Finance

Internship or on-the-job training or practicum is one way by which we students are given an opportunity to apply the theories and computations that we have learned from school. It also helps us to obtain applicable knowledge and skills by performing in actual work setting. College and Universities require their students to undergo such training within a specific number of hours as part of the curriculum.

For us students, a practicum or internship program provides opportunities to go through the actual methodologies of a specific job using the real tools, equipments and documents. In effect the workplace becomes a development venue for us student trainee to learn more about our chosen field and practice what we have learned from the university. On the other hand, a valuable OJT/Practicum program also profits the companies who accept trainees. First trainee provides extra manpower for a significant labor cost than a regular employee. Most of them are eager to learn the ropes so chances are high that they will cooperate.

Employers can use this internship strategy as method of recruiting employees. Since the trainer or supervisor can follow the trainees’ progress, he can gauge based on performance, behavior and attitude if the trainee will make good recruit after the completion of his internship. We trainees can bring fresh ideas in the organization. Given the opportunity to converse our minds freely and without fear, we may be able to contribute significantly in the brainstorming or research and eventually help improve the organizations productivity.

While training the interns, employers are in fact teaching their employees to guide the trainees by stretching their patience, develop teaching skills and make them more sensitive to the needs and mindset of the younger generation. The course of supervision also teaches them how to share what they know and be receptive to questions. Hence, the internship also becomes an avenue in training for future managers of the company. Accepting on the job trainees can truly be beneficial not only to the trainees but also to the companies that provide opportunities for this type of learning.

There is wisdom in the front lines. Such training can be investment that will be valuable to the company later on. This is also why us trainees should take our internship seriously as it can be a powerful tool and possibly even a source of recommendation when they take that big lift from being students to career professionals. Every day, man learns something. It is in his system to learn and discover. Man was born for this. It is an instinct to search for answers in order to satisfy their questions. Save it to their memory and use it in their daily lives.

I am on my last semester as a Management Accounting student, I take pride for what I have achieved at this time of my life plus the fact that it’s not easy to maintain a cut-off grade in most of my Accounting subjects in order for me to stay and graduate as a bachelor in Management Accounting. With regards to my off campus practicum, our school sends us to different offices to put our theoretical learning into practical applications. Pudadera Accounting Office is located in Arguelles Street, Jaro Iloilo City. It is a ten minute walk from the 6th gate of Central Philippine University.

The two-storied building was built in a subdivision with the calm atmosphere of the community and its landscape. The appearance of the building is well harmonized with the surroundings. However, it gives guests the impression of dignity and openness. Directly inside the main entrance, Pudadera Accounting Office has a small but welcoming lobby with a natural concrete floor, stylish but difficult to walk on heels. There are several chairs arranged against the wall and a side table which are placed the company’s newspapers and other publications.

The receptionist’s desk is facing the entrance door, and behind it sits two friendly women. Passing through the receptionists’ area which is directly leads to the main office. The area is small but it is well arranged to welcome the clients as well as guests. The receiving area has a big square table in the middle with a large window overlooking the exterior. The remainder of the office space is segmented with partitioning walls, forming a sort cubicle. The office starts its operation from 9am to 6pm from Mondays to Friday and 9am to 12nn during Saturdays. The office is closed on Sundays and during Holidays.

To grow and create value, the company must have the trust of its clients, lenders and investors. The office assists their clients in the proper applications of accounting principles that will become effective. They also assist in completing certain requirements under existing rules and regulations of regulatory bodies such as the Security and Exchange Commission (SEC) and others. The office reviews financial information based on agreed-upon procedures, assisting acquirers/investors in determining factors affecting the price and post-acquisition financial issues and providing integrated support throughout the acquisition process.

They also provide advice and assistance with the registration and reporting requirements of government agencies relating to tax and/ or investment incentives granted under various investment laws and regulations as administered by the Securities and Exchange Commission, Department of Trade and Industry, Bangko Sentral ng Pilipinas, Local Government and etc. It also can provide assistance in determining a company’s tax liabilities, preparing related returns and remitting these taxes to regulatory agencies within the prescribed deadlines.

Some of the clients also ask the office to do the payroll and also provides assistance in Social Security System and Philippine Health Insurance application and payments on their own employees. As I stepped in to the accounting office, the first task I did was to update the books of the firm’s clients. Bookkeeping is the process of recording and classifying business financial transactions, or to put it another way, the process of maintaining the records of a business’s financial activities.

The objective in bookkeeping is to create a useable summary of financial transactions, which provides a snapshot of the business’s financial stability. The most basic form of accounting is the single-entry system. In this system, you record each transaction only once, as either a deposit or as an expense. This system is generally used to determine the profit/loss of a business. However, the preferred system is the double-entry system. The double-entry system is more accurate, and has built-in checks and balances. In this system, each transaction is recorded twice, in each “account” it affects.

This is a more thorough method of keeping a business’s financial transaction in order. Bookkeeping; As part of the business science of accounting, it represents the daily tasks of tracking its financial transaction of a business and recording it correctly. This includes a sale, purchase of equipment and supplies, investment income for the month, or internal transfer of funds. As a bookkeeper, I have the access to all the daily transaction data for a particular client. Amongst the books that I have updated, the office uses single-entry method of bookkeeping.

