Dividends

Dividends are profits distributed to shareholders of the enterprise when activities of business have achieved good results after a business cycle (usually one year) (Arnold, G. 2008).
When business activities make profits which must pay corporate income tax and the interest remaining (after tax) is called "profit can be distributed to shareholders." However, most of businesses never split all of divisible profits, which they must retain a part relatively large to continue invest in production, sales and new projects, serving the next business cycle. For this reason, the shareholders meeting held in last business cycle. Directors may be submitted plans to use a certain percentage of profit after tax to the Board of shareholders.to dividends to shareholders
If this plan of dividing the vote to pass, the dividend policy of that year was officially confirmed and takes effect. Some companies also have dividend policy for a period of many years, but also the policy itself is implemented only in some certain conditions.
Because there may exist a number of different stocks in the same enterprise capital structure, there may be some kind of dividend with different levels of priority and conditions for payment of time and different masses. Normally, because there may exist a number of different stocks in the same enterprise capital structure, there may be some kind of dividend with different levels of priority and conditions for payment of time and different masses. (Czinkota, M.R., Ronkainen, I.A. & Moffet, M., 2008)
Reference
Arnold, G. (2008) Corporate Financial Management. Financial Times Prentice Hall Publishing
Czinkota, M.R., Ronkainen, I.A. & Moffet, M. (2008) International Business: 8th Edition, Thomson

Should company use Debt or Capital Stock

In this case, "costs" mentioned here is the cost can be measured for the mobilization of funding for the operation of the business. With debt, that is s interest of debt which businesses must pay. With equity, cost of capital is understood as the right to sufficient income to satisfy shareholders when they decide to contribute capital to the company. (Charles W.L.Hill, 2002)
For example, if you run a small business and need funding of about $ 40,000, you can loan amount of $ 40,000 with interest rate of 10% in bank or you can sell 25% shares of your company to neighbourhood with $ 40,000.
Assume the following year, your business can generate operating profit was $ 20,000. If you decide to loan in bank with interest expense (also referred to as the cost of debt financing) would be $ 4,000, remain your profit with $ 16,000. Conversely, if you used the equity financing, which means you have no debt and of course there is no interest expense but you can only hold 75% of the profits of the business (25% belonging owned by your neighbor). Therefore, now your profit is only $ 15,000 (75% x $ 20,000).
From this example, you may see debt is cheaper than equity so very easy to understand when the shareholders of the company decide to issue debt rather than equity. Tax is also a factor help debt issuing situation becomes better (Hymer, Stephen H. , 1960). the benefits of debt financing with fixed interest rates sometimes can be a disadvantage. Because it is a fixed cost financing, whether your business activity good, more income or even losing money, the enterprise is to ensure the payment of interest and repayment schedule original maturity, so an debt increasing of the enterprise also means increased financial risk (Buckley, A. 2007).
About a company is expected to business well, debt financing can be used frequently at lower cost than equity financing. However, if the company cannot operate well to create a large amount of cash, the interest expense can be a burden (Charles W.L.Hill, 2002).
Evidently, the enterprise can never be 100% sure about the amount of income in the future (although they could have reasonably expected) and when the future income of the enterprise as unstable, increasing risk. Thus, firms in low-risk business, with stable cash flows often use debt more than firms in sectors more risk (Buckley, A., 2007).

Reference
Charles W.L.Hill, (2002) “International Business: Competing in global market”, The Magraw Hill Companies. United States.
Buckley, A. (2007) Multinational Finance, Pearson

Advantage and disadvantage of Investment Appraisal Tools

Problems make investment decisions for a business or company need to be evaluated and scrutinized by investors when investors always want to earn profits for themselves, but there are also risks losing. To help investors do this, they need to use the Investment Appraisal Tools as Payback Period, Accounting Rate of Return, Net Present Value (NPV), Internal Rate of Return (IRR) and Discounted Cash Flow (DCF) which build detailed reports on the issues involved and influential in the investment process, predicting that adversely affect the investment process. From there we made the investment options most appropriate.
NPV
NPV normally be considered not only indicators but also are considered the best method to assess the profitability of the project because they show the project's net income after recovery of initial investment capital and cover all costs (including inflation). (Arnold C. Harberger, 1972)
However, the NPV method has disadvantages that require precise calculation of costs, but this is often difficult to implement for long projects. So in reality it is a development cost of capital discount rate (usually due to investor expectations on the basis of calculations to consider the factors that impact on investment projects). (Michael Roemer and Joseph J. Stern,1975
One other disadvantages of the NPV do not show profitability calculated at the percent rate thus affecting the difficult choice of investment opportunities.
IRR
IRR can be calculated by interpolation as the under block and the above block, however, thanks to the application of Excel, the IRR calculation easy. It is important to understand the meaning of IRR. If this value is greater than the value of the discount rate (opportunity cost) when that the project worthwhile. (Donald R. Lessard and Daniel L. Wisecarver)
IRR method has the advantage of easy calculation because regardless of the cost of capital, very convenient to compare investment opportunities because profitability were showed as a percentage. The core meaning of IRR show for investors can know the cost of capital using the highest possible acceptable. If they exceed so capital using is inefficient. (Donald R. Lessard and Daniel L. Wisecarver, 1975)
Disadvantages of the IRR is calculated on the basis of cost of capital will thus could lead to identifying the profitability of the project. Investors will not know how much money they have. (Arnold C. Harberger, 1972)

