possess at a certain point, but because they are able to access capital on the international markets in order to grow their businesses.
However, the future is also likely to bring about a more rational approach to risk and risk management. At this…
1. World Bank. 2007. The Globalization of Corporate Finance in Developing Countries. Global Development Finance 2007.
2. International Monetary Fund. 2007. Global Financial Stability Report.
3. Mathieson, Donald J., Jorge E. Roldos, Ramana Ramaswamy, and Anna Ilyina, 2004, Emerging Local Securities and Derivatives Markets, World Economic and Financial Surveys (Washington: International Monetary Fund).
4. King, Robert G., and Ross Levine, 1993, "Finance and Growth: Schumpeter Might Be Right," Quarterly Journal of Economics, Vol. 108, No. 3, pp. 717-37
2010, September 18 Corporate Finance
The CDO market was largely attributed as being central to the sub-prime crisis. By first describing what CODs are and how they operate, identify and assess the failings in risk management practices used to manage the risks posed by these products by the banks involved.
isk assessment failure has been shown to be the primary causes of the sub-prime crisis in addition to a lack of information on the part of investors by which to assess their investing decisions. The sub-prime crisis was driven by collateralized debt obligations or CDOs which effectively veiled the associated risks contained in the portfolios of investors. The study which follows examines the CDOs and the role that they played in the sub-prime mortgage crisis. As well this study examines the specific factors that served to drive the crisis and the resulting mortgage defaults rates which ultimately has…
CDOs in Plain English (2004) Nomura Fixed Income Research 13 Sept 2004. Online available at: http://www.vinodkothari.com/Nomura_cdo_plainenglish.pdf
Kirk, Edward J. (nd) The Subprime Mortgage Crisis: An Overview of the Crisis and Potential Exposure. Online available at: http://www.rli-epg.com/articles/Subprime-Mortgage-Crisis.pdf
Kolb, Robert W. (2010) Lessons from the Financial Crisis: Causes, Consequences, and Economic Future. John Wiley and Sons, 2010
Collateralized Debt Obligations (2010)About.com -- U.S. Economy. Online available at: http://useconomy.about.com/od/glossary/g/CDOs.htm
1980s Affecting Corporate Finance
From about the mid 1980s, the trend has been for companies, especially large ones, in industrialized countries to seek financing directly from financial markets rather than borrowing from commercial banks. This practice was motivated by various changes affecting corporate finance (Topsy-turvy, 1986). The main external source of corporate financing currently can be traced back to these past developments although more recent developments are also important.
Two changes traced to the mid 1980s that affected corporate finance were deregulation and internationalization. Deregulation caused increases in the cost of loans from commercial banks and in the number and types of entities offering financing (Topsy-turvy, 1986). Deregulation of interest rates permitted banks to pay higher rates for deposits, eventually increasing the price for loans. Consequently, it was cheaper for top-rated companies to obtain money by issuing commercial paper than by borrowing from banks. Deregulation also allowed more entities to…
Gongloff, M.(2010, September 8). Blue-Chip Borrowers Issue Debt in Droves Wall Street
Journal (Online). Retrieved from http://proquest.umi.com.ezproxy.fiu.edu/pqdweb?index=0&did=2133668831&SrchMode=2&sid=2&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1290691705&clientId=20175
Humana's Corporate Finance Analysis
In 1992, David Jones, the Chairman and Chief Executive Officer of Humana Inc. considered a major change within its integrated strategy of managing both hospitals and health plans because Jones thought about whether it still made sense for the company to jointly operate both hospitals and health plans, considering emerging trends within the healthcare industry within the United States. However, the Chairman/CEO felt there was more data and a comprehensive investigation was vital of Humana's tactics and procedures by elder executives who had regarded an array of alternatives for reorganizing the business' commercial formation embracing the entire severance of the company's infirmary and health plan processes. The fiscal forecasters who track Humana believed that parting was even more possible even though they were predictably controlled and there was no abrupt risk of evasion on its liabilities. In conclusion of the supervising team felt that…
Business Day. (1996, August 15). Humana inc. (hum, n). The New York Times. Retrieved from http://www.nytimes.com/1996/08/15/business/humana-inc-hum-n.html?src=pm
Gamble, M. (2011, July 11). The quiet takeover: insurers buying physicians and hospitals. Retrieved from http://www.beckershospitalreview.com/hospital-financial-and-business-news/the-quiet-takeover-insurers-buying-physicians-and-hospitals.html
Harvard Business School. (1994). Humana inc. managing in a changing industry. Manuscript submitted for publication, Department of Business, Harvard Business School, Boston, Massachusetts.
McClure, B. (2011). DCF analysis: coming up with a fair value. Investopedia. Retrieved August 2, 2011, from http://www.investopedia.com/university/dcf/dcf4.asp
The budgeting process requires the university to have a clear sense of its core values: What is more important -- a new athletic facility or maintaining high salaries for faculty? The way that a university education is transmitted to students will also be impacted by the budgetary process. Providing more online courses may cut facilities expenditures, but students will be deprived of the benefits of peer and professor interaction. These classes may be taught by adjuncts and non-tenured faculty -- is it right to create a culture of poorly paid teachers who do not receive benefits?
The most important lesson is that no institution can be all things to all people -- the institution must set priorities and strive to achieve its goals. By trying to do everything, given the limited resources at its disposal, the university will inevitably fail.
Business -- Corporate Finance - Net Present Value - Mergers & Acquisitions -- SLP Facebook
the Merger of Facebook, Inc. And Twitter, Inc.
