Tuesday, 26 April 2011
assignment
one word Hard, I knew this wasnt going to be easy,ive read the article dozens of times, attended the lectures, printed some information off but nows the time of trying to piece it all together. What we have learnt in the lectures does make sense in a fashion and it all pieces together the assignment, its just getting the right words to critically analyse it. I now understand there is a natural link between the blogs and the lecture notes and Glen Arnolds book, Understanding value is a mindboggling concept for a businessman and the link to understanding value and managing risk is the key to picking the right cash flow and creating the right hurdle you need when undertaking a new business venture. I just hope i am seeing these concepts in the right light to help me produce a valid assignment.
Monday, 18 April 2011
Blog 10
Dividends are the main focus from this weeks lecture, I missed the previous weeks lecture, But reading the notes from powerpoint i know the two lectures are understanding the core concepts of dividends. The theory from Modigilani and Millar argue that dividends are irrelevant because investors do not really care what they get whether it is a capital gain or dividends they just want the overall thing. After attending the lecture and reading the concepts, I disagree with their theory because dividends are relevant, Because why would they spend so much money paying dividends?.
Their view is questionable, M&M'S take on it would work if everything in the financial world is ok eg- no risk and no problems. Dividends are important because it gives an insight into a companys performance. The traditional view is high dividends equals good news, low dividends equals bad news but that might not always be the case as markets especially in the UK work on short term. Investors would prefer to have a stable payout at one level so they have security in dividends, not one year high, one year low as this creates uncertainty.
M&M'S theory promotes a fluctuating dividend because it isnt considering going bad. M&S is a good example of promoting a stable dividend and it proved M&M'S theory wrong that dividends dont show a signal to their customers, As M&S kept reserves so that they could pay out a stable return in bad years so people did not know any different, as no payment one year may show risk. They would not want this as M&S's message they send out to customers is a reputable one and that it is reliable for as long as people want to invest and stay with them.
Their view is questionable, M&M'S take on it would work if everything in the financial world is ok eg- no risk and no problems. Dividends are important because it gives an insight into a companys performance. The traditional view is high dividends equals good news, low dividends equals bad news but that might not always be the case as markets especially in the UK work on short term. Investors would prefer to have a stable payout at one level so they have security in dividends, not one year high, one year low as this creates uncertainty.
M&M'S theory promotes a fluctuating dividend because it isnt considering going bad. M&S is a good example of promoting a stable dividend and it proved M&M'S theory wrong that dividends dont show a signal to their customers, As M&S kept reserves so that they could pay out a stable return in bad years so people did not know any different, as no payment one year may show risk. They would not want this as M&S's message they send out to customers is a reputable one and that it is reliable for as long as people want to invest and stay with them.
Sunday, 10 April 2011
Blog 9
Impact on risk-and the nature of investment appraisal tools.
In the lecture today we have been looking at payback,net present value and rate of return. We would need to find out that the objective is MSW, With a cash flow you need to find the mark which was the initial investment and that would mean you start getting payback. To consider a project you need to move away from profit as a key benchmark. NPV is the best method when choosing an investment.
Some business sectors are riskier than others, You would use the beta value which is the calculated risk for each industry. The higher the risk the higher the return. Projects can be sensitive when costs increase, You need to make sure that it is still viable. A sensitivity analysis needs to be undertaken, An example of this would be the oil industry as this is sensitive at the moment with the libyian crisis. Costs may go up due to importing into the UK and shortages of oil. When a hurdle rate is set a premium for business risk needs to be considered as there would be an uncertainty, A fair market would be a price that is appropriate to that industry. You would never accept a project lower than this but every project you take on it will affect your weighting cost of capital so you will have to re-run your figures every time you do a new project and im sure that would definately fluctuate within the oil industry.
In the lecture today we have been looking at payback,net present value and rate of return. We would need to find out that the objective is MSW, With a cash flow you need to find the mark which was the initial investment and that would mean you start getting payback. To consider a project you need to move away from profit as a key benchmark. NPV is the best method when choosing an investment.
Some business sectors are riskier than others, You would use the beta value which is the calculated risk for each industry. The higher the risk the higher the return. Projects can be sensitive when costs increase, You need to make sure that it is still viable. A sensitivity analysis needs to be undertaken, An example of this would be the oil industry as this is sensitive at the moment with the libyian crisis. Costs may go up due to importing into the UK and shortages of oil. When a hurdle rate is set a premium for business risk needs to be considered as there would be an uncertainty, A fair market would be a price that is appropriate to that industry. You would never accept a project lower than this but every project you take on it will affect your weighting cost of capital so you will have to re-run your figures every time you do a new project and im sure that would definately fluctuate within the oil industry.