Bad credit crunch of US in 2009

Fiscal deficit of the U.S at a record 482 billion dollars in 2009, the objective of the U.S. government monetary fund is using reserves to impacts into market, in order to save the economy is in recession (BBC). This problem occurred mainly caused by the economic crisis, it has made most banks and large companies to bankruptcy this leads to the budget reserves of US have to focus on help these large companies to stabilize economies. Besides, this also leads to increase of unemployment. So many companies and people affected by this credit crunch therefore tariff reduced that further made fiscal deficits of the United States.

In the U.S., the establishment of private credit loans has dropped to lowest level, lower than the 2001 economic recession. In addition, because the risk that inflation brings, the U.S. central bank cannot reduce profits even further. Follow warn of IMF about risk of U.S. credit is pulled by loans of other sectors including cars industries.

Effective of acquisition and merger in economy recession

A lot of company care out some business deal in economy recession, they will meet risks and unrealistic. credit market operate abnormal, so finance will become an obstacle not easily overcome. However, about, Companies have strong finance and strategies, so economy recession is good opportunities to them advanced competitive position through acquisitions or merger.
Following analysis of Bain and Company ( a Strategies and global business consulting firm in US) during over 24.000 contracts from 1996 to 2006, acquisition complete In a distant future recession in 2001 to 2002, they earned excess returns three times with similar cases occurred during the previous boom growth (Time, 2008). Consider the long term, reality show the company acquires in the whole time of explosive growth market and downturn performed better than the company only acquired in time of growth.
Although in any economic environment, the most important objectives of the merger and acquisition (M & A) is to deploy the company's strategy. Chinese computer manufacturer Lenovo has bought IBM's Personal Systems Division for around $1.75 billion. Products of Lenovo have strong position in the market after gaining the technology of IBM. Lenovo will also benefit from marketing and sales leads provided by the company's 30,000 strong sales force and through IBM.com. IBM will receive $650 million in cash and $600 million worth of Lenovo shares currently traded on the Hong Kong stock exchange. IBM will also take over some $500 million worth of liabilities from IBM.
In economy recession, M & A activity also make more strategic choices. For example, when the Pfizer expire monopoly of patent about some leading pharmaceutical, which has decided contract acquired competitor Wyeth.
Other industries also tend to reinforce the strength when the market-leading group working to increase strategic options by expanding the scale or scope. For example, wireless phone companies can make more value for their products such as add new software or new content. In 2009, Verizon( a telecommunications company of US) expended 28.1 billion USD to acquire Alltel to have opportunity step into the market in rural areas and remote areas. Verizon Group, major shareholder of Verizon Wireless, said in 2008 its sales had risen 16.4% over 2007. That's why Verizon Wireless remains a steady flow rate of acquisition, including in the context of crisis. From 2004 to 2007, a total the company has conducted 40 acquisitions.

Special advantages of multinational companies

Foreign Direct Investment (FDI): is long term investment method of personal or foreign company invest to other country by set up manufacturing facilities, business whose will have business controlling power    

Stephen H. Hymes (1960), John H. Dunning (1981), Rugman A. A. (1987) and some other people said that the multinational corporations have a lot of characteristic advantages such as competences of firm, they allow multinational corporations can pass expense disincentive in foreign country, therefore they ready invest direct into foreign country. When the multinational corporations chose place of investment,  they  will chose good place where have conditions to help them bring into play characteristic advantages such as labour, position.