Choosing a company to merge with Facebook, Inc. is a difficult task because Facebook, Inc. is a huge, valuable, cutting-edge company. When forced to choose a prospect for merger, I would settle on Twitter, Inc. (ahoo! Finance, 2013). First, both companies are in the Technology/Internet Information Provider field, so there is some commonality of technology and service (McClure, Mergers and acquisitions: Definition, 2009). Secondly, Twitter is state-of-the-art technology, using social networking and microblogging using instant messaging, SMS or web interfaces (Twitter, Inc., 2013) with an undeniable level of popularity. Meanwhile, Facebook, Inc. is constantly striving for cutting edge forms of providing technological information. Consequently, the two companies share an aggressive corporate culture that pursues the most advanced provision of internet-based information (McClure, Mergers and acquisitions: Why they…
Yahoo! Finance. (2013, December 16). TWTR key statistics. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q/ks?s=TWTR+Key+Statistics
Yahoo! Finance. (2013, December 16). TWTR: Summary for Twitter, Inc. common stock. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q?s=TWTR
Yahoo! Finance. (2013, December 16). YHOO: Summary for Yahoo, Inc. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q?s=YHOO
Corporate Finance Tools
Company chosen: oyal Dutch Shell.
How are Financial atios Used?
Many analytical tools, techniques and concepts have been developed by both analysts and investors to compare companies' strengths and weaknesses over the years. Fundamental analysis is based on these tools, techniques and concepts (Lan, n.d.).
atio analysis was developed as a tool for the performance of quantitative analysis on the numerical figures that occurred in financial statements. atios assist in the connection of the three financial statements and provide numbers that can be used to compare different organizations, industries and even sectors. One of the most broadly applied techniques of fundamental analysis is ratio analysis (Lan, n.d.).
The following ratios are used by companies to display several important performance indicators to investors and also provide data from past years for the purpose of comparison. They are also used internally to see the company's performance against competitors (Lan,…
Investopedia. (2016). Capital Budgeting. Retrieved from Investopedia: http://www.investopedia.com/terms/c/capitalbudgeting.asp#ixzz4BS0FHetd
Investopedia. (2016). Optimal Capital Structure. Retrieved from http://www.investopedia.com/terms/o/optimal-capital-structure.asp#ixzz4BS13aHxo
Lan, J. (n.d.). 16 Financial Ratios for Analyzing a Company's Strengths and Weaknesses. Retrieved from http://www.aaii.com/journal/article/16-financial-ratios-for-analyzing-a-companys-strengths-and-weaknesses.touch
Thomson, P. (2016). Developing a total cash management strategy. Retrieved from http://www.ceoforum.com.au/article-detail.cfm?cid=9590&t=/Steve-Sargent--GE-Australia -- New-Zealand/Executing-on-innovation/
5% for FY2003 to 25.26% in FY2007. From this specific financial ratio it is clear that Microsoft is performing significantly above their competitors in terms of managing the long-term value of shareholder's equity. nother critical profitability ratio, Return on ssets (RO), Microsoft again shows exceptionally strong performance relative to Google and Oracle. For FY2002, Microsoft deliver 11.52% on asset utilization, rising to 18.1% for FY2006. Google's RO was 34.74% for FY2002 dropping to 1.66% in FY2006. For Oracle, RO also dropped, from 20.85% in FY2003 to 12.36% in FY2007. Oracle's many acquisitions during these years has significantly dropped RO. Oracle acquired PeopleSoft, Siebel Systems, Retek, and several smaller software companies, which has also diluted their Return on Equity (ROE) as well.
nother key profitability ratio, Net Profit Margin (%), shows the volatility of Google as an investment relative to Microsoft or Oracle. Microsoft's Net Profit Margin (%) showed stability in…
Assessing the relative risk of Microsoft as an investment begins with an assessment of profitability across each of the companies profiled. Return on Equity (ROE) Microsoft has grown from 15% from FY2002 to 31.42%in FY2006, more than doubling in value. Conversely ROE for Google has slipped from 57.29% for FY2002 sliding to 18.06% for FY2006. For Oracle, ROE has also slid from 36.5% for FY2003 to 25.26% in FY2007. From this specific financial ratio it is clear that Microsoft is performing significantly above their competitors in terms of managing the long-term value of shareholder's equity. Another critical profitability ratio, Return on Assets (ROA), Microsoft again shows exceptionally strong performance relative to Google and Oracle. For FY2002, Microsoft deliver 11.52% on asset utilization, rising to 18.1% for FY2006. Google's ROA was 34.74% for FY2002 dropping to 1.66% in FY2006. For Oracle, ROA also dropped, from 20.85% in FY2003 to 12.36% in FY2007. Oracle's many acquisitions during these years has significantly dropped ROA. Oracle acquired PeopleSoft, Siebel Systems, Retek, and several smaller software companies, which has also diluted their Return on Equity (ROE) as well.
Another key profitability ratio, Net Profit Margin (%), shows the volatility of Google as an investment relative to Microsoft or Oracle. Microsoft's Net Profit Margin (%) showed stability in the years included in this analysis, starting at 27.6% for FY2002, rising to 28.45% in FY2006. Oracle's Net Profit Margin (%) dropped slightly yet stayed flat during the analysis period, moving from 24.35% in FY2003 to 23.75% in FY2007. Google's volatility is shown in their performance on Net Profit Margin (%). From 22.67% in FY2002, dropping to 7.21% in 2003, then rising to 29.02% in FY2006 shows how volatile the Google business model can be when analyzed using profitability ratios.
When these three companies are compared on key liquidity indicators, Google's dominance on the Quick Ratio shows how well their advertising-based business model is working. On the Current Ratio, Google increased from 2.59 in FY2002 to 10 in FY2006. For Microsoft, their Current Ratio decreased from 3.81 in FY2002 to 2.18 in FY2006. For Oracle, their Current
Political upheavals can work in a similar fashion, increasing the perceived risk of an investment without a direct corresponding increase in the potential rewards, as well as directly threatening the ability to transport goods, access and move capital, etc. (Peterson & Fabozzi 2002).
Differences in tax laws could also make it advantageous for firms to restructure their capital budget to show income and expenditures in the nations that have the most favorable tax incentives for such transactions, and can also heavily influence where capital is stored based on interest growth tax rates (Peterson & Fabozzi 2002). Transfer pricing also takes place with both parties attempting to maximize their return, agreeing on certain currencies of exchange, adjustment procedures, etc., contributing in no small way to the strategic budgeting and financing of a firm (Peterson & Fabozzi 2002; Vishwanath 2007). Strategic decisions that take into account non-financial consideration can also greatly influence…
Peterson, P. & Fabozzi, F. (2002). Capital budgeting. New York: Wiley.
