The debate over whether Apple should issue dividends to investors was very intriguing and intense. Frankly, both sides had many good points and specific statistics to defend their own arguments. However, I think David's group did a better job in this debate. From my perspectives, Apple should not declare and issue dividends to investors since companies like Apple that sell technology don't generally issue dividends. Just like what David's group mentioned. Apple's overall performance and average stock price during the last quarter were very strong and stable, and they will also potentially improve in the next quarter. Therefore, it is not necessary for them to issue dividends. Moreover, Apple should keep the money to develop its technology rather than giving money to their investors. David's group successfully refuted their opponent's argument that issue dividends would attract more investors. They mentioned that issuing dividends will only benefit apple's current investors other than future investors. In other words, issue dividends does not attract investment effectively. Even though the other group had a harder argument to defend and they also did a very good job, David's group constantly threw out many good points to refute their opponent's argument. In essence, I think David's group wins this debate.
Tuesday, May 3, 2011
American Apparel Case Study 2011
Question 1
Reviewing the available financial statements from 2007-present, as well as past articles, when did the company start declining? And where?
American Apparel is a well-known international clothing manufacturer, and it was one of the fastest growing companies in the Untied States. However, American Apparel almost went bankrupt on account of its dramatically increasing selling, general, and administrative expenses. After examining American Apparel’s financial statements, we can see American Apparel has been facing a financial decline since 2008, and its major downturn resulting from its recent sexual harassment lawsuits against the company forced the company to declare bankruptcy. The company's image has been damaged up to a certain extent. In 2010, the company suffered from a great amount of expenses, and it eventually had a substantial net loss of $86.32 million a the end of 2010. Besides the multiple sexual harassment lawsuits, American Apparel also had issues with unauthorized workers and it was forced to fire 1500 experienced workers in 2010. Its productivity and output was drastically reduced, and it resulted in a major downfall in business. Eventually, American Apparel's operating revenue was not able to cover its constantly increasing expenses in 2011, and it had to liquidate since it did not get enough money to keep running. However, an $80 million loan has been recently injected into the business, saving the company from a bankruptcy.
Question 2
Take a look at the recent financial statements (cash flow statement in particular) – with 14 million injected into the company right away, how should the company allocate this money? Into which activities? And why
With an injection of $14 million into the business, American Apparel was saved from bankruptcy. From my perspectives, American Apparel should use this money to clear some of its debts first so that the public can receive the message that American Apparel is still a strong company. Also, more money should be allocated to marketing and developing. A good marketing strategy can bring the company a better sale and more inflow of cash, and it would help the company to rebuild a healthy image. Similarly, developing different production line would increase the company's competitiveness as well as its productivities. In addition, since many experiences workers were fired in 2010, I think they should also use this money to train more workers so that their productivity can stay stable and saturated.
Links:
http://www.google.ca/finance?q=AMEX:APP&fstype=ii
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=app
Friday, April 8, 2011
Chapter 5 - Google bids $900M US for Nortel patents
Summary:
The article reported by CBC News mentions that Google has been selected to make the first bid for Nortel's entire portfolio of patents after the bankruptcy of Nortel Networks Corp. Google has bid $900 million to buy 6000 patents held by Nortel. The first bid made by Google sets the lower limits for the auction, and it prevents the bids going too low. The portfolio of patents covers most aspects of telecommunication. Therefore, lots of other companies, such as waterloo, Ont.-based Research In Motion, BlackBerry, and IBM, are interested in buying the patents. The patents are expected to fetch $1.4 billion.US. In addition, Duncan Stewart, director of research for technology at Deloitte, expresses his feeling of sadness to all Canadian, and he hopes the technologists who developed those patented technologies will continue on innovating in Canada.
Connection:
The connection to Chapter 5 would be the three types of activities on the cash flow statement. In this case, we focus on investing activities and financing activities. Investing activities typically involve balance sheet accounts classified as long-term assets. The portfolio of patents mentioned in the article is a form of intangible long-term assets. Assuming Google successfully buys the portfolio from Nortel for $900 million, this process is considered as investing activity. Moreover, another connection would be the effects of different transactions on the cash flow statement. The acquisition of the patents held by Nortel would result in an outflow of cash related to investing activities, so the cash used for investing in the fiscal year of 2011 would increase by $900 million. The whole process of purchasing the patents will reduce the total cash owned by the company, but it would potentially bring more cash flow in the future. If the purchase of the patents were successful, the company would need to obtain more money to stabilize the total amounts of cash owned by the company. Therefore, Google might need to issue more shares in order to get more cash, and this would result in an inflow of cash related to financing activities.
Reflection:
In my opinions, bidding for the entire portfolio of patents held by Nortel would be beneficial since the patents can boost up the company's capability to maximize its profit. Long-term investment such as the patents mentioned in this case would bring more opportunities to the company. Even though this kind of investment will result in an outflow of cash initially, it would eventually help the company to perform better. Moreover, I think Google should allocate more money to investing activities. Proper amounts of cash outflow for investing is beneficial to the company. However, if the outflow of cash for investing activities is too high, the overall performance of the company will be affected dramatically.
