Dividend Policy

Dividend policy can be dividend policy can be defined as a policy that a company uses to decide how much it will pay out to their share holders. The term of having a high dividend it self it shows that the company has a high profits or having an excellent performance, on the other hand the term of having a low dividend shows that this company are having a low or negative profit or having a bad performance. Dividend of the company are usually paid out in relevant the company are paying out to their shareholders when the company are having a surplus money. While sometimes the company are paying their investors with a high amount of dividend because of they still want to keep their investors, because when company are paying their investors with a low dividend it makes their investors to sell their share price.

Moldigiani and Millar (1961) argue that share price where determined by future earning potential not dividends paid out. In addition, the share value of the company are usually paid out determined by the investment policy not the amount of earning distributed. This assumptions come out from believing in rational investors are usually searching for a capital gain and dividends. Before this view there are actually two views that has been used by them which are Linter (1956) and Gordon (1959) that are having usually a similar views which is the arguments that dividends are preferable to capital gains because uncertainty.  

In a real word practice most of the costumers are usually seeking a stable dividends, where they are believe that if they are giving a low dividend they will lost the investors, but in giving a high dividend most of the managers are afraid that they can not maintain the unsustainable in the future. Most of the company are usually not giving all of the surplus money eventhough they are making a lot of profit.

Jupiter suffers from after revenue miss forecast because a miss analyst due to a strong by its funds and a large inflows of new client money. This leads to a sending Jupiter shares down 20.3p, or 6.4 per cent to 298p on friday.The market valuation of Jupiter, which went public in June with shares priced at 165p, has risen more than 80 per cent since, making it one of the best-performing European initial public offerings above $100m (£62m) last year.Jupiter used some proceeds from the offering to strengthen its capital position. Net debt fell to £63m at year-end, compared with £140m in the prior year.In the 12 months to December 31, pre-tax profit was £42.4m, compared with £7.2m a year ago while net revenue came in at £230.5m, up from £182.1m.The fund manager’s board recommended a maiden dividend of 4.7p per ordinary share. Mr Bonham Carter said the group intended to implement a progressive dividend policy in the future.He said more than 50 per cent of its mutual funds by AUM were ranked in the first quartile in terms of three-year investment performance.Warnings that margins are expected to fall after an overhaul of how retail investors pay for fund management in the UK may also have spooked markets.“We expect net management fee margins to decline over time, as distributors take an increasing share of fees and the retail distribution review alters industry pricing structures,” Mr Bonham Carter said (Financial Times, 2011).

Through analysing Jupiter case by having a high expectation towards their dividend will lead to a loss of investors that actually will lower the share price of the company and leads an inconsistency of performance that this company made. where actually most of the investors are seeking towards a stability of performance that the company made. It can be conclude that, managers are better to always make sure the sustainability of the company by always controlling the divined policy of their company because actually investors are seeking for it and hence it will help the company growth. 

  

All Saints are asking for £100 millions of capital injection.

In order to expand the company financing is becoming an important aspects that managers should concern. There are mainly two types way of financing that company can use which are; debt financing and capital financing. During the previous session, there is a debate between which financing method will be more useful? Most of people are preferring on having debt financing due to less complicated procedure and faster way to get finance. 

Despite all of the advantages in using debt financing, there are some disadvantages that most of company might face in having debt financing which is high gearing ratio. Gearing is a fundamental analysis ratio of a company's level of a long-term debt comparing to its equity capital (Investopedia, 2011). In a way, gearing is explaining how the company is finance their operation weather through capital or trough borrowing money.  Having a high gearing it means that they are having a lot of debt and it can cause a future problem in a future, whereas through having a low gearing it means that the company operation are working in a safer way but it will reduce the productivity of a company. However, most of the the managers and company are aiming to maximize the shareholders wealth that in the end force them to have a high gearing.