The approach is very streamlined, tracking only accounts associated directly with money coming in and money being spent by the business which many new businesses and sole proprietors accustomed to. All of this data is then rolled up regularly into a report based on a cash flow structure, showing starting balance, how much new money was earned, how much was spent, and finally a remaining net balance for the period. There are three basic elements of bookkeeping: assets, liabilities, and net assets. Assets are all items used in the operation or investment activities of a business.

This category includes all property, or items of value, owned by a business. Examples include cash, buildings, land, vehicles, tools, inventory, office supplies, furniture, investments, and accounts receivable (any funds owed to the business). Increases in assets are called debits. Decreases in assets are called credits. Generally, various assets are referred to as debit accounts. Liabilities are claims by creditors to the assets of a business, or debts owed by the business to others. Types of liabilities include loans, notes payable, and lines of credit. Net assets are the equity earned by the business.

Net assets are the value of the business once all liabilities have been paid. It can also be called owner’s equity, capital, net worth, profit, or proprietorship. There are also several other things to keep in mind when considering a company’s net assets: • Revenue is the increase in net worth resulting from the operations and other activities of the business. Revenue includes income earned through the business’s services, interest earned on investments, and contributions from individuals or foundations. Although net assets are considered to be credit accounts, sources of revenue are actually considered to be debit accounts. Expenses are the costs of doing business. This includes the cost of goods, fixed assets, and services/supplies used in the business’s operations. Examples of expenses include salaries, rent, travel expenses, and the costs of supplies and utilities. Expenses are credit accounts.  Net assets are calculated by subtracting total expenses from total revenue, on a yearly basis. Whenever revenue is received, net assets increase. Whenever expenses are paid, net assets decrease. The paper side of bookkeeping is managed through ledgers. Each account has a ledger to show each financial change that has occurred to the account.

Sales account shows every sale made in a period by peso amount. It will also show corrections made to the account if there was an error or a bad posting. Eventually, for reporting, all the ledgers used are rolled into one combined report, which then tells management how money was earned and spent for the time period tracked. All business transactions result in at least two changes to the bookkeeping equation. In other words, a transaction that changes a business’s assets must also change that business’s liabilities or net assets. Some transactions increase accounts.

If a business’s assets increase, then there must also be an increase in either liabilities or net assets. Other transactions can decrease accounts. If a business’s assets decrease, so must either its liabilities or its net assets. Bookkeeping goes hand in hand with taxes. Bookkeeping is the process of keeping track of business income and expenses tallying them over time. Taxes are sums that you must pay to government institutions relative to the income and expenses that you tally by means of the bookkeeping process. As a practicum, it is our duty to update each of the client’s books.

If we keep the books up to date, it can be relatively simple to file tax returns. Most tax returns involve transferring bookkeeping totals and multiplying them by tax rates. The office maintains a file of receipts for each of the client each month. Strategizing An up-to-date bookkeeping system enables you to develop strategies to minimize the amount of tax you owe. Income tax rates increase as your income level rises. If you know that you will earn less during an upcoming calendar year, you may choose to make capital expenditures that will lower your tax burden during a year when your overall tax rate will be higher.

If your bookkeeping is current and you only need to perform simple calculations to file taxes, you are less likely to accrue penalties and interest on late filings and payments. Running a business means being vigilant about your bookkeeping so that you always know where you stand. If you have a small business, or are in charge of bookkeeping for a business, then you should know some basic accounting and bookkeeping rules to make sure that you’re able to run your business smoothly, with no hiccups in the financial department.  When starting your bookkeeping, you need to choose a system for doing it.

Most businesses choose a cash or accrual system. In a cash system, the bookkeeper records all cash coming in and going out as it is received. For instance, you may make a sale on Friday, but the check doesn’t come until Monday, so you record it on Monday. With accrual, you record things when they happen. You would record the sale on Friday and account for the money then, even if you didn’t yet receive it. Choosing your system relates mostly to how you do business, if you are vigilant about always having the funds on hand, or if you don’t mind doing some of your business on credit.

Choose the method that works best for your company. As a bookkeeper or small business owner, you should be updating and maintaining your books daily. It can be easy to put off an entry until tomorrow, but to keep things organized and orderly, you should be entering things in the books as they happen. Resist the urge to leave things until another day. With books, you’re dealing with numbers and money, and any small mistake can have big consequences. Make it easier on yourself by maintaining the books daily.

Take a few minutes to update and assess, so you are continually in the loop of your financial situation. When keeping books, it’s important to always do things in order, to number checks and enter them chronologically with all of the information at hand. You should have records of every single financial move you make, through accounting slips, receipts and receiving orders. If, for some reason, you are targeted by the IRS for an audit, they’ll want to see clean books with correct records. Leaving a paper trail in everything you do financially with the business is essential to bookkeeping.

1.Is Europe likely to be a good area for direct investment during the years ahead?

Answer: No, Europe is not likely to be a good area for direct investment because the money that has been invested in Europe is over high and also recently, Europe economic is going down. In my opinion If the company would like to do business or investment in Europe. It would be much better to looking for another place such as Asia , Africa , South America because the cost of goods sold , cost of production , cost of living , labor cost are not as over high as in Europe.