Tuesday, 5 April 2011
The budget
The budget was announced on March 23rd, This to me was very interesting, The fuel duty was to be cut by 1p per litre. What should have been done to help the economy out more was to cut VAT on petrol so that way tax on oil companies will not bang it back onto the customers at the petrol pump.
Personal tax allowance rises by £630 to £8,105 in April 2012 this will still not help long term as cost of living is rising and people are living longer and in-turn paying more tax. This shows by the next announcement of state pension going up to the age of 66 by 2020. Borrowing is to fall to 122bn next year but would this really be true after events not so long ago that happened in Ireland and Portugal, with the collapse of the economy. My evaluation of this would be that surely borrowing would have to increase to help the EU out so that a depression would not happen as countries begin to collapse the euro will be majorly damaged.
The budget also announced that 100,000 more work experience placements will happen over the next few years but without financial stability there will be no growth which means no jobs.There is uncertainty and with that comes risk. Another step in the wrong direction for creating MSW for any company.
Personal tax allowance rises by £630 to £8,105 in April 2012 this will still not help long term as cost of living is rising and people are living longer and in-turn paying more tax. This shows by the next announcement of state pension going up to the age of 66 by 2020. Borrowing is to fall to 122bn next year but would this really be true after events not so long ago that happened in Ireland and Portugal, with the collapse of the economy. My evaluation of this would be that surely borrowing would have to increase to help the EU out so that a depression would not happen as countries begin to collapse the euro will be majorly damaged.
The budget also announced that 100,000 more work experience placements will happen over the next few years but without financial stability there will be no growth which means no jobs.There is uncertainty and with that comes risk. Another step in the wrong direction for creating MSW for any company.
Wednesday, 30 March 2011
blog 7
FDI = Foreign Direct Investment.
This could happen when it is too pricey to make it in your own country or if you have a mature market you could move to another country for a new market and then it is made over there which could cut out costs of importing and exporting.
FDI is a long haul idea it is hard to reverse it, Development of FDI is already with developed countries such as USA, China etc not developing countries. This is because there is a lower economic and political risk you cannot 100% predict what will happen in the economy, But you are more guaranteed that things such as political war will not break out eg-Libya. This has a knock on affect on surrounding countries causing ripples for other countries to follow suit in toppling their government. Because these countries are richly endowed with natural resources eg oil, it will affect rapidly growing markets in other countries that need imports and exports as it all depends on transporting, and if you dont have the right infrastructure you will not have the right FDI.
FDI shows to me why there are followers as it encourages new growth, A leader will go because of MSW and risk which encourages companies to persue it if the rate of return is right. In the news at the minute, because of new regulations, there is fear a number of uk banks could move their headquarters abroad.
Quoted in the Telegraph(30th March) - Barclays shareholders are suffering because of uk authorities reluctance to allow them to return to their pre-crisis level of payout. An options paper out next month may force banks to seperate their "casino" investment, and if this happens it might force banks to protect their economic service.
Banks might move to China,USA etc as these are already developed countries as there could be a lower economic risk. The UK is a front runner in the financial sector it is what continues to make the "machine" run.I wonder what would happen if this did happen it would be a huge blow as we are so dependant on this sector. We need to encourage more businesses that can produce raw materials in the UK so we maybe have a service to fall back on.
This could happen when it is too pricey to make it in your own country or if you have a mature market you could move to another country for a new market and then it is made over there which could cut out costs of importing and exporting.
FDI is a long haul idea it is hard to reverse it, Development of FDI is already with developed countries such as USA, China etc not developing countries. This is because there is a lower economic and political risk you cannot 100% predict what will happen in the economy, But you are more guaranteed that things such as political war will not break out eg-Libya. This has a knock on affect on surrounding countries causing ripples for other countries to follow suit in toppling their government. Because these countries are richly endowed with natural resources eg oil, it will affect rapidly growing markets in other countries that need imports and exports as it all depends on transporting, and if you dont have the right infrastructure you will not have the right FDI.
FDI shows to me why there are followers as it encourages new growth, A leader will go because of MSW and risk which encourages companies to persue it if the rate of return is right. In the news at the minute, because of new regulations, there is fear a number of uk banks could move their headquarters abroad.
Quoted in the Telegraph(30th March) - Barclays shareholders are suffering because of uk authorities reluctance to allow them to return to their pre-crisis level of payout. An options paper out next month may force banks to seperate their "casino" investment, and if this happens it might force banks to protect their economic service.