All saints are borrowing  £100 asking an injection from Lebanese investment group M1 Group and ex-Goldman Sachs banker Richard Sharp. According to the spokesman of all saints, this funds would also recapitalize the business and help pay for the fashion label expansions plans. On the other hand, all saints also ask the Lloyds Tsb to increase their exiting working capital facility for the group to around £50 millions from their current capital facility of £28 millions (Financial times, 2011).

Trough analyzing what All saints actually did is quiet good at the moment. Where this company are actually financing expansion trough using both capital finance and debt financing. By keep on maintaining both of their debt and capital it keep their gearing in better position. It is supported by Arnold (2008) that most of the company are aiming to maximize their shareholders wealth and always keep on expanding their business it self, by always maintain their gearing in a "good position" it will making sure that the company are in healthy condition, which is far from a bankruptcy and keep maintaining their expansion. There is no way for a company just increase either their debt of capital for running a company, but they should increase both of their financing are once a a time or in correspond with each other.

Investment Appraisal Tools

Investment Appraisal Tools

Investment is a very crucial parts in a business if they are to survive in the long-term. Investment decisions are not a simple matter of looking at an investment and saying 'Yes that looks profitable' and going ahead. Most businesses will have a choice of a range of investment projects and they need to have a basis for comparing them to evaluate which is the best.

Before making any decision in deciding any investment, the managers should estimate the investment project using investment appraisal tools. There are numbers of investment tools that the company might use in order to assess the potential risk, return, opportunity cost, payback time (period) of each investment, with the aim of better understanding about their investment. Tools that being use as the investment appraisal tools are; 

Payback period
This is the first and one of the simplest appraisal techniques. You simply need to look at the financial returns that the project is expected to generate over all the years of its life and compare these to how much it cost. You then look at how long the investment takes to payback its original cost. The faster the payback, the better.
Average rate of return
This method also looks at the returns (the net cash flows) over the years of the investment. It then works out how much the average return is over the lifetime of the project, divided by the original cost to get a percentage return. The higher the return, the better.
Discounted cash flow
This is the most sophisticated and complex of the methods as it takes into account the time value of money. In other words, it takes account of the fact that a return in several years is worth a lot less than having the same return in your hand now. Therefore future returns need to be discounted to see what they would be worth now. Once this has been done, then it is easier to evaluate what the investment may be worth.
Net Present Value
NPV is difference between the present value of the future cash flow from the investment and the amount of investment. Present value of expected cash flows is computed by discounting them at the required rate return. In addition, a positive NPV means a better return, and a negative NPV means a worse return, than the return from zero NPV.


The Merger between Vodafone and Mannessman is expected to deliver post-tax cashflow savings of approximately GBP 200m per annum ($330m) by the year ending 31 March 2002, resulting in a net present value of approximately GBP 2.1 billion ($3.5 billion), together with significant additional cashflow benefits from revenue enhancements and new products. Moreover, the Merger provides an outstanding platform for rapid growth and expansion, accelerating customer growth through acquisitions, new licenses and leadership in next generation mobile technology. such conclusion are assessed based on consumer appraisal tools. It is believed to say that a good investment managers should count and estimate the company's return on investment using the investment appraisal tools.

Notes: sorry for re-posting due to some font problems that automatically change when I post this Blog. Thank you

Investment Appraisal Tools

Investment is a very crucial parts in a business if they are to survive in the long-term. Investment decisions are not a simple matter of looking at an investment and saying 'Yes that looks profitable' and going ahead. Most businesses will have a choice of a range of investment projects and they need to have a basis for comparing them to evaluate which is the best.

Before making any decision in deciding any investment, the managers should estimate the investment project using investment appraisal tools. There are numbers of investment tools that the company might use in order to assess the potential risk, return, opportunity cost, payback time (period) of each investment, with the aim of better understanding about their investment. Tools that being use as the investment appraisal tools are; 

Payback period
This is the first and one of the simplest appraisal techniques. You simply need to look at the financial returns that the project is expected to generate over all the years of its life and compare these to how much it cost. You then look at how long the investment takes to payback its original cost. The faster the payback, the better.

