Market Capitalization
I do understand that market capitalization is defined as thevalue of the outstanding stock of a company in the market, but whenthe market of that company goes down, does the value of the companyalso go down, or are the assets lost?
I am not really understanding how that works. A company doesneed to have a high market of resources in the business industry,and they need the financial backing in the business world,otherwise, the business will not gain business or respect of otherorganizations in the same field. There are many different companieswithin the same field of business, and they all compete against oneanother, but the market capitalization needs to be there in orderfor the business to remain competitive
Market Capitalization
I do understand that market capitalization is defined as thevalue of the outstanding stock of a company in the market, but whenthe market of that company goes down, does the value of the companyalso go down, or are the assets lost?
I am not really understanding how that works. A company doesneed to have a high market of resources in the business industry,and they need the financial backing in the business world,otherwise, the business will not gain business or respect of otherorganizations in the same field. There are many different companieswithin the same field of business, and they all compete against oneanother, but the market capitalization needs to be there in orderfor the business to remain competitive
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I have a essay written up already, the problem is that I submitted it and received a 62% return from turnitin, which is totally unacceptable. It must be below 20%. Is it possible for you to look over it, make any corrections or suggestions to re-submit it. The majority of the repetitiveness was from my intro paragraph and the definitions I used in the essay. Sent at 04:42 AM The essay is attach. I will need this by this evening if that's possible. thanks
Identify the type of corporate restricting that fits with common theories of what are assumed to be causes of mergers and acquisitions.
Corporate reconstructing is more often defined as re-designing organizationâs practice and structure; so to remain competitive and sustainable in the market (s). There may be several reasons for corporate restructuring. These includes, but not limited to, re-positioning in the market, discovery of a new market or becoming more profitable and/or economical. The corporate restructuring is generally classified into or two different categories: operational reconstructing and financial reconstructing. This entails changes in the alignment of firmâs asset structure by acquiring new business outright, by partial sale, by a spin-off of companies or via product lines. This can also include downsizing through closure of non-profitable units. Financial reconstructing deals with the changes in the capital structure of the firm. Share repurchase or adding debt in capital structure; just to name. Financial limiting hardly deals with mergers and acquisitions, hence we will discuss the cause of mergers and acquisitioning and how it is related to that the operational restructuring only.
Omit the chart in the question!
There are several types of Restructuring are given below:
A merger is a combination of two or more firms who combine all operations, officers, structure and other functions of business to form a new entity. Desired effect being not just the accumulation of assets and liabilities of the distinct entities, but also to achieve several other benefits such as: economics of scale, acquisition of new technologies and having access to new markets. Additionally, the merger allows for one company giving shareholders in the other stock in exchange for surrounding the stock of the first company. And it allow for the entities to retain its original identity.
Mergers can be classified into the following categories:
Horizontal Mergers
Two merged units were doing the same business i.e. TMobile and Sprint they were competitors with one another in the market. The basic motive in this type of merger is to consolidate in the market so as to gain advantage in negotiating with customers as well as having better position with respect to other competitors.
Vertical Mergers
This type of mergers is conducted between customer and suppliers of a value chain process and main motive in this type of merger is gain maximum efficiency in supply chain and minimization of transaction cost.
Congener Mergers
In this type of mergers, the two firms will be sharing similar kind of industry structure at least in one form of their operation and therefore try to combine operation in that one form and get efficiency benefit in supply chain and other operations.
Conglomerate
A conglomerate merger is a merger between two firms having unrelated business. The motive behind a conglomerate is a.) Better utilization of financial resources b.) Increase in debt capacity, c.) Increase in the share price by increased EPS with decreased cost capital d) Cross selling and e.) Synergy
Cash-out merger
In this type of merger the share of one unit involved in merger donât want to retain their share in the merged unit and therefore are compensated with cash in place of the share.
Acquisitions or take-over has said to have happened when the acquirer company buys out majority of the shares of the acquired company and the ownership of the assets and liabilities of the acquired company get transferred to the acquirer company. The process of acquisition or take-over may be conducted in both friendly and hostile manner depending upon the specific strategy of the acquirer.
