Obviously, a company expands when it has been growing, and the potential growth in the near term is high. In addition, an IPO of a growing company is offered at the bottom price. Therefore, the price direction is set to a bullish trend. After the initial public offering, these shares will be traded. And when these shares are transferred from one trader to another, these shares will become secondary stocks.
Chapter2 - GOVERNANCE FAILURE AT ENRON 1. Enron share price continued to rise dramatically throughout the 1990s but eventually, because of major accounting fraud and questionable ethics of business as well as the executives looting the firm, it resulted to bankruptcy of the firm. The Enron business failed most in internal forces because they are directly responsible in determining both the strategic direction and execution of the company. Enron's collapsed mainly due to massive incompetence of the management. It also affects the externally because of the deceit corporate governance culture practices, it also fails as an outcome.
A derivative is a contract whose value is derived from any other asset such as, interest rate, currency, and commodity. In the early 1990s, business begins to see the advantage of derivative and uses it as a risk management tool and increases company profit. An example is an exporter wants to avoid currency exchange fluctuation; he would enter into a contract to buy currency at a fix rate, this way he will be free from the fluctuation. On the other hand, the counterpart will than sell the product when its price is high again, and earn the difference. In derivative business, there are two main types of derivative: simple and complex.
Week 4 Homework Assignment Chapter 21 1. Which of the following are legal and acceptable reasons for the high level of merger activity in the U.S. during the 1980s? a. Synergistic benefits arising from mergers. b. A profitable firm acquires a firm with large accumulated tax losses that my be carried forward.
Xerox was experiencing increased competition from foreign competitors. The investment market exuberance of 1990s created high expectations for all companies to report revenue and earnings growth. The credit market and Xerox’s compensation system was creating pressure to report revenues and earning growth. The accounting manipulations used by Xerox centered primarily around its lease transactions. Concerns about the accounting manipulations were raised internally by Xerox managers and KPMG.
Concerning the economic issue, there were a lot of big mergers in the United states in 1998. Wells Fargo seized this opportunity to merge with Norwest Corporation, and it resulted in the 6th largest bank in the US with $190 billion assets under management. In 2003, the earnings increased even though there was a rise in the interest rates level. The firm profited from the economic slowdowns, because it reduced competition. The main aspect of the social issue is the population growth, which implies a growth of the demand for financial products.
It became a publicly traded company in 1983 and was deemed as one of the highly traded and recommended stock by Wall Street. Shortly after becoming public, Miniscribe began to experience financial losses. There were speculations that the company was experiencing difficulties in cash flow and inventories. The company hired QT Wiles, a well-known turnaround specialist to serve as Miniscribe’s Chief Executive Officer and chairman of the board, thus, his main task was to help correct the Company’s financial position. It was during his leadership that Miniscribe introduced several new product lines in the market which was generally accepted and led to high sales record for Miniscribe.
The basic economic concepts of supply and demand remain at the heart and center of stock markets. If there are more people wanting to buy shares of that company, this increase in demand drives the share prices up, since there is a limited amount or supply of the stock. Once demand for the shares drop, the number of available shares on the market rise, causing a downward pressure on the share price. ("Factors that Influence Share Prices in the Stock Market," 2009) Investor
Recent years have seen booming worldwide economies ensure high occupancy levels and increasing profitability. As a result, many have expanded, both the number of hotels, the quality and availability of facilities offered. But the industry is now entering another downturn (The broad industry environment is summarized in a PEST analysis in Appendix 1). This leaves Solberri in a vulnerable position. This downturn is also reflected in stock market valuations of hotel groups.
Chart 1 UK GDP, Consumption and Investment growth rate Accelerator principle of investment is crucial theory, which explains why the investment function always follows the GDP, and why it is more volatile than GDP. I*= v(Yt – Yt-1), where v is capital/output ratio, I* is optimal capital investment and Yt-Yt-1 is change in output in current period. If output increases, capital stock must increase in fixed relationship to maintain the condition I*=v(Yt) (Junankar, 1972) By this theory, when firms deciding how much to invest, they assume that in the next period increase or decrease in output would be same as the change in the current period. So, the expectations of the firms by this theory are based only on the past. This is why there is a strong relationship between GDP and investment function.