2. Why is so much foreign money being invested in U.S. manufacturing?

Based on your conclusions, what advice would be in order for the conglomerate? Answer: When investors evaluate whether a country is good to invest or not, there are some factors to be considered such as market size, market growth and market consumption capacity, country risk and etc. The U.S. has absolute top ranking or advantage on market size, market growth and market consumption capacity, country risk. Therefore, the US there is so much foreign money has being invested in U.S. manufacturing. In conclusion, I would advise conglomerate to acquire a company in the U.S. instead of in Europe base on the above info.

3. If the conglomerate currently does not do business in Europe, what types of problems is it likely to face?

Answer: If the conglomerate currently does not do business in Europe ,they will face more strong competitors from the US and Europe companies . These company may affect risk more than another companies and difficult to be the leader in a world market.

The case “Krispy Kreme Doughnuts” provides detailed overview of Krispy Kreme’s income statement, financial stability, balance sheet, ration analysis, competitor analysis, debt issues and income analysis. Aggressive growth is highlighted as well. The years of 2000-2004 seem to be rather successful for Krispy Kreme as company’s revenues and operations increased dramatically up to $100 million in 2004 compared with $10. 8 million in 2000.

Nevertheless, if looking deeper, the balance sheet of Krispy Kreme is not as positive as it seems from the first glance. A troubling trend is observed during the years of 2003-2004. Despite revenue had been increasing, operating income had been decreasing during 2003-2004. It means that the company can’t be labeled as healthy because its financial position is unstable. Decrease in operating income is argued to be the result of increase in capital spending and working capital.

Moreover, cash flow appeared to be negative because the year of 2004 was marked by increases in receivables, franchise buybacks and increases in inventories. Further troubling signs are low activity ratios and high liquidity ratios. Analysis of financial statement shows that company should pay thorough attention when assessing own financial stability, visibility and profitability. Estimation of both quantitative and qualitative business aspects gives an ability to estimate future cash flows and to see whether the company is reliable.

Krispy Kreme doesn’t seem to be a good company for investing or having long-term relations because its long-term debts have increased, whereas operating cash flows has been dramatically falling. The future of the company is argued to be dubious as franchisees are selling. Company’s stocks are falling and the company becomes weaker and weaker. The only positive moment is that Krispy Kreme still has one off balance sheet that underlines 10% intrinsic value. Read about Doughnut Industry

I have chosen Apple Incorporated annual report for years 2006 and 2007 because it has a positive outlook based on growth, sound financial position, innovative technical products and I am familiar with their operations. The company was incorporated in California in 1977 and became a public company in 1980 through initial public offer (Apple incorporated form K). They Manufacture, markets develops and designs personal computers, related software, computer peripherals, digital music players, services computers and offers networking.

They also deal in the manufacture, development, design and market digital music players and related accessories they also assist other companies in the distribution of music, audio books, music videos television shows and games. The main products of the company include Desktops, Laptops and Notebooks, Software application Digital music players, the Mac OS X operating system, related peripherals, servers that is Xserve RAID Save and Xserve Server (Apple incorporated form K). HISTORY OF THE COMPANY

The company which Manufactures, markets develops and designs personal computers, related software, computer peripherals, digital music players, services computers and offers networking was incorporated in California in 1977 and became a public company in 1980 through initial public offer (Apple incorporated form K). They Manufacture, markets develops and designs personal computers, related software, computer peripherals, digital music players, services computers and offers networking.

They also deal in the manufacture, development, design and market digital music players and related accessories they also assist other companies in the distribution of music, audio books, music videos television shows and games. The main products of the company include Desktops, Laptops and Notebooks, Software application Digital music players, the Mac OS X operating system, related peripherals, servers that is Xserve RAID Save and Xserve Server (Apple incorporated form K). The company manufactures and sells her products worldwide with marketing segments in various continents.

Apple Inc. uses online services, opening segment distribution centres, owns retail shops. The company has a variety of customers ranging from governments, education institutions, final consumers, business, non-governmental organizations, professionals and research centres for her products and services. Apart from her products ands services of third parties including Application Software, storage clerics (flash & floppy disks, CD, DVD’s), speakers, printers, headphones and other accessories (Apple incorporated form K).

The management and the board has enhanced and integrated device like digital videos, I pods, CDs & DVDs players, still cameras, cell phones and PCs. They also came up with a PC that include high quality user interface, complex applications can be run with ease, acceptance of cheap data storage devices, capability to connect to other digital devices easily and internet. Apple Company remains the only company with control of her designs and development of a personal computer from hardware, software and applications in the industry in the United States (Apple incorporated form K).

Management Analysis The company is managed by Mr. Stevens P. Jobs who is 52 years and is one of the cofounders. He is the chief executive. This means that the promoters are still in control of the management of the company. The finances of the company are managed by Mr. Peter Oppenheinner who is 45 years old. He couples as chief financial officer, vice president of finance and corporate control and principal accounting officer (Apple incorporated form K). The Operations Of The Company Are Managed By The Chief Operating Officer.

The Head Of This Division Is Called Mr. Timothy D. Cook, 44years. There Are Two Divisions Under It Headed By Mr. Ron Johnson , 50 For Retail And Mr. Anthony Fadell, 39 years of age Ipod Division (Apple incorporated form K). Economic Analysis: Economical segment: The US sub prime crisis and increasing oil prices has already had a global impact on global financial markets and could affect consumer spending worldwide. At first sight, this would seem a disproportionate reaction but banks all over the world are exposed to US debt.