Average rate of return
This method also looks at the returns (the net cash flows) over the years of the investment. It then works out how much the average return is over the lifetime of the project, divided by the original cost to get a percentage return. The higher the return, the better.

Discounted cash flow
This is the most sophisticated and complex of the methods as it takes into account the time value of money. In other words, it takes account of the fact that a return in several years is worth a lot less than having the same return in your hand now. Therefore future returns need to be discounted to see what they would be worth now. Once this has been done, then it is easier to evaluate what the investment may be worth.

Net Present Value
NPV is difference between the present value of the future cash flow from the investment and the amount of investment. Present value of expected cash flows is computed by discounting them at the required rate return. In addition, a positive NPV means a better return, and a negative NPV means a worse return, than the return from zero NPV.


The Merger between Vodafone and Mannessman is expected to deliver post-tax cashflow savings of approximately GBP 200m per annum ($330m) by the year ending 31 March 2002, resulting in a net present value of approximately GBP 2.1 billion ($3.5 billion), together with significant additional cashflow benefits from revenue enhancements and new products. Moreover, the Merger provides an outstanding platform for rapid growth and expansion, accelerating customer growth through acquisitions, new licenses and leadership in next generation mobile technology. such conclusion are assessed based on consumer appraisal tools. It is believed to say that a good investment managers should count and estimate the company's return on investment using the investment appraisal tools. 

Impact of Credit Crunch on Asian Countries

The impacts of the credit crunch (which was originated from the US) hit emerging Asian countries the most (Emerging Asia: China, India, Korea, Hong Kong, Malaysia, Indonesia, Vietnam, Thailand and Philippines) rather than other Asian countries. The reason was that emerging Asian countries have a more open market and economical relations with the US (Hong et al, 2009). However, the impacts have been limited up to now as Asian countries only have very little exposure to what is called toxic assets: subprime mortgages and other related products (James et al, 2008). The reason that Asian countries had little exposure to the toxic assets came from the great Asian crisis in 1997/98. Asian countries have to move backward in terms of economic development during the 1997/98 crisis which has also become a big advantage for them. As the result of moving backwards, Asian countries were reluctant to enter the market of complex and sophisticated financial products (which was known later as ‘toxic assets’). 

Asian countries have undergone a massive reformation and restructuring from the crisis happened about a decade ago. Therefore, the level of economic sustainability has improved significantly since then. Moreover, the shape of Asian banks has also improved significantly throughout the years (James et al, 2008). Adams (2008) stated that the main improvements that Asian banks have are consolidation and rationalization, much better transparency and disclosure, enhanced of foreign ownership and high decrease in government’s ownership. As the result of the crisis, Asian banks have also enhanced its level of supervision and structured regulations regarding risks. Thus, they were well-prepared to face risks and managed to prevent subprime products. 

The crisis did have an impact on Asian market. It came through several channels such as banks and short-term credit markets. 

Until May 2008, the total of world largest banks and securities’ write-down and credit losses was US$379 billion. From his amount, only $19.5 billion came from Asia. Despite the low impact from direct exposure, the indirect exposure has much greater impact on Asian banks. It was due to the exposure to the US and European financial institutions that possessed a lot of toxic assets. Those financial institutions include AIG, Bear Stearns, Fortis, Lehman Brothers and UBS which were huge institutions with a very wide international networking and business deals in Asia (James et al, 2008).

Lehman Brothers was probably the most affected financial institution by the US subprime mortgage. As one of the largest US investment banks, the company could not sustain the consequences that came up through the vast investments in toxic assets. Therefore, it declared bankruptcy on 15 September 2008.

Impacts of Lehman’s bankruptcy on Asian banks have not been significant. Asian countries which were affected the most economically were China, Taiwan (Taipei) and Korea. Below is the table of list of banks which affected the most by Lehman Brothers in emerging Asia.