Banks might move to China,USA etc as these are already developed countries as there could be a lower economic risk. The UK is a front runner in the financial sector it is what continues to make the "machine" run.I wonder what would happen if this did happen it would be a huge blow as we are so dependant on this sector. We need to encourage more businesses that can produce raw materials in the UK so we maybe have a service to fall back on.
Wednesday, 23 March 2011
Blog 6
Portugal on Callapse!
The European central bank have already helped Portugal by buying its government debt, This uncertainty creates panic in investors which shows there is no stability. Standards of limit plunge and prices become more competitive. This shows there is risk and risk does not help MSW. The Euro has dipped because of the uncertainty that portugal need a bailout from the EU. In lecure 4 we learnt about syndicated loans,which could spread risk of borrowing between the banks. This is generally used by the government as it would be a big bailout. This is what happened in the case study discussed in the lecture, When five japanese banks financed a takeover of the third largest broker. But the UK government will eventually want their money back from bailouts. The uk have to be carefull when doing this, as we are in a credit crunch and a domino will start to take place. The market is a "bear" one at the minute and everybody is hibernating so to speak and watching what they spend and no-body is borrowing money out, But if there is no fuel (money) to keep the machine oiled it will not work. Costs cannot be cut too hard and too fast it needs to be kept at a happy medium. The crisis that happened in the breakdown of Greece, One contributor was allowing civil servants to retire on full pensions after serving 20 years, their pension system could not stand this, The budget is published tomorrow it would be interesting to see what happens with the UK's state pension. Confidence needs to be maintaind with key stakeholders and customers to keep uncertainty within the market to a minimum so not to cause panic, As this situation can only get worse before it gets better.
The European central bank have already helped Portugal by buying its government debt, This uncertainty creates panic in investors which shows there is no stability. Standards of limit plunge and prices become more competitive. This shows there is risk and risk does not help MSW. The Euro has dipped because of the uncertainty that portugal need a bailout from the EU. In lecure 4 we learnt about syndicated loans,which could spread risk of borrowing between the banks. This is generally used by the government as it would be a big bailout. This is what happened in the case study discussed in the lecture, When five japanese banks financed a takeover of the third largest broker. But the UK government will eventually want their money back from bailouts. The uk have to be carefull when doing this, as we are in a credit crunch and a domino will start to take place. The market is a "bear" one at the minute and everybody is hibernating so to speak and watching what they spend and no-body is borrowing money out, But if there is no fuel (money) to keep the machine oiled it will not work. Costs cannot be cut too hard and too fast it needs to be kept at a happy medium. The crisis that happened in the breakdown of Greece, One contributor was allowing civil servants to retire on full pensions after serving 20 years, their pension system could not stand this, The budget is published tomorrow it would be interesting to see what happens with the UK's state pension. Confidence needs to be maintaind with key stakeholders and customers to keep uncertainty within the market to a minimum so not to cause panic, As this situation can only get worse before it gets better.
Thursday, 17 March 2011
5th blog
If the market was perfectly fair, There would be no arbitrage in the market. This is an additional return for no additional risk. There is only small pockets of opportunities for arbitrage, as the market corrects itself. So economists need to have constant knowledge of the stock market to evaluate risk and opportunities. Also trading has to be done in true exchange rates. The true exchange rates are set by supply an demand. You need to be concerned about the Euro,Dollars,Yen,etc, As exchange rates fluctuate. This will cause risk exposures for companies trading internationally. Strong currency could deter exporters but low currency could encourage exporters. Transaction,Translation and Economic exposures could add to the risk mix.
An example of an indirect economic exposure that is happening in the world today, is the catastrophic natural disaster in Japan. There has been an adverse change in the stock market, quoted in the Telegraph(Thursday 17th March 2011)-"The FTSE 100 edged higher on the hopes that the G7 will act to calm financial markets after the esculating crisis at Japans earthquake-damage nuclear plant sent the Yen soaring to a post-war high and shares falling". This is going to damage Japans exporters which may push them further into crisis. Fears of leakages at the nuclear plant has wiped billions of dollars off the stock market. To conclude, There will be a knock on affect to the global stock market in coming months because of this disaster and other political conflicts in the world. Governments and companies may need to internally hedge so to spread the risk of any investments drying up because of cash flow due to the stock market, so they are reducing the costs related to financial distress. I will keep an eye on what happens in the coming weeks.