Vishwanath, S. (2007). Corporate finance. Thousand Oaks, CA: Sage.
Cost of Capital
The capital which is used by a firm, and shown n the balance can be divided into two main classifications; debt and equity. When a firm assesses its total cost of capital, this will usually be calculated on a weighted basis, using the costs of the different types of capital (Elliott and Elliott, 2011). An understanding of this can be appreciated by looking at some of the main sources of capital and the costs associated with each type of capital.
One of the most common forms of capital is debt. Debt is capital that is obtained through borrowing. There are many kinds of debt, which may include long-term debt such as structured loans from banks or other financial institutions, and short-term debt, such as overdraft facilities and credit agreements with suppliers. The cost of debt is relativity simply to calculate, with most debts having an…
Collins, Bill; Mckeith, John (2009), Financial Accounting and Reporting, McGraw-Hill Higher Education
Elliott B, Elliott J, (2011), Financial Accounting and Reporting, London, Prentice Hall
Hillier, David; Ross, Stephen A.; Westerfield, Randolph W; Jaffe, Jeffrey, (2010), Corporate Finance, McGraw-Hill Higher Education
Defining the term "good company" on the terms of it recently experiencing rapid growth may be premature in realizing its worth as an investment. apid growth is a tricky idea and may lead many investors down the wrong path if they are unaware of the basics of stock valuation and determining what is right, prudent and wise. Although rapid growth may be an indicator of in fact a very good company to invest in, this criteria alone does not serve the successful investor in all cases.
Value is what is most important in this equation, as the risks involved in the market are unforgiving in those who ignore this idea in its entirety. Hough (2011) agreed with this idea when he wrote "esearchers have long studied the relationship between "value" and "growth" stocks. The difference mostly has to do with price. Value stocks are cheap relative to fundamental…
Business Dictionary.com (nd). "Total Risk." Viewed 3 July 2014. Retrieved from http://www.businessdictionary.com/definition/total-risk.html
Hough, J. (2011). Why Value Will Beat Growth. The Wall Street Journal, 29 Oct 2011. Retrieved from http://online.wsj.com/news/articles/SB10001424052970204505304577003822965852682
5x -- 50,000
200,000 / 7.5 = 26,6667 units
1e) the ROE for the first scenario is 140,000 / (0.85*350,000) = 47%
the ROE for the second scenario is 140,000 / (0.65*350,000) = 61.5%
The difference is 61.5 -- 47 = 14.5%
1f) the dividend payout structure is going to be as follows. The taxable income will be as follows:
($200,000 * .35) = $70,000 of debt. The interest will be (70,000)(.105) = $7,350
So taxable income will be $200,000 -- 7350 = $192,650
Tax at 30% is $57,795
Thus, net income is $192,650 - $57,795 = $134,855
The equity needed for the capital budget is (.65)(150,000) = $97,500
The dividends are therefore calculated as $134,855 - $97,500 = $37,355
The payout is therefore $37,355 / $134,855 = 27.7%
2. a) the company faces some risks if it tightens the credit policy. It will reduce its accounts receivable if it…
he first area of dispute in the Kansas City Zephyrs accounting disagreement between the owners and the players is roster depreciation, which the owners claim causes them a loss of 2 million dollars and which the players do not recognize. It appears as though the players are correct for not recognizing this loss, since the only time that expense occurs is when a team is bought by someone else. Additionally, by mitigating this possibility with the effect that players improve with experience and training and the players are right.
In terms of current roster salary it appears as though the players are right in the case of the Zephyrs. heir rectitude is based on the fact that the owners are actually paying part of the player's salary much later (10 years) than they are recognizing losses for. he Zephyrs are not paying that money now, although other teams…
The phenomenon in accounting practices that was dubbed the Earnings Game in the 1990's article by Justin Fox is the clever manipulation of earnings in order to consistently meet the projected earnings of a publicly traded company by the myriad of analysts who evaluate it. The goal, of course, is to not fail to meet your earnings by a penny, as well as to not exceed expectations by too much -- since doing so could dramatically later future expectations and throw off the smooth, regulated meeting of earnings. Companies play this game, of course, because it helps to bolster their stocks. The public and the financial community in general is greatly impressed by companies that meet their earnings over a sustained period of time. There are many different ways in which companies can subtly manipulate their earnings to meet the expectations of analysts. One is to defer recording revenue until it is advantageous to do so -- a similar process may involve losses. The point, of course, is to keep investors pleased by demonstrating stability.
I was astounded to find out that the history of writing and record keeping can be traced back to accounting and the management of pecuniary resources. I always thought that writing was created for some high literary pursuit of which I could not conceive. Moreover, I was almost certain that record keeping was began for the purpose of history -- such as to denote the fact that an ancient king had 27 wives or to trace the lineage of such a person. The bible certainly alludes to the latter fact, although that was written well after most of the events described in the article "Antecedents of the Accounting Profession."
I also believed that this same concept applied to Scribes, and was shocked to see that they dealt less with history than with pragmatic, monetary affairs.
Corporate Social and Environmental eporting: Greenwashing or Legitimate Accounting Practice?
Corporations have increasingly been viewed as owing a social and environmental responsibility to a wide range of stakeholders, including their employees, shareholders, the communities in which they compete as well as the larger populations they serve. In some jurisdictions, social and environmental reporting is required by law while corporate social and environmental reporting is a voluntary practice. Therefore, when corporations engage in corporate social and environmental reporting, it is clearly intended to further their best interests and image among their stakeholders. For instance, according to one economist, "The main motivation for corporate [social and environmental] reporting ... is to enhance corporate image and credibility with stakeholders" (Adams, 2002: 244-245). This paper reviews the relevant literature to provide the basis for an agreement with Adams' assertion, followed by a summary of the research and important findings concerning corporate social and environment…
Adams, C. (2008) "A commentary on: corporate social responsibility reporting and reputation risk management," Accounting, Auditing & Accountability Journal, Vol. 21 No: 3, pp. 365 -- 370.
Adams, C. (2002), "Internal organisational factors influencing corporate social and ethical reporting beyond theorizing," Accounting, Auditing, and Accountability Journal, Vol. 15 No. 2, pp. 223-250.
