Real World Case 12-6 Corporations frequently invest in securities issued by other corporations. Some investments are acquired to secure a favorable business relationship with another company. On the other hand, others are intended only to earn an investment return from the dividends or interest the securities pay or from increases in the market prices of the securities—the same motivations that might cause you to invest in stocks, bonds, or other securities. This diversity in investment objectives means no single accounting method is adequate to report every investment. Merck & Co., Inc., invests in securities of other companies.
Such difference indicates that company needs to borrow extra funds in 1985. Financial ratios | | 1982 | 1983 | 1984 | Return on Sales | 1.8% | 1.7% | 1.65% | Return on Equity | 11.1% | 11.3% | 12.7% | Return on Assets | 5.0% | 4.7% | 4.7% | Gross Margin | 28.0% | 28.6% | 27.6% | Current Ratio | 1.8 | 1.6 | 1.5 | Quick Ratio | 0.88 | 0.72 | 0.67 | Asset Turnover | 2.84 | 2.73 | 2.89 | As concerns financial performance, the company is profitable and delivers 1.7% Return on Sales. 4.8% Return on Assets and 12.7% Return on Equity. Looking at liquidity ratios one can notice that company has enough money to cover short-term obligations. However, quick ratio indicates that the company relies on inventory to heavily and might experience liquidity problems in case of emergency.
Thanks to Chimerica, US corporate profits in 2006 rose by the same proportion above their average share of GDP.” Basically the more China was willing to lend to the United States, the more Americans were willing to borrow. Chimerica, in other words, is the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. It was the underlying cause of the hedge fund population explosion. It was the underlying reason why the US mortgage market was so awash with cash in 2006 that you could get a 100 per cent mortgage with no income, no job or
Arbitrage in the Government Bond Market (Case Analysis) Overview: On January 7, 1991, Samantha Thompson found out that there were major discrepancies in prices of long-term US Treasury bonds, and this anomaly could be used to make an arbitrage profit. Since the market is the largest, most liquid and closely watched fixed-income market in the world, it is uncommon to find an arbitrage opportunity in the government bond market. Ms. Thompson observed that she could create a synthetic bond whose coupon rate, maturity and par value could be exactly the same as the callable bond by combining non-callable bonds and zero coupon bonds. Clearly, this new bond is better than callable bond. If Ms. Thompson’s analysis was right, for investors holding callable bonds, they could make money from these discrepancies.
Banks should consider the difference in asset size between the two. Fortunately, banks have failed so far in their efforts to contain the competition. How Much of The Market Do Credit Unions Really Have? According to data released as of year-end 2012 and reported by the Credit Union National Association (CUNA), banking institutions assets held $14.45 trillion, versus credit unions which held $1.03 trillion. The average bank is over fourteen times larger than the average credit union, $2.4 billion, compared to $148.8 million in assets.
B) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses. C) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses and individuals. D) The usual borrowers in capital markets are businesses and government entities, whereas the usual borrowers in mortgage markets are individuals. Answer: D 3) Which of the following are true of mortgages? A) A mortgage is a long-term loan secured by real estate.
Financial Statement Analysis Project FI504 Accounting and Finance: Managerial Use Date: 06/12/2011 Table of Contents Executive Summary…………………………………………………………..3 Brief Background of HP……………………………………………………...4 Environmental Scanning – SWOT Analysis………………………………...5 Major Competitor IBM……………………………………………………..7 Financial Ratio……………………………………………………………….9 Liquidity Ratio……………………………………………………......9 Activity Ratio…………………………………………………….……9 Solvency Ratio…………………………………………….…...……..10 Profitability………………………………………………………...…11 Overall Analysis and Recommendation……………………………...……..12 Recomendation..……………………………………………..……………….13 References……………………………………………………………….……14 I. Executive Summary: This report stands from the point of view of Hewlett-Packard (HP), and discusses about its business condition. In order to put up a clear picture of HP’s business level, a comparison in finance is made between HP and one of its biggest competitors, International Business Machines (IBM). The main criteria of this paper are financial analysis which is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. The evaluation is done by focusing on the income statement, balance sheet, and cash flow statement.
Proctor Gambles And Loses FINC 456 Motives For Studying P&G Swap P&G swap clearly demonstrates the critical interaction between financing structures and market events. Excellent case study for risk identification and “deengineering.” The basic structure of the deal is extremely common, and represents the goals and interests of many corporate clients Classic tradeoff of “paying” for something by not understanding risks Lessons from P&G Swap There is “no free lunch” in derivative products! Below-market financing results from the risk of potential loss Money is paid for taking risks; not given for free Methodology for decomposing complex financing structures and risk identification Finding the underlying assets Understanding the payoffs under different scenarios Quantifying the payoffs in a meaningful and intuitive manner Corporate motivations, selling points, and appropriateness issues Where is the line between speculating and hedging? The P&G Swap Near the end of 1993, P&G entered into a 5 year structured swap deal with Bankers Trust P&G had commercial paper receivables, and wished to swap into a fixed rate. P&G would pay a floating CP index and receive a fixed rate What does this imply about P&G’s interest rate “view”?
The report concludes with a critical assessment of Buffet’s investment philosophies, looking at the impact it has on Berkshire Hathaway and why it is difficult for other investors to replicate Buffet’s strategy and be as successful. The findings indicate that the market reacted positively to the deal, especially for Berkshire Hathaway, beating the average response to an acquisition being announced by over 4%. The increase in Berkshire’s value represents the stock markets opinion on how much they underpaid. Using the enterprise value multiples method, the report finds that the book value of Pacificorp to be $9.2bn, $200m less than the offer value. This implies there is significant intrinsic value when combined with MidAmerican, the new customer base and economies of scale being the 2 most important factors.
Financiering 6012B0217 Financiering Case 2012/2013 Vraag 1 a) Excel regression (ongecorrigeerde beta) equity beta van ING: 1.972874 ASML: 1,002967 Ahold: 0,395736 b) We know that there is a linear relationship between the stock beta and its expected return. So, if there is fewer stock the security market line will be steeper so, the beta will be smaller. Vraag 2 ßu = ßa= (E/(D+E)) x ße Net debt: Interest Bearing Debt – Cash and Cash Equivalents ING: 47284/(1234038+47284) x 1,972874 = 0,07280 Debt: 1247110-13072=1234038 ASML: 2773908/(1456616+2773908) x 1,002967 = 0,65763 Debt: 3406450-1949834=1456616 Ahold: 5910/(6215+5910) x 0,395736 = 0,192891 Debt: 8815-2600=6215 Vraag 3 a) ASML has a higher asset beta because it participates in an market which develops faster, so it has a higher systematic risk. Ahold has a lot of more diversity on his business. Ahold can better spread his risk.