Wednesday, January 12, 2011
Chapter 3 - First Solar Stands to Benefit From the Rising Yuan
Link: First Solar Stands to Benefit From the Rising Yuan
Summary:
During the last two years, First Solar has been suffering from many financing issues on account of declined prices of polysilicon feedstock which are intensively used by Chinese manufacturers. As the price of polysilicon stabilizes, First Solar starts making more net profits and gaining more financial advantages than Trina Solar and Yingli Green Energy. Undoubtedly, as the exchange rate of Yuan to US dollars decreases, the solar module commodity becomes more valuable in dollar terms. In other words, First Solar is very likely to benefit from the rising Chinese currency mainly due to less competition from Chinese manufacturers resulting from the constant increase of Chinese labour cost. Moreover, the rising oil prices are inversely proportional to First Solar's production costs. Therefore, when the oil prices increase First Solar will have a higher production margin.
Connection:
The connection to Chapter 3 would be the gross margin which is the difference between sales and cost of goods sold. In order to maximize the profitability of a company, a reasonable production margin need to be set by the management of the business. Production margin can not be too low or too high, since it affects the volume of sales of a business. By examining the gross margin., management can assess the profitability of the company. In this case, as the oil price rises, the production margin of solar panels will increase as well, which will bring a higher gross profit. In other words, the rising price of oil increases the profitability of First Solar by increasing the gross margin. Another connection can be found in this article would be comprehensive income. Comprehensive income is the total change in the shareholder's equity of the enterprise from non-owner sources. When the Chinese currency increases, the solar module commodity has a higher value dollar terms. This benefit from the rise of Chinese currency is not part of net income, but is included in comprehensive income.
Reflection:
when Chinese currency strengthens gradually, Chinese manufacturers need to lower the unit price of solar panel slightly in order to fit in the global market. However, labour cost and other expenses are not very sensitive to the increased exchange rate, they will, therefore, drag the competiveness of the Chinese businesses. First Solar is totally benefited by this because the changed exchange rate does not have any bad impacts on First Solar. In addition to the aforementioned factor, the high efficiency of the product also contributes to its higher competitiveness compared to the products of Trina Solar and Yingli Green Energy. Furthermore, the oil prices are inversely proportional to the unit price of solar panel. As the oil prices increase, the demands for solar panels will increase dramatically resulting in a higher unit price. Similarily, the gross margin will rise in response to the incline of unit price. Overall, First Solar's competitiveness and profitability would increase to a certain extent due to the rising Yuan.
Summary:
During the last two years, First Solar has been suffering from many financing issues on account of declined prices of polysilicon feedstock which are intensively used by Chinese manufacturers. As the price of polysilicon stabilizes, First Solar starts making more net profits and gaining more financial advantages than Trina Solar and Yingli Green Energy. Undoubtedly, as the exchange rate of Yuan to US dollars decreases, the solar module commodity becomes more valuable in dollar terms. In other words, First Solar is very likely to benefit from the rising Chinese currency mainly due to less competition from Chinese manufacturers resulting from the constant increase of Chinese labour cost. Moreover, the rising oil prices are inversely proportional to First Solar's production costs. Therefore, when the oil prices increase First Solar will have a higher production margin.
Connection:
The connection to Chapter 3 would be the gross margin which is the difference between sales and cost of goods sold. In order to maximize the profitability of a company, a reasonable production margin need to be set by the management of the business. Production margin can not be too low or too high, since it affects the volume of sales of a business. By examining the gross margin., management can assess the profitability of the company. In this case, as the oil price rises, the production margin of solar panels will increase as well, which will bring a higher gross profit. In other words, the rising price of oil increases the profitability of First Solar by increasing the gross margin. Another connection can be found in this article would be comprehensive income. Comprehensive income is the total change in the shareholder's equity of the enterprise from non-owner sources. When the Chinese currency increases, the solar module commodity has a higher value dollar terms. This benefit from the rise of Chinese currency is not part of net income, but is included in comprehensive income.
Reflection:
when Chinese currency strengthens gradually, Chinese manufacturers need to lower the unit price of solar panel slightly in order to fit in the global market. However, labour cost and other expenses are not very sensitive to the increased exchange rate, they will, therefore, drag the competiveness of the Chinese businesses. First Solar is totally benefited by this because the changed exchange rate does not have any bad impacts on First Solar. In addition to the aforementioned factor, the high efficiency of the product also contributes to its higher competitiveness compared to the products of Trina Solar and Yingli Green Energy. Furthermore, the oil prices are inversely proportional to the unit price of solar panel. As the oil prices increase, the demands for solar panels will increase dramatically resulting in a higher unit price. Similarily, the gross margin will rise in response to the incline of unit price. Overall, First Solar's competitiveness and profitability would increase to a certain extent due to the rising Yuan.