Friendly takeover
In a friendly takeover, the targetâs board and management recommend shareholdersâ approval. To gain control, the acquiring company usually will offer a premium to the current stock price. The excess of the price over the targetâs premerger share price is called a purchase premium and can vary widely by country, which reflects the perceived value of obtaining a controlling interest in the target, the value of expected synergies resulting from combining the two entities and any overpayment of the target firm. Acquirers often prefer friendly takeovers because the post-merger integrations process in usually more expeditious when both parties are cooperating fully and customer, employee attrition is less.
Hostile takeover
A Hostile takeover occurs when the offer is unsolicited, the approach was contested by the targetâs management and control changed hands. The acquirer prefers hostile mode rove the friendly mode only when it becomes possible to acquire the shares in a friendly mode. The acquirer may attempt to circumvent management by offering to buy shares directly from the targets from the targetâs shareholders and buy shares in a public stock exchange. A hostile takeover can be accomplished through either a tender offer or a proxy fight.
The Pros to a merge and an acquisition is that both types of transactions include the potential increase in the competitiveness, cost-efficiency and stock value of the new enterprise. And with everything pro there has to be Cons. One disadvantage of these transactions; it could be very expensive. A significant amount of capital typically must be raided before entering negotiations. Another mergers drawback is that there is now a new owner, co-owners, in which they must now collaborate.
In conclusion any entity or entities that have chosen to merge or entering an acquisition should consider prior to move. Identify the goals of acquisition clearly, if the move is a good fit and what conditions must be met for the pursing the merge or the acquisition. An in-depth due diligence must occur; the financial records must be thoroughly examined, is the marketplace a profitable absolute, as well as the senior executives should also be conducted. There could be potential for disaster if all areas are not explored. Negotiation process is should have clear written rules and guidelines before following through with the merger or acquisition. Assembling an acquisition team can be very valuable to the success of the new owners. The team will be able to define the responsibilities of each company; considering all parties are in agreement with the new implementations such as computer systems, new HR policies and so forth. Lastly, be flexible and ready for unexpected surprises and have a supplemental plan in case of potential disasters.
Skinner Industries from Conway, North Carolina has found an exclusive market in supplementary equipment to support the ever increasing motor sports market. In the last ten years, the company has filed for patents on the portable fuel dispenser, power lug nut remover, and the removable transparent windshield protector. Each of these items is critical when the race car drivers have to make a pit stop during a race. When seconds count, having the best available equipment can mean millions in prize dollars and sponsorship support.
Sherry Skinner has always been a big fan of motor sports having grown up in Conway, North Carolina and going with her dad to many races during her youth. Sherry wanted to be a part of the action of motor sports, but since this was a male dominated sport, she knew it could not be as a driver, member of the pit crew or working in the engine shop. While the sport does have a few female drivers, Sherry did not want to be a token, and she felt her gifts and talents could be better utilized in other venues.
Sherry loved engineering, and went to Duke for her engineering degree. After excelling in college, she had her choice of jobs at major companies around the country. However, Sherry passed up the prestige jobs and went back to her roots in Conway. She decided to start her own company and use her talents to develop unique products that could be used in the motor sports arena. Sherry knew that it would be hard to compete against the big boys and major automobile corporations when it came to the race cars, however she thought there could be a market in supplementary equipment items.
Growing up with the sport, Sherry always enjoyed the action on pit row. Races were often won or lost on how quickly the pit crew got tires changed and fuel added to the car. Sherry reasoned correctly that this part of the race would be a good place to start developing products. The two most critical activities during a pit stop were changing tires and adding fuel. Any equipment or product design which could enhance these activities would certainly have instant appeal.
After a great start to the company, Sherry took the company public nine years ago when Skinner Industries was just three years old. 1,200,000 shares of common stock were issued at a price of $10 per share through the mid-Atlantic regional exchange.
The company has continued to prosper and enjoy a good growth rate as the motor sports craze has mushroomed. In 20x3 the Skinner Industries growth rate in earnings was 6% and in 20x4 the growth rate was 5%. Sherry does not want the company to become too large, as she still likes the feeling of a âdown homeâ business with the boys. At the same time, the business is virtually guaranteed to grow just because of the motor sport market itself.