Baxi, C. & Ray, R. (2009, January) "Corporate Social & Environmental Disclosures & Reporting." Indian Journal of Industrial Relations, Vol. 44. No. 3, pp. 355-360.
Bebbington, J., Larringa-Gonzalez, C., and Moneva, J. (2008), "Corporate social responsibility reporting and reputation risk management." Accounting, Auditing, and Accountability Journal, Vol. 21 No. 3, pp. 337-361.
This in turn gives the financial professional better idea of the stock's risk behavior.
The equation used in this security market line relationship is as follows:
Mathis, CAPM, par. 3)
The measure of systematic risk is considered Beta or bi while E[Ri] is equal to the expected return on asset I and Rf is the risk-free rate. E[Rm] is the expected return on the market portfolio and E[Rm] - Rf is the market risk premium for the stock. Once the Beta is known then the risk and rate of return can be found.
APT is different because not only can forecast for the long-term, it can also work for the short-term scenario. This fact makes it the better of the two theories because it gives the financial professional more tools to assess risk and the rate of return. APT does this by using a model that captures all the data.…
Anonymous. "Risk and Return." The Economist (1991): 1-2.
APT: Risk Models and Portfolio Analytics. 22 Dec 2004 http://www.apt.com/..
Capital budgeting needs vision." Business Line. Islamabad: Jul 21, 2003. pg. 1.
Johnson and Johnson Financial Summary. Yahoo Finance. 22 Dec. 2004 http://finance.yahoo.com/q?s=JNJ&d=t ..
finance and financial entrepreneurship. The basis of the article is on a discussion that was held on this subject among four leading lights of financial entrepreneurship in the United States - Michael Milken, Lewis Ranieri, Richard Sandor and Myron Scholes. These people are famous in their own right and have had a sizeable role in financial entrepreneurship in the U.S. over the last 20 years. We have first discussed their achievements to get a clear idea about their personal achievements. This would certainly give a clear idea of what is possible in the U.S. today. They are of course interesting characters and one has to remember that the ideal entrepreneur of the 21st century cannot be thought of as an updated version of Henry Ford. After the discussion of the people, the meeting and the discussions held there are summarized. ased on the total information collected, we have come to…
Altman, E.I., ed. The High-Yield Debt Market: Investment Performance and Economic Impact, 41-57. 1990.
Atkinson, T.R. Trends in Corporate Bond Quality. Hardingson, 1967.
Goodfriend, Marvin; Parthemos; James, Summers, Bruce J. Recent financial innovations: courses, consequences for the payments system, and implications for monetary control, Economic Review, March 14-27, 1980
Schneider, S.H. Laboratory Earth: The Planetary Gamble We Can't Afford to Lose. Basic Books New York, NY. 1997.
corporate merger between Delta and Northwest airlines in order to find out the possible reasons why it was necessary. We evaluate the merits associated with corporate mergers and the challenges that might be faced in the process. A recommendation on how mergers should be carried out is also provided
Mergers and acquisitions form a very integral part of the contemporary corporate landscape. Kolker (2010) points out that initial six months of the year 2010 witnessed the total value of global acquisitions increase to 2.7% to a monetary value of $915 billion. This was an increase for the initial six months of 2009. 2010 however was off to a rather slow start as compared to 2006 which recorded an excess of $3.8 trillion in transactions related to acquisitions (Yeary, 2007). It is worth noting that it is never the volume of the deals that matter but their size. Averagely, there were…
Appelbaum, S., Lefrancois, F., Tonna, R. And Shapiro, B. (2007). Mergers 101 (part one):
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.
Bijlsma-Frankema, K. (2001). On managing cultural integration and cultural processes in mergers and acquisitions, Journal of European Industrial Training, 25/2/3/4, 192-207
Brigham, EF & Houston, JF (2009).Fundamentals of Financial Management
hat information would you require to assess the options which are open to ABH Electronic (15 Marks)
In order to properly assess the options that are available to ABH electronics I would need additional information pertaining to the economic conditions of the three countries seeking to attract ABH. Specifically I would need to know the Gross Domestic Product, the overall market index, the consumer price index (inflation), the annual per capita income of residents and the overall economic viability of the various countries. I would need to assess this information because knowing the economic condition of a country will enable the chief financial officer to create a strategy that is beneficial to ABH electronics. It will also allow the CFO to examine the risks associated with doing business in that particular country. I would also need to know the size of the market, the demographics, social issues and…
About Hedge Funds. http://www.magnum.com/hedgefunds/strategies.asp
How Partnerships Work. National Council for Public-Private Partnership. http://ncppp.org/howpart/index.html
Mitigating Risks for Foreign Investments in Least developed countries" 2000. Ministry for Foreign Affairs.
What is hedging? Why do companies hedge?. http://www.finpipe.com/hedge.htm
Question 1.a) Bond ratings encompass a wide range of elements related to the credit risk of the firm. Moody's notes that bond ratings include elements of default probability, loss severity, "financial strength" and "transition risk" (Cantor & Fons, 1999). The authors note that within the same sector, bonds of the same rating tend to be comparable both with respect to overall credit quality and specific credit quality characteristics. Over different segments of the bond market, this is not necessarily the case. Bond ratings tend to take in factors like the balance sheet strength of the firm, as well as the expected loss in the event of a default. Thus, the type of assets that the firm holds is an important characteristic. The transition risk reflects the likelihood that the firm will experience outright default without transitioning down through the different risk categories. Firms that are almost assuredly going to…
Cantor, R. & Fons, J. (1999). Rating methodology: The evolving meaning of Moody's bond ratings. Moody's. Retrieved April 27, 2012 from http://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/2000400000300541.pdf?frameOfRef=corporate
Investopedia. (2012). Net present value. Investopedia. Retrieved April 27, 2012 from http://www.investopedia.com/terms/n/npv.asp#axzz1tFv4YkMI
Summary of the purpose of Corporate Sustainability Reporting
Reporting corporate sustainability is one of the best ways to ensure that a company is not only doing well financially in the present but also in securing a better and more certain future. The reporting of corporate suitability ensures that the current needs of the organization are effectively met without comprising future needs of the organization. Reporting on corporate sustainability also ensure that organization are able to keep up with all changes in the industry, with ensuring that new innovations have been developed, maintained and employed in the daily operations of the organization. Corporate sustainability is developed on a grid developed to ensure that the future is secure, and that the organization will survive for a long time.