Friday, November 5, 2010
FAC 12 - Ch. 2 - TD Ameritrade unveils dividend as profit disappoints
The articles I read was reported by Vancouver Sun mentioning that TD Ameritrade Holding Corporation offered its 5-cent-per-share quarterly dividend when its profit fell 27% on accounts of depressed trading volumes and low interest rates. TD Ameritrade shares slid 2.4 % to US $16.35 before market opened. Compared to last year's result, revenue was down 7% at US $ 608.8-million, and the third quarter was the slowest trading period. TD Ameritrade had started buying its share back since earlier this year, and the dividend decision signaled that the company was less likely to do an acquisition. However, that TD Ameritrade expected to obtain earnings of US 90-cents to US $1.20 per shares and maintain growth trends in 2011. Also, analysts on average predicted TD Amreritrade would earn US 23-cent per share on US$619.2-million in revenue according to I/B/E/S.
Connections:
The connections to chapter two would be how dividends are determined and announced and how they will affect the business's financial statements. In this case, the board of directors of TD Ameritrade authorized the payments of dividends by voting. TD Ameritrade's quarterly dividend is payable on December 15, and that will increase dividend payable which appears on the balance sheet. Since dividends are not expenses, they don't appear on the income statement. In order to show the dividends declared during the period, TD Ameritrade need to prepare a statement of retained earnings. Also, there is a delay between the date the dividends are declared and the date they are paid, so the cash flow statement will not be affected until the time the payment is paid. TD intended to prevent shareholders from selling off their shares by declaring dividends when profit is low. This action could imbue confidence to the outlook of the company as well as showing their economic strength to the public.
Reflection:
In my opinions, declaring dividends when profit slipped 27% was a sophisticated way of stopping shareholders selling off their shares and stablilizing the share price. If shareholders sell off their shares at the same time , the floating capital will suddenly become inadequate, resulting in tremendous financial turmoil within the company. If some financial group who favours aggressive acquisition intends to take over TD Ameritrade by collecting shares from the shareholders, TD Ameritrade will be trapped in many financial problems and other different kinds of issue. Also, the decline in profit emanated from shrinking trading volumes and low interest rate. The worldwide economic recession had a great repercussion for international economy and stock markets; it caused a shrinking trading volume. Furthermore, as the U.S. Economic recovery sputters, the interest will remain near zeros in order to stimulate economic activities. This two factors lead to a dramatic decrease in revenue. However, TD Ameritrade had demonstrated a resilience in this difficult time. From my perspective, i predict that TD Ameritrade will have a higher profit in the next fiscal year because the economy is growing back gradually and stimulating more trading.
Thursday, September 23, 2010
FAC 12 - Ch. 1 - Blockbuster expected to file for bankruptcy within days
link: Blockbuster Expected to File for Bankruptcy Within Days
Summary
The article I read was reported by Vancouver Sun commenting on Blockbuster’s imminent filing for chapter 11 bankruptcy (a bankruptcy code that allows reorganization) on account of customers moving away from renting films through its stores and online service. Blockbuster is holding approximately $900 million debt; however, the senior debtholders have recently announced that they would convert about $630 million of debt into shares of common stock so that the debt turns into equity of the restructured company. Unfortunately, the other bondholders would be wiped out. Moreover, the bondholders have agreed to provide a loan of $150 million to support the recapitalization of the business, believing that there is still much room for the model. While film studios have no concern about selling films through online service or store, landlords who have taken back their leased properties from Blockbuster would suffer from a buyers’ market for their properties.
Connection
The connection to the first chapter is the investing and operating activities of businesses. In the case, Blockbuster is holding approximately $900 million debt, and all these financial problems probably emanated from the company’s operating activities and investing activities. The shrinking of the business of physically renting films results in a dramatic decline in sales revenues. Fewer customers prefer buying and renting films from blockbuster because the online services such as Netflix outperform that of blockbuster, causing a decrease in profit from operating activities. Moreover, Blockbuster invested most portions of the funds in physically-renting market instead of online service, and it started closing stores since earlier this year. Going in the wrong direction when investing is another reason why blockbuster is suffering from a tremendous debt. Furthermore, another connection to the text book is Income statement. The information shown on the income statement indicates the operating performance of a company over a period of time. Too much expenses, but relatively less sales revenues, indicates that the business is losing money. Undoubtedly, another reason why blockbuster is going bankrupt is because it has excessive expenses and inadequate sales revenues.
Reflection
The financial failure of this corporation reminds me of how complicated the economical environment is, but it also makes me ponder how the changes in society and the development of technology can affect the outlook of economy. In my opinion, blockbuster should use the money that the bondholders convert into equity to develop its online service in order to make profit from its sales. The old way of selling and renting films through stores becomes less compatible with the new technology, so new investment strategy should be set up to catch up the pace of global development. From my perspective, management should keep a close eye on the total expenses and sales revenues and make sure the company possesses adequate floating capital in order to avoid excessive debt which would lead to bankruptcy. In addition, the bankruptcy of Blockbuster should alarm other similar companies such as Netflix and Rogers, indicating that the market might be shrinking gradually. Moreover, under the influence of global recession, companies like Blockbuster and Netflix need to develop better quality of service and technology to support and expand their business, otherwise there is a great chance of being eliminated by other more developed and more mature companies.
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