Foreign Direct Investment is a method to avoid conflict bipartite commerce. Example Japan has been complained by USA and Euro because Japan have commerce surplus, about USA and Euro have been traded gap in bipartite relationship. To cope, Japan was strengthened to direct investment into those markets. They have produced and sold cars and computers at USA and Euro, to reduce those export goods from Japan. They also invest directly in third countries, and from those they export to North America and Euro market  

FDI not only go from more developed countries to less developed countries. Reverse even more strongly. Japan is a direct investment positive countries in American to exploit professional in American. Example: automobile companies in Japan have opened the car parts designed in the U.S. to use American experts.  Lenovo is a multinational corporation in China, they bought parts manufacturer laptop of IBM in USA, that is a strategy of Lenovo approach preeminent computer production technologies of IBM

To have a lot of raw materials, many multinational companies invested into countries with abundant resources. The first biggest wave of direct investment was in Japan on the 1950 is for this purpose. China's FDI now has the same purpose.

Tranfer pricing norm spells bad news for MNCs

Transfer pricing norm spells bad news for MNCs

          A multinational corporation (MNC) is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation.

Transfer pricing or the pricing of goods or services for cross-border transactions between related parties for tax purposes has been a bone of contention between the taxman and corporate houses. OECD Transfer Pricing Guidelines state, “Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions.” (OECD, 2001)

          Reports CNBC-TV18’s Ashwin Mohan shows that “Budget 2011 may have added to the bad blood.  For starters, the +/- 5% variation allowed to companies for the purpose of determining the appropriate price has been taken away. That means old calculation of good pricing will become unsuitable in 2011, +/- 5% variation will make them have to adjust all their active from producing to sales to offer new suitable price for their products, making their profits can change and meet difficulties.

          Balbir Singh, Senior Tax Partner, DSK Legal feels, “taking away of this margin of 5% is going to further enhance litigation in India because this +/-5% was giving benefit to lot of industries and margin if error permitted is by and large to my mind acceptable even to the tax authorities.”

          A clear example The Wind Group is a multinational company manufacturing wind turbines.  It has  two subsidiaries: Dutch Parts which makes  circuit boards  for the  turbines  in The Netherlands and Turbines UK which assembles  them  in  the  UK.  Dutch Parts are subject to 20 per cent tax in The Netherlands while Turbines UK is subject to 40 per cent tax in the UK. Each year Dutch Parts sells 10,000 circuit boards to Turbines UK. The sale is made at a transfer price of €100 per board, totaling €1,000,000.  In the first year both subsidiaries make a pre-tax profit of €800,000  each,  earning  the Wind Group  a  total  pre-tax profit  of  €1.6 million .  Turbines UK pays  €320,000  tax  at  40  per  cent  on  its  profits,  while Dutch Parts only pays €160,000 because of the lower tax rate of 20 per cent in The Netherlands. As a result, the total net profit of the Wind Group for the year is €1,120,000 and its tax bill is €480,000. In the second year Dutch Parts raises the transfer price to €150 per board increasing the total cost of the sale to €1.5 million. Thus, the profits of Dutch Parts rise by €500,000, while those of Turbines UK fall by the same amount.

          At  the  end  of  the  second  year  the  balance  sheet  of Turbines UK  shows a  reduced pre-tax profit of €300,000 (reflecting  the  increased  cost  of  the  boards)  while Dutch Parts enjoys a rise in pre-tax profits to €1.3 million.

The advantages and disadvantages of issuing shares

In fact all corporations must issue at least some shares to the owners of the business upon formation.

Generally speaking there are only 3 ways money can come into the corporation, selling shares (equity financing), taking on debt (debt financing), and revenue.

There are really no disadvantages to having corporate revenue as a source of funds so when talking about the advantages and disadvantages of equity financing it is in the context of comparing it to debt financing.

The basic advantages of equity financing are that the funds can usually be kept indefinitely, no payments are required on the funds (dividends may be paid out but only on earnings) and no collateral is required for equity investment. If these companies have been bankrupt because they were lose in their business, However they do not have to bear the pressure of debt, and reset their company easier  

The basic disadvantages are that dividend payments are not tax deductible for the corporation, and the more shareholders a corporation takes on with equity financing the more shared control there is of the corporation (which can impose restrictions on how it operates), and the less profit there is for the corporation and its principal owners. These companies can be effected by changing of the world economic, Special about big companies were listed in Stock exchange they can met risk easier. Lehman Brothers is a victim of the financial crisis world recently. Companies rated investment from Wall Street filed for bankruptcy protection in September 2008 when the debts exceed 691 billion dollars more for the strength of the ownership company in New York as well as the investment bank North American was sold to Barclays British Bank, while even 80 affiliated companies of the smaller banks were closed.