Corporate sustainability also encompasses the assessment of current and future risks that the organization is likely to endure. As such, a majority…
Chee Tahir, A., and Darton, R. C, 2010, "The process analysis method of selecting indicators to quantify the sustainability performance of a business operation." Journal of Cleaner Production, Vol. 18, 1598 -- 1607.
Kaufman, A. And Englander, E, 2011, "Behavioral Economics, Federalism, and the Triumph of Stakeholder Theory." Journal of Business Ethics, Vol. 102 No.3, 421-438.
Fassin, Y, August 2012. "Stakeholder Management, Reciprocity and Stakeholder Responsibility." Journal of Business Ethics, Vol. 109 No.1, 83-96.
Pryor, M, Humphreys, J, Oyler, J, Taneja, S. And Toombs, L, December 2011, "The Legitimacy and Efficacy of Current Organizational Theory: An Analysis." International Journal of Management Part 2, Vol. 28 No.4, 209-228.
For example, many of the large investment banks may choose to deal only with large deals will have minimum transaction sizes. Therefore, the first consideration may be the suitability of the bank given the size of the organization. There may also need to be consideration of the degree of attention and expertise that the investment banker direct with the company, even if the minimum is met, large organizations with a large number of clients may have a higher level of expertise that can be directed, but they may also be more focused on large clients. This can only be assessed by talking to the relevant investment bank.
Prior to taking on any investment bank it will be necessary to allow the investment banker to make a pitch. oss details of the organization's financial position may be given prior to this pitch, but an investment banker should be willing to sign…
Friedman, Benjamin M, (1982), The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, University of Chicago Press
Miller, M. H, (1988), The Modigliani -- Miller Propositions after Thirty Years, Journal of Economic Perspectives 2(4), 99 -- 120.
Turo, J, (2013, October 2), How to Choose The Right Investment Banker to Sell Your Business, Entrepreneur, accessed 27th April 2014 at http://www.entrepreneur.com/article/228671
Another important issue to consider in the contraction of debt is represented by the impact of this debt on the company stakeholders -- employees, business partners, the public, and most importantly, the share holders. The primary scope of the economic agent is that of creating value for its stakeholders, but excessive debt could jeopardize this desire, especially since debt is money that has to be repaid and it as such reduces the future levels of profitability.
At the level of value creation, a crucial aspect to be analyzed is represented by the source of the debt to be contracted. On the one hand, there is the contraction of debt through loans, which are characterized by the fact that control and ownership of the company remains intact, but payments have to be regularly made; the payments are nevertheless tax deductible.
On the other hand, there is the contraction of…
Corporate Social esponsibility and Environmental Ethics
Abstract/Introduction -- No one can argue that the international business community is becoming more and more complex as a result of globalism. In turn, this complexity is driven by an increasing understanding of sustainability, going "green," and bringing ethical and moral philosophy into the business community. British Telecom, for instance, noted in 2007 that it had reduced its carbon footprint by 60% since 1996, setting itself a target of 80% reductions by 2016 (Hawser, 2007). Francois Barrault, CEO, BT Global Services, said that by supporting sustainability his company hoped not only to reduce its carbon footprint but also to attract younger people who prefer to work for environmentally and socially responsible companies. He didn't always think that way, though. Barrault said that when he first met former U.S. vice president and environmental activist Al Gore, who showed him pictures of icecaps melting, he thought…
Career Services. The University of Edinburgh. Retrieved from:
Corporate Social Responsibility in the Global Supply Chain.. APEC
Human Resources Development Working Group. Retrieved from: http://hrd.apec.org/index.php/Corporate_Social_Responsibility_in_the_Global_Supply_Chain.
Over the last several years, the portfolio theory has been used as a way to help corporate investors analyze different securities and determine the impact of specific investments on their total returns. This is when a firm will construct a portfolio of securities which are based upon expected returns associated with certain levels of risk. During this process, there are four steps that are involved to include: security valuation, asset allocation, portfolio optimization and performance measurement. ("Modern Portfolio Theory," 2013)
These different areas reduce volatility and enhance the total returns for corporate investors. To fully understand these ideas requires: carefully examining the effects of the theory in relation to the risks of a security and the overall costs of capital to firms. Together, these elements will highlight why this approach has become so popular with corporate investors. ("Modern Portfolio Theory," 2013)
The effect of the portfolio on risk…
Modern Portfolio Theory. (2013). Investopedia. Retrieved from: http://www.investopedia.com/terms/m/modernportfoliotheory.asp
Elton, E. (2009). Modern Portfolio Theory. Hoboken, NJ: Wiley.
Francis, J. (2013). Modern Portfolio Theory. Hoboken, NJ: Wiley.
Scherer, B. (2005). Modern Portfolio Theory Optimization. New York, NY: Springer.
Flexible Budget for Yum Brands Inc.
Flexible budgeting allows a firm to look at different potential scenarios, often this may be undertaken for an optimistic, pessimistic and most likely scenario. Firms will often undertake forecasting exercises; these may be based on complex approaches to assess likely demand, for example, considering past patterns of sales, the impact advertising they will have and other factors such as the influence of the economic climate, competition and social factors. However, forecasts are unlikely to be fully accurate, the development of a flexible budget allows the firm to look at different scenarios, and create a more flexible approach towards planning. This can be particularly important when the firm is planning for a longer period of time, such as a full financial year, this can be seen by preparing a flexible budget for a well-known company. Yum! Brands is a large corporation which develops, operates…
McDonalds, (2013), Shareholder Information, accessed http://www.aboutmcdonalds.com/mcd/investors/shareholder_information.html on 4th Jan 2014
Trading Economics, (2014), U.S. GDP Growth Rate, accessed http://www.tradingeconomics.com/united-states/gdp-growth on 4th Jan 2014 from Yum! Brands Inc., (2013), 10-k for 2012, Yum Brands Inc.