Bank	Economy	Exposure (million US$)
Citibank (Hong Kong, China branch)	Hong Kong, China	275
Mega Financial	Taipei, China	200
Industrial and Commercial Bank of China	China	152
Banco de Oro	Philippines	134
Bank of China	China	129
Bangkok Bank	Thailand	101
Bank of Nova Scotia (Singapore branch)	Singapore	93
Development Bank of the Philippines	Philippines	90
Shin Kong Fin	Taipei, China	80
Metropolitan Bank and Trust Company	Philippines	71

Source: Reuters (2008)

Commercial banks still are the biggest influence on the Asian financial systems. Therefore, the regulators put extensive supervision and evaluation to the banking systems. It was proven that the Asian banking systems were solid during the US credit crisis in 2007. About 75% of clothing production from Asian manufacturers was exported to the US. 

Reference:

Adams, C. (2006) Global Current Account Imbalances. Lee Kuan Yew School of Public Policy, National University of Singapore.

James, W. E., Park, D., Jha, S., Jongwanich, J., Terada-Hagiwara, A. & Sumulong, L. (2008) 'The US Financial Crisis, Global Financial Turmoil, and Developing Asia: Is the Era of High Growth at an End?', ADB Economics Working Paper Series, 139.Kiseok, H., Lee, J. & Tang, H. C. (2009) 'Crises in Asia: Historical perspectives and implications', Journal of Asian Economics.

Kiseok, H., Lee, J. & Tang, H. C. (2009) 'Crises in Asia: Historical perspectives and implications', Journal of Asian Economics.

Merger between HP and Compaq

Mostly most of the company are aiming to maximise the profit of their shareholders, especially in doing so the company should decrease their competitors or hence they can do some acquisition and merger between two big company. HP and Compaq are deciding to merge both of their company having an aim to be the number 1 worldwide position In Servers, PCs and Hand-helds, and Imaging and Printing; Leading Positions In IT Services, Storage, Management Software. These two company are doing the highest deal in computer industry for $24 millions and affected to 160 country and over 140,000 employees all over the world.

While the facts is the both of the company are lossing their share price 21.5% for Hp and 15.7% for compaq in their second day of merger. In addition, in the second week the Hp stock are decreasing againt for over 17% that really make all the business anlyst are wondering about the lost of these merger. Thinking about the goal of these both company in doing their merger such as Hp; by having an economic scale with Compaq that consider as very low in PC indsutry are really a mistake. Both of their competitors are really having an advantage of these merger, for instance Lexmark that rose their share price for over 60% and Dell's the leading PC company are rose for 90%.

These loss are really shrink these two company, from having a very succesful company that having huge market share in Printing and computer industry into loosing almost all of their market share. According to IBS business center research, declining of Hp are mainly because an over-optimism that the company has. without any enough strategy and knowladge in the industry it leads to a failure in the intergration of managment. Despite that there are some differences in target management attitudes and cultured differences that form a non-focused in interal company. The Directors of Hp at that time also can be consider as having a high managerial motivates such a having a high status and emperial building. Most of the study are suggested that it is very hard to succed in having an acquisition and mergers both in shor-term objectives or long-term objectives.  

Nike in Indonesia

FDI is a very useful technique in order to minimize the cost of the products and also increase the company territory internationally. There are some advantages in using this FDI which are increase of the employments effects in side the country and also  minimize the cost of the company that leads into maximize in the profit of the company. 


Nike as one of the biggest international company they are start to move their factory and start to use an FDI as their strategy to minimize their cost.  In order to improve their profit the company are moving their factory to the low cost labour country such as indonesia, thailand china and etc.


Since 2005 Nike has open their factory in China (124), Thailand (73), United States (49), and in Indonesia (39). Most of their products that they sold in UK are coming from third world. In indonesia they are start to improve their production and also the quality of the products. There are some potential benefits that the company get such as capital, technology, and management skills and know how to manage the company in a better way, in addition International company such as Nike are making a employment effects to the Indonesian, for example in opening the factory in indonesia it means that they are using a lot local workers that will effect the Indonesian economics in a better way.


There are one question that might be rising trough this issues, are there any long term benefits that the country might gets such as employment training that Bostawana gets or the Indonesia might gets any potential costs such as impact to the government decision, environmental damage and human rights??