Sub-prime lending was lending at higher interest rates as a means of helping American consumers of lower incomes and poorer credit records obtain mortgages. These loans were then sold on, in complex ways, to other institutions including hedge (higher risk higher return) funds. The treatment of sub prime loans by the banks is likely to have far-reaching effects including, possibly, a slowdown in the US economy and a confidence linked decline in US consumer spending (Apple incorporated form K). Fact is that US retail sales rose only 0.

3% in August 2008 suggesting increasing caution of the crisis ahead. US retail sales are a major driver of economic growth and may be viewed as an early response to a housing slump and financial market turmoil. Over the past 12 months, retail sales rose by 3. 9% excluding autos. However, the level of spending did not indicate recession tendencies though analysts expect growth to decline in the near future. There were modest increases in sales for furniture (0. 5%), electronics (0. 4%), sporting goods (0. 3%), and health care (0. 3%) compared with the same month a year ago.

This trends affecting world economy is contributing to the fall in demand for computers and other consumables that use the products of the industry. Market/Industry/Competitive Analysis: The company operates in a very competitive market of computers, electronics and accessories but they have innovated and started an online store for marketing their products and services. They also use the online store for marketing third party i. e Macintosh products and services. The natures of products they deal with are offered by companies with very competitive prices. The company should revise her pricing strategy.

To remain a leader to innovation and market leader, the company has invested heaving in research and development and has engaged in aggressive international marketing (Plunkett Research , 2008). To be ahead in marketing her products, the company has opened direct and indirect distribution stores where they have stationed innovative and knowledgeable staff members. The sales staffs have the knowledge on how hardware, software, services offered, peripherals and other accessories operate. They also have knowledge on the offer of after sale services i. e. training and servicing of computers.

This offer of after sale service has given the company advantages over other companies in the same industry enabling them to open 170 stores worldwide. The company’s competitors include Dell Inc. , IBM Inc. , Microsoft Corporation, Cisco systems and Hewlett – Packard Co. /Compaq, in the United States. Other products like cell phones and electronics have competitors including Nokia, Samsung, Siemens, Motorola and many others. To ensure her future endeavours, the company must come up with a shareholder rewarding policy and dividend investing policy (Apple incorporated form K).

The company’s strategy for growth is to become a market leader and innovator through producing its own software hardware and other technologies through design and development of their own, this shows the company has a bright future and from the ratios and other financial statements it is a health company to invest in. The company has opened many distributing stores in various parts of the world making them the market leader. This will influence my institution to invest my dollars in that company (Apple incorporated form K).

Cadbury’s reports must be made public so shareholders and people whom have an interest is the business (e.g. stakeholders, potential share holders) can see how the business in doing. This can be a positive or a negative affect on the business, if the business is doing well it will attracted new shareholders, but if the business is not on target (e.g. loss in profits) this will cause shareholders to withdraw there shares, and drive away potential shareholders. They do this to monitor the business and they may also be able to calculate what is going to happen in the future. It is also a legal requirement to keep records(all PLC’s and Ltd’s must do this including Cadbury’s).

Other accounts produce include profit and loss accounts and a balance sheet, this shows assets and liabilitiesthis includes what the business owns and owes. To summarise: The objectives of Cadbury that the finance department helps to achieve: Make a profit – they calculate the finance of the business and advise the business whether they can afford to design a new product or buy a new business. They then provide the money for the product. The also calculate the finance so the business can be assured they will not go into debt half way through the year, this is done with cash flow forecast. This helps the business decide if they need a source of finance to survive. These can lead to a business failure or success if this aim is achieved a business can grow and become successful

Good employer – they do this by paying good wages that are fair to everybody who works within Cadbury’s. They should follow the discrimination acts and not pay someone more for the same job because of there sex, colour or disability Expand – this aim can be achieved by achieving the profit aim. The business can not expand if there is no source of finance. Cadbury’s finance department will be the department that puts forward the money to expand by creating new products (e.g. fuse) or buying a business out (e.g. Adams) to do this they may have to get a loan from a bank or a financier. Cadbury’s gain there source of finance from within the business maybe shares sold or selling apart of the business.

Charitable – they provide money to charities and to schools. Cadbury’s is a go example with there get active scheme for children. This encourages people to buy Cadbury products because the people see they are doing good. This can give the business a competitive advantage. Human Resources Human resources has a number of aims these include good employer, good customer service, community, expand and competitive. The human resources department of the business manages labour needs and staff welfare. The human resources department is usually responsible for recruiting new staff and for training them to do their job When the vacancies arise, it draws up documents for specific purposes, organises and runs interviews. The dept has to follow certain procedures before a job can be filled.

1. Vacancy occurs – reasons for this maybe retirement, promotion or fired/quit 2. The job description is then drawn up by the human resources – the job description including job title, position in the organisation chart and a list of duties. 3. Person specification drawn up – the qualities of the person including qualifications, experience and personality. These factors are key to selecting the person for the job role. 4. The job is advertised – the dept need to consider: what details need to go on the advert and where should be the advert be placed? 5. Candidates apply for the job role – the advert will usually say what the candidate needs to send in as part of their application. This will probably include a application form and a C.V.

