If a lot of debt is used to finance increased operations then it will incur a high debt to equity ratio, the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt interest cost, then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates and Smithon Widgets being a manufacturing company the debt equity ratio is normally high.
Typically, a firm’s DPS should exceed its EPS. b. Typically, a firm’s EBIT should exceed its EBITDA. c. If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share. d. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.
Furthermore, BH’s ownership of the MidAmerican Energy Holdings allowed Pacificorp to benefit from synergies that arose by the acquisition. Q2. As it is stated, the implied enterprise value of Pacificorp ranges between $6,252bn and $9,289bn. Therefore BH has acquired the company at a significantly higher price than it was expected (9.4bn) due to an expected and analyzed higher intrinsic value of the company. Questions connected to this fact concern the background of Buffets excessively high bid for Pacificorp.
To: Ellen Bright, CEO of Transworld Auto Parts (TAP) From: Guanghui Han Re: Assessment of TAP situation Date: Aug 5, 2012 Transworld Auto Parts (TAP) is a subsidiary of a U.S. diversified manufacturing company. The company is struggling lose money, uncertain if divest or close the TAP and also struggling with new markets primarily in Asia. Ellen Bright cannot decide how each of the two divisions are actually performing using these strategy map and balanced scorecard. In this memo, I would like to offer my opinion and improve the process. Situation Analysis Five Force: The force of Supplier is powerful, they sell raw materials at a high price to capture some of the industry's profits.
He states many times that profits/supply & demand are leading causes for what makes too high for lower class people to afford. If companies didn’t try to make such a high profit then could the poor afford what they need? This is unfair and unjust because Lewis is saying the rich should reap the benefits of a thriving and successful business.
Sainsbury’s Macro Environment 1) Economical factors Each government has an important impact on each company. Like other companies, Sainsbury was affected by a lot of economical factors as: * Taxation charges * Economic growth * Inflation * Exchange rates * Changes in income Each factor has a different impact on company. For example, the taxation charges force the company to increase the price of products to achieve the desired profit. If the taxation charges are low the price of products is lower and when the taxation charges are high, the price is higher. Another factor is inflation.
It also decreases the enterprise value of Blaine. In addition, it increases the takeover risk of Blaine because a huge amount of cash offer possible acquire incentives to buy Blaine with its own cash. Acquirers could pay way less than they originally expect to buy the company. Regarding the payout policies, the dividend payout ratio from 2004 to 2007 is 35%, 43.6% and 52.9%.Investors usually take dividend as an indicator of a healthy company, and they also expect dividend will be paid continuously at either stable or growing rate. But its payout ratio was unsustainable.
In Harry J. Carman and Harold C. Syrett’s, A History of the American People, they state that, “As more investors put their money into securities (stocks) in hope of making a quick profit on a speculative rise in stocks, the characters of the New York Stock Exchange was fundamentally altered” (Doc F). Because of the rise in stocks during this period were so high, many people did not have any reasons to believe that it would drop or change anytime soon. So rather than seeing this as a business and investment opportunity to make money, they saw it as an opportunity to gamble to make quick money. In addition, they also explain that, “Liberal margin requirements permitted the investor to enter the market in a shoestring. By buying on margin, the investor had to pay a fraction of the quoted price of any particular security.
The value of these equity markets grew at exponential rates; this was seen as risky by some analysts. The high volumes of investment caused a bubble and this bubble “burst” when the chairman of the Federal Reserve, Alan Greenspan, decided to raise interest rates making it more expensive to borrow money for investment. The internet based companies which were so heavily invested in also began to report losses. The dotcom crisis was stated to have occurred between March 2000 and October 2002. As we can see from the data UK unemployment constantly fell from January 1998 till roughly midway through 2001.
BP and Consolidation of the Oil Industry, 1998-2002 Executive Summary BP should sell its business and start a new business, a clean energy production, because it would lose profits from oil supply. Oil industry had not developed in perfect competition; oil price was easily controlled since oil industry was oligopoly, many consumers exist and the government protected oil industry from competition. However, oil industry is facing perfect competition; oligopoly formation of oil industry would come to perfect competition because OPEC started apart from each other. This perfect competition tends to be price competition since oil is commodity. To maximize the profit, competitors would increase supply with low prices, and the government changed regulations that could trigger to reduce oil consumption and strengthen substitutes.