In comparison, debt financing allows for tax deductions on interest payments, has little or no impact on control of the corporation and allows leverage of company profits.

Evaluation about Strategic made profits decline in Chocolatier Thorntons Company

Good strategies in Chocolatier Thorntons Company 

Issues about associate with distributor is very important, Chocolatier Thorntons Company have choose the distributors were supermarket is excellent strategic which brought a lot of benefit for them. However to products of company have been known more and have good revenue, they should distribute to retail shop. Thorntons, which is celebrating its 100th anniversary this year, reported that pre-tax profits declined 8.5% to £8.3 million in the 28 weeks to January 8 as it battled higher commodity prices, although revenues increased 4.8% to £133.5 million helped by strong sales to supermarkets.  Mr Robson said there were exciting opportunities to grow the commercial arm, which sells chocolate to supermarkets and saw sales increase 31% to £45.2 million.

Franchise is goof method, which bring good revenue because they have not been loose position cost, labor cost and that also help them to expand market. Sales through the business' 229 franchise stores declined 5% to £7.8 million in the period and were also hit by the snow.

Weak Competitive Strategic have made profits decline in Chocolatier Thorntons Company 

In the market have many big company produce Chocolate with good marketing and price in reason as Cadbury, M&M. In Chocolatier Thorntons, they have not use many marketing methods to improve picture about produces of company, that may be the main cause of their profits decline in 2011 

All strategies have been performed well but they have not considered measures to introduce products to the customer. Besides, they need to prevent periods of bad weather when Production costs, shipping cost increase which would affect profits. When that they can reduce the amount of goods or improved products quality and higher selling prices

Relationship Shareholders Management in Public Limited Company

Development strategy in Public limited company, special is Listed Companies are complex than other companies. Because these companies have to solve dynamics and interests between three main of partners in the company as: the board, the existing shareholders and investors.

With companies that are not Public Limited Company, development strategies often only consider business factors, ie brand, position, capacity, competition, industry prospects ... because these companies mostly have only a owner, so it may decide everything easy. However, with Public limited company, special are companies listing shares on the stock market, the percentage of ownership in the company, the company's outlook will determine the benefits and motivation of the three partners on the development strategy for the company.

Executive board includes members of the control broad and management. They are driven and controlled company, but in listed companies, their percentage of ownership is often not too large. Existing shareholders are funded in the past for companies. Investors are willing or not willing to put more capital into the company. Harmony of motivation and benefits of these three partnerships have meaning decide to the development of a public company.

Do not want to develop for fear of losing control, in many companies have potential projects such as real estate, ... Raising new capital for these companies is not difficult, but leadership does not do it because they fear reduce ownership rate lead to reduce in corporate control. So they try to borrow to the maximum. This makes damage to the interests of other shareholders in the company.

Conflicts between the old shareholders and new shareholders. For example, James Kwak showed summarize sales of company in U.S such as: Thomas H. Lee Partners (THL) spend $ 327m buy up Simmons in 2003 and owns 100% of this company. To 2004, Simmons issued $ 137m bonds and used this money to pay the dividend for THL. Until 2007, Simmons continued to issue $ 300m bonds and pay to $ 238m for THL. Thus THL spend $ 327m and was received $ 375ms, and then Simmons declared bankruptcy. Obviously after the sale of Simmons, the creditors shared only with together all remains, but cannot constrain THL have to compensate losses. Anyway Simmons is a limited company so its owner (THL) is not responsible for the outside book of the Simmons.

Price of capital issue: Issuing additional shares to more capital is matter of survival of listed companies. Normally, the board wanted to issued high price to earn money without pressure EPS (earnings per share) when the stock was "diluted". However, large shareholders may not want to issue shares with high price because it depends on shareholders have to put more money to buy more. Also, only small shareholders to buy at low prices to get a feel "benefit."

Shareholder structure and stock price, Not only the business results of companies, but also shareholder structure affects to stock prices. Now, when many shareholder want short-term business in Stock Exchange, that make conflict between shareholders or big group shareholder can effect to managers of distributive interest between terms, declare information … direction benefits for their trading. That can make conflict with benefits of other shareholders and investor.  

How to harmonize and develop? Many businesses have not realized the complexity of the problem development strategy with harmony and interests of the parties as stated. Then, management or major shareholders need consultancy firms have experience to consult about issues interest harmony of the parties. This is a condition prerequisite for the development of public limited companies or listed companies.