6. The candidates are then short listed and interviews are arranged 7. Appoint the best candidate to the job The recruitment process helps the dept meet some of there aims, like expand and competitive. Human Resources are reasonable for the training of staff, they do this to improved the skills of staff and make them more efficient (e.g. better quality or faster at there job)

Training staff includes Induction training, On the job training, and Off the job training. Induction training is when the employee is just starting the job, this includes the business safety procedures, what is involved with the job, what is expected to be done by the employee. This can be done by an experienced employee demonstrating. On the job training this is training that is done at your work place, within working hours. The training is done by an experienced member of staff; this can be a supervisor or an employee that has been trained to train new staff. And finally off the job training is training that is done away from the workplace, this can sometimes be after work or even a weekend course that will all be paid for by the company. The training can be done at a college.

Cadbury have the investor in people sign on there website, letters and products, this means Cadbury’s are dedicated to there staff wellbeing including the training of the staff. Employment Laws must be followed by Cadbury and Cadbury Sweppes. There are a number of laws all businesses must follow. But Cadbury being the muti-national and popular business, if any discrimination within Cadbury is found it will be made public all around the world and Cadbury Sweppes reputation will be damage. The laws that must be followed are: Equality; this includes laws such as the discrimination act and the health and safety law. Trade unions are representation for the employer and the employees when there is something wrong. If the laws are not be followed properly the trade unions will step in. If this happens the business will suffer, with strikes.

Human Resources must provide good working conditions, for the employees the workers will want to have a clean, safe, happy working environment to work in. This will hopefully boost the businesses productivity. They would also be responsible for benefits to its staff such as good pay, pension schemes, freebies and selling the shares for the business to the employees. 80% of the employees at Cadbury’s own shares in the business. To summarise: The human resources department will help Cadbury achieve the following objectives: Competitive and Expansion – The dept help Cadbury’s achieve there aim in expanding by employing new and able staff. This will also provide the business with a competitive advantage if the staff are working at there full potential. This can be achieved by the HR dept providing a good working environment. Cadbury Schweppes employs over 40,000 people worldwide.

Customer service -this also involves the training and employment of able staff. The customers want quality goods and service. So the employees of Cadbury’s need to be well trained for every situation, the HR are reasonable for this. The employees need to help the customers as well as possible and as much as possible. Good employer – this will be achieved by safe working conditions. The Cadbury HR need to look out for there staff welfare. Community – offering jobs for the local community where the business is based. (e.g. Cadbury UK – Bournville). Providing the local community with jobs or being environmentally friendly to the local community.

Investors use earning information to calculate the level of cost of equity capital. The cost of equity for a firm is computed by adding up the risk free rate and a premium for exposure to systematic risk as follows: Cost of equity = Risk-free rate + (risk measure) x (Market risk premium). The Nairobi Securities Exchange offers a trading platform for both the local and international investors who are looking to gain exposure to Kenya and Africa’s economic growth. NSE play a critical role in the growth of Kenya’s economy by encouraging savings and investment by helping local and international companies access cost-effective capital. NSE is regulated by the Capital Markets Authority of Kenya.

CMA approves public listing and fosters investor’s confidence by ensuring rules, regulations and requirements for trade are complied with and market integrity is sustained in order to guarantee orderly, fair and efficient markets (CMA, 2016). CMA retains investor’s confidence by ensuring rules, regulations and requirements for trade are complied with and market integrity is maintained. CMA also plays an important responsibility of mobilization and allocation of capital resources in the economy in order to provide incentives for long term investments (NSE, 2016) In Kenya, listed firms are required to produce quarterly, semi-financial statements and audited annual reports. Financial statements are prepared according to International Financial Reporting Standards (IFRS) and audited using International Standards on Auditing (ISA).

The CMA guidelines encourage firms to disclose additional information on director and management remuneration (CMA, 2016). The performance of the NSE is an indication as to whether the investors have trust in the safety of their investment, trading goes down significantly with low investor’s confidence.NSE is categorized into three different market segments namely the Main Investment Markets (MIMS), the Alternative Investment Markets (AIMS) and the Fixed Income Securities Market Segment (FISMS). According to CMA (2017) as at December 2017, listed companies at the NSE were 64, categorized into 11 sectors namely: Agricultural sectors, Automobiles and Accessories sector, Banking sector, Commercial and Services sector, Construction and Allied sector, Energy and Petroleum sector, Insurance sector, Investment sectors, Manufacturing and Allied sector, Telecommunication and Technology sector and Growth and Enterprise Market Segment sector Banking sector is the largest sector represented with 18% of the total firms listed at the NSE, second is commercial and Services sector and Manufacturing and Allied with 15% each, Agricultural sector which is one of the country major economic sector is represented by 11% of the total firms quoted.

Telecommunication and Technology and Growth and Enterprises Market sectors were the lowest each with 2% of the total firms quoted. Through NSE, disclosures have had an impact on how investors trade, when the level of disclosure is high, investors confidence increases hence higher level of trading. The CMA guidelines encourage firms to disclose additional information on director and management remuneration . The performance of the NSE is an indication as to whether the investors have trust in the safety of their investment, trading goes down significantly with low investor’s confidence.

Statement of the Problem

Inherent shortcomings of traditional reporting have prompted development of voluntary disclosure models. Transparency and disclosure creates and sustains confidence of investors, stakeholders and the winder society and provides opportunity for continuous improvement of business structure and processes. Corporate governance is currently an area broadly being researched on by many scholars, due to increased application of corporate governance practices all over the world after major corporate scandals due to lack or improper disclosure. This study targets one pillar of corporate governance on the cost of equity capital, which is voluntary disclosure.