Yum! Brands Inc., (2011), 10-k for 2010, Yum Brands Inc.
3) a. If $1.25 represents a 40% dividend payout ratio, earnings per share are $3.13. A six percent return (the required return) would put future earnings at $3.32. ((3.32-3.13)*100)/3.13 = 6.07%
b. 40% (the dividend payout ratio) of $3.32 (future estimated earnings) is $1.33
c. The price of the stock cannot be calculated accurately with the information given, however if its is assumed that the earnings per share (currently $3.13 with dividends of $1.25 and a dividend payout ratio of 40%) represent the 20% return on equity, then the price is simply five times the earnings per share, or $15.65.
d. assuming the dividend payout ratio and return on equity remain constant at 40% and 20% throughout this period, a and the same relationship for the ROE and stock price, in the first year, a dividend of $2 means EPS increases to $5, translating to a stock price of…
There have been controversies on the subject of the governance and accountability of big corporations, but it is only recently that these issues have gained prominence. The compensation for the top management is one of the major issues of corporate governance today. The primary reason for offering stocks to executives was for raising the share prices and thereby increasing its value for both investors as well as shareholders. Though this proved to be a major success, there were a few executives who would not disclose their stock options or would not make full use of the stock options offered to them. This caused inefficiency in the financial market. Stakeholders have the freedom to check their shares and to question the management if there were any discrepancies. Despite these constant checks with financial analysts, the board of directors, the panel of regulators, auditors and managers, there has been instances…
Charkham, Jonathan. 1994. 'Keeping Good Company: A Study of Corporate Governance in Five Countries' New York: Oxford University Press.
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De George, Richard T. 1995. 'Business Ethics' New Jersey: Prentice-Hall, Inc.
Fort, Timothy L. 2001. 'Ethics and Governance: Business as Mediating Institution' New York, N.Y: Oxford University Press.
Corporate governance of finances in major corporations has been a major controversy during the recent recession. The scandal at Satyam is indicative of problems across the board, from CEOS, to executive boards, to independent auditors and even accounting firms such as Price Waterhouse. In this essay, the author will consider the unique problems presented in a globalised market where faith in the market is essential for international trade to function.
When the CEO assumes the entire responsibility in a corporate governance fiasco absolving everyone else (family members, board of directors, independent directors and other top management people), how should the regulatory authorities and the government proceed against the CEO who has confessed and other people who were absolved by him. Critically evaluate especially from the point-of-view of absolving all the others including the top management, board of directors and the family members, from any of the accumulated corporate wrongdoings.
Caprio Jr., J. And Levine, R. (2002). Corporate Governance in Finance: Concepts and Inernational Observations. World Bank, IMF, and Brookings Institution Conference, Building the Pillars of Financial Sector Governance: The Roles of Public and Private Sectors.. pp. 1-44. Available: http://www.siteresources.worldbank.org/DEC/.../corporategover_finance.pdf.
Kumar, G, Paul, P, and Sapkota P. (2011). The Largest Corporate Fraud in India: Satyam Computer Services Limited, Proceedings of the American Accounting Association 2011 Annual Meeting pp. 1-23. Available: http://www.mendeley.com/research/largest-corporate-fraud-india-satyam-computer-services-limited/ . Last accessed 24 Dec. 2011.
The topic of finance and managerial accounting inclusively, are broad and incorporate a critical skill set in the modern day business student. Finance involves corporate and investment finance and managerial accounting is complimentary as it involves cost accounting and essentially stresses cost management. Together, these topics provide a comprehensive financial analysis skill set yielding capability in solving the day's most critical business financial quandaries. The literature review will seek to narrow down the literature and funnel the topic into the main financial analysis area.
According to Musvoto, (2011), "Studies in accounting measurement indicate the absence of empirical relational structures that should form the basis for accounting measurement. This suggests the lack of objectivity of accounting information. Landmarks in the development of finance theory indicate the use of accounting measurement information as a basis for their development. This indicates that subjective accounting information is incorporated in finance theory. Landmarks…
Allen, D. (1992). Financial management: The leading edge of management accountancy. Strategic Finance, 73(12), 53. Retrieved from http://search.proquest.com/docview/229748882?accountid=13044
Black, T., & Gallagher, L. (1999). Are physical capacity constraints relevant?: Applying finance-economics theory to a management accounting misconception. Australian Journal of Management, 24(2), 143. Retrieved from http://search.proquest.com/docview/200627217?accountid=13044
Brewer, P.C. (2008). Redefining management accounting. Strategic Finance, 89(9), 26. Retrieved from http://search.proquest.com/docview/229763529?accountid=13044
Coakley, J.R., & Brown, C.E. (2000). Artificial neural networks in accounting and finance: Modeling issues. Intelligent Systems in Accounting, Finance and Management, 9(2), 119. Retrieved from http://search.proquest.com/docview/214368060?accountid=13044
It should not be treated as a separate exercise undertaken to meet regulatory requirements." (ICA, 29) Here is expressed a philosophical impetus that drives the focus of this research, that such compliance which will generally concern matters such as corporate accounting, the practice of internal oversight and the practice of financial transaction must be considered inextricable from other aspects of practical, procedural and legal operation in terms of its relevance and necessity.
The practice of corporate governance may perhaps best be understand from the perspective that deregulation has largely defined the processes and direction of the global economy across the two decades following the Cold ar and its inevitable opening of economic channels. This is because in practice, corporate governance is a concept which has suffered much neglect. To the point, the statistics availed by organizations such as the orld Bank and the International Monetary Fund illustrate that…
Aguilera, R.V. & Yip, G.S. (2004). Corporate Governance and Globalization:
Toward an Actor Centred Institutional Analysis. University of Illinois: College
of Business. Online at .