Sherry is happy with the current 5% growth rate and to support that projection she is planning on a $3,000,000 capital expansion program in 20x5. She is currently close to capacity with many of the operations and without the continued expansion the desired growth could be in jeopardy.
So far, Sherry has been able to maintain a reasonable increase in long-term assets without having to initiate subsequent issues of stock. She would like to continue funding growth through both the company profits and with favorable bank loans. Ideally, the company wants to maintain a target equity ratio of 70% of the total capital structure which includes long-term liabilities plus equity. Currently, the cost of borrowing is 11.5% before taxes. Sherry has also determined that the cost of equity is 13%.
When Sherry started the business, she was able to work out an attractive lending agreement for $5,000,000 in long-term bonds with a 15 year maturity. Part of the agreement with the bank was that Sherry establishes a sinking fund that would have to match the $5,000,000 in bonds one year prior to maturity. This provision would guarantee the bank collateral on the bonds but allow Skinner to earn some interest on marketable securities. As of the end of the current year, that fund has grown to $3,000,000 and Sherry is planning on adding $1,000,000 in each of the next two years. The bank also required that Sherry establish an appropriated retained earnings account equal to the amount of the collateral sinking funds so that she would be limited in the amount of dividends that could be declared and paid in any given year.
To supplement some of the recent expansion, Sherry had funded the increase in long-term assets with additional long-term notes. This funding has grown to $2,000,000 at the end of the current year. The financial institution providing these funds has identified some constraints on potential dividend payments based on the overall financial performance of Skinner. The company must maintain a current ratio of at least 1.20, a times interest earned ratio of at least 3.0, and a debt ratio no greater than 60%.
While the company is growing and there continues to be a need for capital expansion, Sherry also recognizes the need for dividends, and has established a once a year dividend payment at the end of the year. The investors seem to like their dividend bonus that comes in early February just before the start of racing season. Many of the investors are value conscious and want a return on their investment from both dividends and stock price appreciation. Since this is a regional company focusing on a very specific market, a large number of investors are motor sport fans from the mid-Atlantic area. Sherry has always believed in a significant dividend, last year it was $700,000, and the dividend yield is over 6.0%. The company has also maintained a pretty consistent dividend payout ratio through 20x3.
While everything seems to be going right for the company, with a reasonable growth rate in an exploding market plus an attractive dividend, Sherry is puzzled on why the market price of the stock at around $8 7/8 seems so low. Perhaps the overall economy, which is struggling and filled with uncertainty, is causing the price decline. Also, Sherry believes that the job market in North and South Carolina has suffered with many textile and similar jobs going overseas. In an effort to support the price of the stock and maintain the confidence of the investors, Sherry thinks it is important to retain and possibly even increase the current dividend per share for 20x4.
Sherry has just received the financial statements as of December 31, 20x4 without the inclusion of a 20x4 dividend payment. She needs to determine what annual dividend payment the company should make for 20x4. She also wanted to see what happened last year so she obtained the income statement and balance sheet from 20x3 along with the balance sheet figures at the end of 20x2. The corporate tax rate is 40%.