Disclosed information provides a signal with an aim of revealing the state of a company to the investors for consideration in investment activities. Information has important and vital role, information should be understandable, complete, accurate, timely and reliable .

Information is considered informative if it is relevant and can change stakeholder’s belief and gives confidence to investors. Annual reports are important tools in communicating essential information about a company both financial and non financial information . The key drivers of corporate value in critical areas of the business are not reported under the traditional accounting model, as such theorist and researchers have begun to develop models for additional voluntary information disclosure.

The concept of voluntary disclosure has been growing given the needs to keep with the clients expectations. Investors and clients have challenged companies on the need to provide more than what is required by the law and regulations. In Kenya, investors obtain essential information regarding trading activities of listed companies in NSE through their annual reports and other bulletins from CMA.

Studies done in Kenya context include a study Mwangi and Mwiti  investigated the impact of voluntary disclosure on stock performance, Mutiva  examined the effect of voluntary disclosures on financial performance of firms quoted at NSE, Lopokoiyit  investigated the effect of the corporate governance practices on share prices of companies listed at the NSE, these studies found a direct relationship between voluntary disclosure and company performance.

Study by Asava  investigated the effect of voluntary disclosure on stock returns of listed companies, her study reveals that there was no correlation between voluntary disclosure and stock returns. Barako (2007) in his study of determinants of voluntary disclosure in Kenyan listed company’s’ annual reports, observed that companies cannot link their board disclosure, foreign ownership and firm size significantly affect financial performance.

Studies by Diamond and Verrecchia , Botoan , Hail , Botosan and Plumlee (2002), Richard and welker (2001) and Lopes and Alencar , shows a negative association between voluntary disclosure and the cost of equity capital using direct approach. However these studies were done in developed economies with few studies done in the context of developing nations, these studies tested the association between voluntary disclosure and several aspects such as profitability  stock liquidity.

However most of these literatures are leaning more on factors that influence the extent of voluntary disclosure. Literatures from previous studies conducted locally have skewed more to factors that influence extent of voluntary disclosures with few on the effect of voluntary disclosure on the cost of equity capital on firms listed in NSE, the motivation of this research is developed by the fact that majority of past research have given conflicting arguments creating a dilemma that necessitates further research on the effect of voluntary disclosure on the cost of equity capital of firms in Kenya.

The general objective of this study is to examine the effects of voluntary disclosure on the cost of equity of capital.

• The following are the specific objectives.
• To examine the effect of forward-looking information voluntary disclosure on the cost of equity capital.
• To determine the effect of financial information voluntary disclosure on the cost of equity capital.
• To evaluate the effect of corporate social responsibility information voluntary disclosure on the cost of equity capital.
• To establish the effect of Board information voluntary disclosure on the cost of equity capital.

The study will be guided by the following research questions. What if the effect of forward-looking information disclosure on the cost of equity capital? What is the effect of financial information disclosure on the cost of equity capital?. What is the effect of Corporate Social Responsibility information disclosure on the cost of equity capital?  What is the effect of Board Size information disclosure on the cost of equity capital?

Voluntary disclosures provide an extra way for investors to judge a company’s performance. This study will therefore enable the investors to make better investment decisions and better capital allocations. It will also emphasize on increased transparency which reduces information asymmetry that may exist between the investors and the management team. This study will likewise extend the literature on voluntary disclosure to academicians. The study will also help listed and unlisted companies in Kenya in understanding the role of voluntary disclosure in the management of their firms with aim to reduce cost of its equity capital.

This chapter introduces theories that explain the subject of voluntary disclosure and past empirical studies relating to the variables under the study. Reporting and disclosure are the most important tools that companies use to communicate with interest-related parties. Several theories have been documented to relate voluntary disclosure. They are Agency theory, Capital Need theory, Signaling theory and Stakeholder theory. Literature review presents theories about the subject of voluntary disclosure.

Agency theory was developed by Jensen and Meckling in 1976 who defined agency relationship as a contract under which one or more persons delegate decision making authority to another person to perform some services on their behalf. Agency theory explores the relationship between a principal and an agent. In the context of a company, the manager (agent) acts on behalf of the shareholder (Principal). Company owners empower managers to make decisions on their behalf. Shareholders do not actively participate in the management of their investments instead they engage managers to act on their behalf. This makes managers have information advantage hence creating incentive to maximize their own value as opposed to that of the shareholders.

Scott (2012) stated that the application of agency theory is used to explain the conflict of interest between managers and investors. The agency problem arises due to conflict of interest between the investors and management because their goals are not in agreement. Agency theory is concerned with solving two problems arising in the agency relationship: an agency problem arises when there is a conflict between the goals of the principal and that of the agent making it difficult for the principal to accurately evaluate and determine the value of decision made by the agent. Secondly problem of risk sharing arising from diverse attitude of the principal and the agent towards risk, the problem is each tends to select a different action when the risk happens (Depoers, 2000). One way in which agency problem can be minimized is by means of contract, it helps in bringing shareholders interest in line with managers’ interests (Healy and Palepu, 2001).These contracts require management to disclose relevant information to investors and to creditors.