An example of an indirect economic exposure that is happening in the world today, is the catastrophic natural disaster in Japan. There has been an adverse change in the stock market, quoted in the Telegraph(Thursday 17th March 2011)-"The FTSE 100 edged higher on the hopes that the G7 will act to calm financial markets after the esculating crisis at Japans earthquake-damage nuclear plant sent the Yen soaring to a post-war high and shares falling". This is going to damage Japans exporters which may push them further into crisis. Fears of leakages at the nuclear plant has wiped billions of dollars off the stock market. To conclude, There will be a knock on affect to the global stock market in coming months because of this disaster and other political conflicts in the world. Governments and companies may need to internally hedge so to spread the risk of any investments drying up because of cash flow due to the stock market, so they are reducing the costs related to financial distress. I will keep an eye on what happens in the coming weeks.
Tuesday, 8 March 2011
Blog 4
This weeks lecture consisted of international stock exchanges and stock market efficiency. New york,Tokyo and Japan are the three main players in the stock exchange because of the time difference, We get a 24 hour stock exchange. London is a world player and if theres mergers this can create MSW. In the news at the minute, There is speculation that there will be a German takeover of the New York stock exchange and if that happened there would be a massive ripple in the financial market.
The problem with the mergers is that it could lead to different rules and regulations, But the positive side is that more competition leads to stock trading being less profitable, So the answer is to get bigger and get rid of the competition to become a monopoly. More mergers may be on the way so they become more successful if they have the same idea to create MSW, 2 heads are better than one so to speak, It will create a group that will dominate european trading. Because of advances in global financial markets i.e, changes in technology it is easier to trade because more can take place now because of the speed of technology.
This has to be accessed and managed properly because of the risk factor, as this is the seed of destruction. So the question is- Is mergers of the stock market the way forward? = Yes if the risk is managed correctly and it increases MSW.
The problem with the mergers is that it could lead to different rules and regulations, But the positive side is that more competition leads to stock trading being less profitable, So the answer is to get bigger and get rid of the competition to become a monopoly. More mergers may be on the way so they become more successful if they have the same idea to create MSW, 2 heads are better than one so to speak, It will create a group that will dominate european trading. Because of advances in global financial markets i.e, changes in technology it is easier to trade because more can take place now because of the speed of technology.
This has to be accessed and managed properly because of the risk factor, as this is the seed of destruction. So the question is- Is mergers of the stock market the way forward? = Yes if the risk is managed correctly and it increases MSW.
Tuesday, 1 March 2011
Blog 3
On the first lecture, We looked at an Empirical survey this indicated mission statements within countries. The outcome showed that their corporate social responsibility to MSW was a low percentage in valueing its importance. This is quite suprising, As MSW is the core value depending on what you do with the market share in the short term it can affect it in the long term. Welfare of employees is quite a good strategy to have as this creates productivity. People who love the company and who love working for them helps to create a good impression to outsiders and that can drive MSW. You can also link rewards to shareholder wealth improvements. If you have a goal,(goal congruence) which requires you to bring your different ideas together to please people, But Jenson 2010 quoted "Multiple objectives is no objective" i:e Trying to please everybody-Managers,employees and stakeholders. You have to concentrate on the most important one as you cannot please everybody and that is the shareholder to MSW. The problem is they all should want the same aim.
Saturday, 19 February 2011
2nd blog
Another factor that the module is about is risk, I havent blogged for a few weeks to try and evaluate the lectures and do some reading. I now know that debt is cheaper than equity because of the risk factor, If you are working internationally you have to be sure of rules and regulations eg: how much tax you pay because it may increase the risk. When looking at ventures you need to ask yourself does it maximise shareholder wealth?, not just does it make a profit. If it maximises shareholder wealth and it gives you a positive MPV you should persue it no matter what the hurdle rate is as long as it is a positive. People will buy a riskier share because of a greater return. The stock market needs huge suppliers and a huge demand. To get the correct price the market has to be close to perfection, if imperfections are large the whole system is brought into question that the shares arent fair.By looking at graphs of reaction and efficiency in lecture,it shows to me that the market isnt fair but not by alot.
Thursday, 10 February 2011
my first blog
This is first blog, been doing this module now for two weeks,im a bit concerned about the finance factor because all my class mates are AAT students, Whereas i only have done HND.I hope by the end of the module i fully understand what it is all about. The summary of the module is maximising shareholder wealth which i have grasped the idea of, all the questions accumilate to this answer. In the news yesterday it discussed that banks will try to increase loans to small businesses. I hope this will help new industrys grow and maximise new stakeholders wealth and not just be reliant on the banking industry in this country we need more industrys to help achieve more economics in this country.
Subscribe to:
Posts (Atom)