Skinner Industries | |||
Income Statement | |||
As of December 31 | |||
Dollars in $1,000s | |||
20x3 | 20x4 | ||
Sales | 23,500 | 26,150 | |
Cost of Goods Sold | 14,700 | 16,990 | |
Depreciation | 1,750 | 1,840 | |
Gross Margin | 7,050 | 7,320 | |
Operating Expenses | 2,850 | 2,900 | |
Operating Income | 4,200 | 4,420 | |
Financing Expenses | 1,300 | 1,370 | |
Net Income Before Tax | 2,900 | 3,050 | |
Taxes | 1,160 | 1,220 | |
Net Income | 1,740 | 1,830 | |
Skinner Industries | |||
Balance Sheet | |||
As of December 31 | |||
Dollars in $1,000s | |||
20x2 | 20x3 | 20x4 | |
Cash | 950 | 1,000 | 800 |
Marketable Securities | 2,260 | 2,750 | 3,000 |
Accounts Receivable | 4,000 | 4,130 | 4,850 |
Inventory | 8,300 | 8,640 | 9,570 |
Total Current Assets | 15,510 | 16,520 | 18,220 |
Long-Term Assets (net) | 17,500 | 18,380 | 20,360 |
Total Assets | 33,010 | 34,900 | 38,580 |
Accounts Payable | 6,200 | 6,270 | 7,050 |
Accruals | 1,500 | 1,530 | 1,600 |
Short-Term Notes Payable | 4,500 | 5,000 | 5,500 |
Total Current Liabilities | 12,200 | 12,800 | 14,150 |
Long-Term Liabilities | 6,250 | 6,500 | 7,000 |
Total Liabilities | 18,450 | 19,300 | 21,150 |
Common Stock | 12,000 | 12,000 | 12,000 |
Retained Earnings - Appropriated | 1,700 | 2,250 | 3,000 |
Retained Earnings - Unappropriated | 860 | 1,350 | 2,430 |
Total Equity | 14,560 | 15,600 | 17,430 |
Total Liabilities & Equity | 33,010 | 34,900 | 38,580 |
1. What amount should Sherry declare in dividends for 20x4? Identify what factors influenced your decision and how they helped you in determining the dividend amount.
On Monday, May 26, Tina Brown walked into Innovative Patios to begin her new job as Payroll Manager. She was met by Julie Thornbury , President and major shareholder of the company. Julie got to the point: âGood, youâre here. I need a payroll plan by Friday. This place is a mess.
Yesterday I got a call from Human Resources & Skills Development Canada . He said we arenât filing ROEs. Do you know what they are?
Weâve got employees telling us that they get more tax deducted than their friends who earn the same amount. Jim, our production manager is barking that he should have a tax credit for his kid. Weâve been fined for sending in employee taxes late. I donât get it. I pay two people to run the administrative side of things and they mess things up.
I hear there are changes in the pipeline. I heard the federal budget, but I donât know if we will benefit or not. Will it be just more paperwork? The bottom line is that I donât want any more government types coming around here threatening me. Tell me what we have to do.â
Company History
Innovative Patios is a private corporation that installs patios stones made from recycled material. The company was started twenty years ago by Julieâs parents Elena and Seamus. Elena and Seamus were immigrants to Canada and earned a living through a small landscaping business. They hired workers on contract and paid in cash for many years until they were audited by the tax department.
To avoid further problems, they incorporated the company five years ago, put their workers on the payroll and hired Mary as a bookkeeper to fill out all the government forms.
Payroll Department
Mary quickly became Innovative Patiosâ office manager, human resources manager, financial administrator and payroll manager. The workload was overwhelming and she convinced Julie to hire Liza to help her. Liza suggested they use Quicken to keep track of all accounts including payroll.
Mary and Liza fill out all cheques by hand for the ten employees and fill out all the government forms by hand. The companyâs remittances are based on a checklist Mary developed in 2009 (See Exhibit), Mary is unhappy because she works very hard, but everyone complains about things being wrong. When Julie landed a large contract that would require 15 more people be hired, Mary recommended that Julie hire a professional payroll manager. âI can handle the other stuff, but the Canada Revenue Agency and the employee complaints are driving me crazy. I just canât keep up. I will be as helpful as I canâ.
Julie led Tina to her office and rushed off to take care of a crisis on the loading dock. Before Tina could get settled, Mary walked in, âIâm so happy to meet you. Just tell me what you need and Liza and I will get it for you. The employees are paid bi-weekly and this Wednesday is a payday. I havenât prepared anything
because I knew you would be here.
Exhibit: Maryâs 2009 Remittance list
Item | Amount | How much to remit | When |
Payroll | Annual $500,000 | $1,000 payroll remittance | Monthly Pay balance plus interest when assessment arrives |
CPP | 4.95% earnings (to annual max) | $2,062.50 | Monthly |
EI | 1.98% earnings (to annual Max) | $49,000 | Year -end |
GST | Net annual subject to HST $200,000 at 13% | $1,500 | Monthly Use refund to go toward payroll remittances due |
Please answer the following questions:
a) Who are the key stakeholders in this case?
b) What are the resources needed?
c) What resources are available?
d) What is the main issue in this case?
Thank you in advance!