Consequently principal can check if the management complied with the contract agreements and evaluate if their decisions are in alliance with their interest, monitoring managers by mean of contract comes with a cost at the expense of manager’s compensation and in order to reduce any potential conflict, principals incur monitoring costs while agents incur bonding costs which guarantees the interest of the principal is prioritized. Agency costs are the total of monitoring costs, bonding costs and residual loss. According to agency theory, disclosing information voluntary is viewed as a better mechanism of mitigating the agency problem between the agents and principals (Hawashe, 2014). Managers who posses private information about a firm are able to use their information they posses to make credible and reliable communication to interested parties to optimize the value of the firm (Barako, 2007), these disclosure may include investment opportunity and financing policy of a company, however managers who pursue their own interest may fail to make proper information disclosure.

Managers increases the level of voluntary information which is expected to reduce the agency cost (Barako et al., 2006) and also to convince the external users that managers are acting in an optimal way (Watson et al., 2002). OCED (2004) states that a strong disclosure policy is one of the expected monitoring forms that is useful as a basis of adequate information for investment decision making by investors. The main aim any company is to attract external finance to increase their capital either through debt or equity, however companies are disclosing more information voluntary as a measures of minimizing costs of raising its capital. The capital need theory can help to explain the reasons behind the disclosure

“The human understanding, once it has adopted an opinion , collects any instance that confirm it, and though the contrary instances may be more numerous and more weightily, it either does not notice them or else rejects them, in order that this opinion will remain unshaken. ” Francis Bacon, 1620. Risk is a very interesting thing; people normally tend not to realize the real effect that risk takes in their lives.

There are many kinds of risk, we want to focus on studying the financial risk, the perception of it, the effect that it has on the private banking behavior, their clients, and how they would be treated, the effect that it has on decision making, and the effect that it has o behavioral finance. Because when you start talking about behavioral finance you need to try to understand what risk represents and all of the effects it has. During this article we want to show why over 10% return margins shouldn’t be viewed as something risky, but as something worth analyzing.

Because in this times people are going to need over 10% margins if they still want to be making profits out of their investments. And once people understand what risk represents, what it represents ND all of its effects, they can start analyzing what they want and need out of their investments. And once they understand that, they are going to do anything to accomplish it, because as it is said in the quote at the beginning once the human understanding acquires a goal and an opinion on how to get to the goal, he will do anything to end up successfully.

2. Risk

Risk by definition, is the potential of gaining something of value, weighed against losing something of value but, The term “risk”, means financial risk or uncertainty of financial loss” (Raglan, 2003). After using these terms for the purpose of this paper e will divide the study of risk into 3 parts: types of financial risk, the ways to measure IR and perception of risk.

2. 1 Types of risk

There are many types of risk; we are going to focus on 5: credit risk, market risk, operational risk, regulatory risk, environmental risk.

All of these are top priorities for banks to analyze throughout the operational process. Credit risk, is the potential that a borrower fails to meet his obligations on the terms that were agreed. There are 2 key components on defining credit risk, quantity of risk and the probability of default. The banking system manages credit risk using exposure ceilings, review renewal, risk rating, risk based in scientific pricing and portfolio management. Market risk is the possibility of loss caused by changes in market variables, it sums up to four components.

Liquidity risk, this is divided into funding risk, time risk and call risk. Interest rate risk, which is the potential of negative impact coming from changes in rates. Foreign exchange risk and country risk.

• Operational risk: Human error risk.
• Regulatory risk: The risk implied by the government ‘s ability to make new laws and modify regulation.

2.2 Wars to measure risk

There are several methods to measure risk, we will be focusing on the most common ones and the ones that are better suited for Hedge Funds. Vary is used to quantify the exposure to the market risk, using standard statistics techniques.

It measures the minimum expected loss that a firm may suffer under normal circumstances, over a set time period at a desired level of significance. One of the biggest setbacks with Vary is that it’s useless in times of booms and crisis as it doesn’t prevent you from being part of them. Another big problem with Vary is that it is one of the most moon risk measures and people tend to trust it too much without hesitation. (CITE) Standard deviation is a measure of dispersion of a set of data from its average. It is usually applied to the annual rate of return of an investment to measure the investment ‘s volatility. CITE) After taking a look at these 2 methods that are the most commonly used, we will be talking about the ones more suitable for the Hedge Fund industry, which are the following: Seminarian’s or downside deviation is the average of the squared deviation of values that are less than the mean or a “minimum acceptable return”. This method is similar to variance, the difference between the two is that seminarian’s focuses only on the negative fluctuations of the asset neutralizing all the values above the mean. This method primarily provides the estimate of loss that a portfolio could incur, keeping the estimated risk realistic. CITE) Kurtosis is a statistical measure used to describe the distribution of observed data used around the mesas. Kurtosis is also known as the measurement for the volatility of volatility. Its main purpose is to describe the trends in charts. Keenness describes asymmetry from the normal distribution in a set of statistical data. Keenness can come in the form of “negative keenness” or “positive keenness”, depending on whether data points are skewed to the left (negative skew) or to the right (positive skew) of the data average. CITE) After analyzing these methods, we can conclude that for a Hedge Fund and especially for clients investing in these it is better to use the seminarian’s, kurtosis and keenness methods to analyze the risk of an investment. These three focus more on the downside risk of the portfolio instead of using the Vary that is only good on stable periods and doesn’t account for drastic mimes, besides standard deviation and variance can be very deceiving in the context of analyzing the real risk that a portfolio can have focusing also on outlying positive returns.

