FAC 12 - Ch. 2 - TD Ameritrade unveils dividend as profit disappoints

Link:  TD Ameritrade unveils dividend as profit disappoints  

Summary:
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.

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.