ASB. (1999). Reporting Financial Performance. Financial Reporting Council. Online at
An investor choosing between two different companies must undertake several steps in order to determine the best investment. In addition to understanding the industry of the company from a strategic perspective, a thorough financial analysis should be conducted. The strategic analysis will help to understand the underlying trends of the financial assessment. The financial analysis should include a ratio analysis, and should focus on the key areas of liquidity, solvency, leverage and profitability. In addition, the performance of the company's equity should be analyzed, particularly in relation to the company's financial performance. This will help to determine if the current share price is good value. This report will analyze two different companies -- Marks & Spencer and Tullow Oil -- using these criteria. There will also be a brief corporate social reporting analysis.
Marks & Spencer Overview
M&S is a department store retailer based in the UK, but operating…
Marks & Spencer 2010 Annual Report. Retrieved February 11, 2011 from http://annualreport.marksandspencer.com/overview/about-us.aspx
Yahoo! Finance: Marks & Spencer. Retrieved February 11, 2011 from http://finance.yahoo.com/q/bs?s=MKS.L+Balance+Sheet&annual
TullowOil.com. (2011). Retrieved February 11, 2011 from http://www.tullowoil.com
Yahoo! Finance: Tullow Oil. Retrieved February 11, 2011 from http://finance.yahoo.com/q/is?s=TLW.L+Income+Statement&annual
In these cases, others working in those fields are the only ones who have the ability to conduct quality check to verify instances of possible fraud. Qualified doctors can analyze the work of other doctors to attest their medical malpractice. An honest lawyer who deals with related issues can understand how a fellow lawyer could have used deceitful methods to cheat a client off his money. Proficient lecturers can set good examples for students to bring out the incompetency of others. In the managerial level, well qualified professionals are the only ones who are smart enough to figure out the plots hatched by higher executives in order to use the shareholder money for personal needs. Scams in the political sector can only be challenged by opposing political parties or powerful entities like the court. The media is highly potent in this regard as they present malpractices in front…
Description of Corporate Governance [online] Available at: [Accessed 11 August 2010]
Corporate Social Responsibility (CSR) [online] Available at: [Accessed 11 August 2010]
Blundell M., Explain what is meant by the principal agent problem [online] Available at:
< tutor2u.net/blog/files/Principal_Agent_Problem.pdf > [Accessed 11 August 2010]
As some queries about corporate governance were there ever since 1932 - the period of erle and Means, the expression of the concept of Corporate Governance was not found in English vocabulary until 25 years ago. However, in the previous two decades, matters relating to corporate governance have gained importance in academic literature as well as in public policy deliberations. Corporate governance came to be acknowledged as being synonymous with takeovers, financial restructuring, and activities of institutional investor's during this part of the era. Corporate Governance is now at a turning point. Several budding and up-coming economies that are on the path of development have identified by now that excellent corporate governance is vital for sustainable economic development. Furthermore, a lot are on the lookout for a novel or appropriate standard for making it relevant for their particular internal situation. (erle and Means, 1932)
The last ten years…
Berle, A; G. Means (1932) "The modern corporation and private property" Macmillan, NewYork. pp.54-58
Hart, O. (1995). "Firms, contracts and financial structure" Clarendon Press, Oxford. pp.32-36
Jensen, M and Meckling, W. (1976). "Theory of the firm: Managerial Behavior, Agency Costs and Ownership Structure" Journal of Financial Economics, Volume. 3.pp. 305-360
Shleifer, Andrei; Vishny, Robert W. (1997) "A Survey of Corporate Governance," Journal of Finance Volume. 52. pp. 737-83.
Corporate governance, a concept which has succeeded in attracting a lot of public interest due to its perceived importance for the corporations' and society' economic health in general has been accorded several definitions. Shleifer and Vishny (737) defined corporate governance as a concept that deals with the manner in which suppliers of various financial services to corporations somehow assure themselves of getting some good return on their investment. OECD (1999) on the other hand defines corporate governance as a system by which various corporations are effectively directed as well as controlled. The structure of corporate governance specifies the form of distribution of rights as well as responsibilities among various different participants in a given corporation. The participants include the board of directors, managers, stakeholders as well as the shareholders. The corporate governance structure lays down the rules as well as procedures to be used for making various decisions on the…
Lisboa, Ines "Understanding the Relationship between Insider Ownership and Performance in Europe." 2008
Merchant, Kenneth & Van der Stede, Wim 2nd ed.. Management Control System: Performance Measurement, Evaluation and Incentives. Prentice Hall. (ISBN-13: 978-0-273-70801-8). April 27, 2007
Organisation for Economic Co-operation and Development "OECD Principles of Corporate Governance." 2004 < http://www.oecd.org/dataoecd/32/18/31557724.pdf
When combining the two, future market trends can be more accurately predicted by basic it upon existing trends. In this way, the risk factors associated with both areas of R&D are significantly reduced.
The most prominent risks associated with R&D, as identified above, include market research and competition. In addition to risks associated with market trends, risks posed by competitors can also be mitigated with a combination of strategies. The three remaining categories of R&D include long-term, short-term, and intermediate-term R&D.
Long-term R&D can be associated with the offensive R&D strategy, as it entails a projection of market needs in the long-term. This means that products and services are developed on the basis of prediction rather than fact. The most important reason for this is to rise above the competition. The risk associated with this is the fact that competitors may develop long-term products that exceed the company's projects, thus…
Financial Analysis of Morrison's PLC
Morrison's, the UK supermarket may be assessed as a potential investment. The firm may be considered by looking at the way that the share price is performing, comparing it to its past performance as well as benchmarking the performance against the industry
The share price will reflect the market expectations, so as well as looking a past performance it is also necessary to look to the potential future; this is often achieved by looking at the financial ratios of the firm considering the performance both vertically and horizontally.
Morrison's appears to have had a relativity mixed year; the share price stands at 277.60, closing price on the 24th August, 2012 (FT, 2012). The share price has been volatile, increasing and decreasing, over the last 52 weeks the high has been 340.00 and the low has been 261.00 (Yahoo Finance, 2012). Over the year the…
Baye Michael, (2007), Managerial Economics and Business Strategy, McGraw-Hill/Irwin
Elliott B, Elliott J, (2011), Financial Accounting and Reporting, London, Prentice Hall.
Financial Times, (FT), (2012), WM Morrison Supermarket PLC, retrieved 25th August 2012 from http://markets.ft.com/Research/Markets/Tearsheets/Summary?s=MRW:LSE
Financial Times, (FT), (2012), Tesco PLC, retrieved 25th August 2012 from http://markets.ft.com/Research/Markets/Tearsheets/Financials?s=TSCO:LSE
"hen Congress returned in 1934 to complete the federal disclosure tapestry, it created express private causes of action for misleading reports filed with the Securities and Exchange Commission (SEC) as part of the newly enacted continuous disclosure requirements, (3) provided private recoveries for market manipulation, (4) and authorized suits on behalf of reporting companies for short-swing profits garnered by certain insiders (Cox, Thomas, and Kiku, 2003)."
The creation of the SEC as a government body for oversight arose out a recognition by the courts that private action was not enough to protect investors and consumers from the materially misleading representations of corporate America (Cox, Thomas, and Kiku, 2003). Since its creation, however, the numerous laws and regulations that have come to frame the world of corporate governance have exceeded the limits of manageable governance. By the time the SEC has identified a problem, pursued investigation of the corporate representations of…
Anderson, Jonas V. 2008. Regulating Corporations the American Way: Why Exhaustive Rules and Just Deserts Are the Mainstay of U.S. Corporate Governance. Duke Law Journal 57, no. 4: 1081+. Database online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=5027008674 . Internet. Accessed 16 June 2009.
Angelidis, John P., and Nabil A. Ibrahim. 1993. Social Demand and Corporate Supply: A Corporate Social Responsibility Model. Review of Business 15, no. 1: 7+. Database online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=5001675246 . Internet. Accessed 16 June 2009.
Bavly, Dan A. 1999. Corporate Governance and Accountability: What Role for the Regulator, Director, and Auditor?. Westport, CT: Quorum Books. Book online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=114694551 . Internet. Accessed 16 June 2009.
Besser, Terry L. 2002. The Conscience of Capitalism: Business Social Responsibility to Communities. Westport, CT: Praeger. Book online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=106996136 . Internet. Accessed 16 June 2009.
Corporate Social esponsibility
I attaching assignment paper write essay CS.
Given the heightened level of international operations and globalization, pressure is mounting for corporations to behave ethically. Corporations are forced to developing standards, policies and behaviors as a demonstration of their sensitivity to concerns of stakeholder. The policies behaviors and standards are what a European commission called corporate social responsibilities. The Commission defined corporate social responsibility (CS) as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" Commission, 2001.
Complementing this definition, McWilliams and Siegel. (2001)
, said CS include all actions that are intended to forge, beyond the firm's interest, a social good, and is a requirement in law.
Composition Corporate Social esponsibility
Corporate social responsibility entails coming up with solutions specific to a society. The corporation is however, not forcefully charged with an…
Balmer, John M.T., & Dinnie, K. (1999). "Corporate identity and corporate communications: the antidote to merger madness," Corporate Communications: . An International Journal,, 4, 68-86.
Balmer, J.M.T. (2001). Corporate Identity, Corporate Branding and corporate marketing European Journal of Marketing 34(4), 248-291.
Buckley, P.J., & Ghauri, P.N. (2004). Globalisation, Economic Geography and the Strategy of Multinational Enterprises. Journal of International Business Studies, 35(2), 81-98.
Commission, E. (2001). Promoting a European Framework for Corporate Social Responsibility.' Green Paper, 264.
They are held responsible by the CEO.
The shareholders of the corporate are the legal owners of the corporation. In most cases, they do not actively control the corporation, but rather are responsible for appointing the board to oversee the corporation on their behalf. The shareholders as owners have some entitlement to profits from the company, but the terms of that profit distribution are generally decided by management when it announces its dividends. The shareholders do have a small handful of legal responsibilities. They elect the board. They also vote to approve the auditors. Occasionally, such as when Arthur Andersen collapsed, shareholders may be compelled to vote outside of normal shareholder meetings. The shareholders also have certain rights of ownership such as the rights to the proceeds from the dissolution of a company, should there be any.
The above definitions apply primarily to public corporations. These roles may differ in…
eNotes. (2010). Agency theory. eNotes. Retrieved September 24, 2010 from http://www.enotes.com/biz-encyclopedia/agency-theory
Raymond, D. (2005) Independence and the private company: Adopting Sarbanes-like rules on director independence would impair the smooth function. Entrepreneur. Retrieved September 24, 2010 from http://www.entrepreneur.com/tradejournals/article/135241457.html
Such problems are not overcome easily, but in time and with sustained efforts. To better understand my standpoint of defending the bailouts, consider what would have happened had the TAP never been implemented. All of the companies would have commenced bankruptcy procedures and the millions of workers they were employing would have been fired. At a first level, the state would have had to offer those former employees social aid. Then, the national purchasing power would have decreased even more, to impact the national demand and the national production. Also, the country's competitive position within the global market would have decreased dramatically. Overall then, while the bailouts may not have been fairly and efficiently allocated and while they did not revive the economy immediately, they did prevent it from taking an even more damaging turn.
Haugen, D., 2010, Bailout Money Should Not Be Used to Pay Executive Bonuses, Detroit:…
Haugen, D., 2010, Bailout Money Should Not Be Used to Pay Executive Bonuses, Detroit: Greenhaven Press
Haugen, D., 2010, the Government Bank Bailout Plan Is a Fraud, Detroit: Greenhaven Press
Haugen, D., 2010, the Government Bank Bailout Will Not Jump Start the American Economy, Detroit: Greenhaven Press
September 2008, Government Bailouts Must Put Americans First, U.S. Newswire
The greatest risk to the research and development department is therefore a loss of creativity, innovation, and accurate estimation of market trends. Internal factors that could influence these functions include stress. Employees who are required to be innovative and creative on a constant basis may suffer from burn out and stress, severely affecting their work. Internally, the demands of the department may therefore affect employees adversely. The rest of the organization is then affected in terms of product quality. When research and development are not carried out effectively, new products and services may not meet market demands in a sufficiently targeted manner. The result is then financial losses to the company, as the market interest diminishes. Furthermore, threats from competitive companies are increased when the research and development department does not function on an optimal level. The rest of the organization is then at risk of financial hardship, which may…