2.3 Private banking

What we want to analyze is the way private banks operate and especially how clients needs are met, how they are treated, how their money gets almost frozen with interest rates that barely covers their money from the effect of inflation, and how private banks earn a lot of money while clients barely earn real returns. Banks offer annulled returns between 3 and 5 percent which is usually not enough to meet paving expenses or inflation for the wealthy clients. An American study showed the following: “Americans said they need to earn average annual gains of 9. Percent above inflation to make their financial needs. Natives officials noted that inflation since 1964 has averaged 4. 2 percent annually, which means the average American has to generate 14 percent to meet their needs. “fee,2014) having this in mind clients can realize that they need to expect a bigger profit on their investments because they are actually losing money, their money is losing value and the only way f stopping this from happening is by demanding higher returns using alternative investments. High returns while taking minimal risk is a pipe dream; if asset growth is your priority, taking risk is crucial” Oaf,2014), and that is why clients need to be sure that risk is being managed in the most efficient manner.

3. 1 Clients

The most important part of any financial institution are the clients, and most important thing about them is recognizing that every client is different and every client has different needs. Every client has to be treated differently to help them meet his/her goals. As the investigation of Dry.

Rene Fischer and his team in the book “Wealth Management in new Realities”, “we identify 7 engagements that are shaping client behavior and needs” (Fischer, De Conge, OK, Topper, 2013), with this in mind we will take a look at those seven trends to give clients the best service possible while maintaining a steady margin of returns. Engagement one: Changing demographics. The population is growing and also the markets, clients need security and information that their money is secure and generating profit.

Engagement two: Globalization and future markets. With the Gap’s of various developing countries rowing at a fast pace, clients are starting to look at investing in new markets. Engagement three: Scarce resources and climate change. Global awareness is growing for environmental issues that can create new opportunities in clean energies, and a new set of investments in ecological matters for clients. Engagement four: Economic crises and insecurities. With the volatility of the market, clients are starting to be insecure about their money.

It is the financial institution ‘s Job to keep clients informed about the situation their money is in, and make them feel safe that their money is in good hands. Engagement five: Dynamic technology and innovation. With all the changes in information technologies, “more and more people are getting connected and are sharing information on the go’ (Fischer, De Conge, OK, Topper, 2013), this makes clients better informed and more aware about what is happening to their money.

Engagement six: Sharing global interest responsibility. With the shift towards global cooperation and MONGO ‘s gaining power, clients are demanding socially responsible investments. Engagement seven: Global knowledge society. This trend goes hand in hand with trend number five, with new technologies of information, society has easier access to new information and the tools to know what is happening.

With all these trends happening, clients want to be more informed and still get the same yield, but with the misinformation, manipulation and misunderstood promises from the monetary agents, the clients think that having their money working to win Just a little over inflation Just to avoid losing money might be wrong, because with the globalize economy that we have this days studies that are being made all around the world can be generalized, so if something is happening in Europe you could assume that something similar is happening morpheme else.

So with this in mind after taking a look in some studies made in India we saw that the inflation is not the same for every social class and that the general inflation that everyone takes for granted does really have much effect on the middle and high class, because it is made out from an average of items that don’t really affect does two classes, and we are focusing on them because they are the ones that are clients of the financial institutions, and the prices of the items that they acquire are going up stronger that the regular inflation, so that is why they are not retorted with the interest rates that they receive, and they are in fact losing money which is the one thing that they were trying to avoid.

4. Behavioral finance

There are many factors involved in the process of understanding behavioral finance.

To understand this you have to start with risk perception, understanding why people tend to make certain decisions, and after that study the behavioral biases investors exhibit to see what drives the intuition of most individuals. Behavioral finance can help a financial institution prevent certain human factors that can be mitigated at the mime of making decisions and preventing psychological factors to play an important role in the decision making process.

4. 1 Risk perception

Risk perception is one of the most important elements of psychological effect on the market. Trying to understand why people tend to make certain decisions at certain times is one of the biggest questions in this matter.

Many investigations have been made about the subject, one that stood out was: “The Psychological Impact of Booms and Busts on Risk Preferences in Financial Professionals” by Cohn, Fear and Marcella. During this experiment they decided to manipulate two different kinds of lotteries giving different options in different controlled markets. Their final conclusion was that there will always be a psychological/emotional factor that can’t be measured with precision but you can be sure that during times of booms people tend to be overly optimistic and risk is not their biggest concern, and during times of busts people usually tend to be overly conservative and almost allergic to risk.

This can be obvious in both cases as it is when biases come into play. This is why risk can be a risky thing when you are not certain that is being measured the right way. If the risk is being measured correctly, psychological factors shouldn’t have any weight in the decision making process.

4. 2 Behavioral bias

Behavioral biases in finance are tendencies to act in a certain way; they can lead someone to a systematic deviation from a standard of rationality or good Judgment. Five biases that we believe can be the most common ones in an investor are the following:

• Confirmation bias is the tendency that makes people believe in information only if confirms their beliefs and hypothesis.
• Optimism bias is the tendency to think that you are less at risk of experiencing a negative event than others.
• Loss aversion bias is the tendency that agents take on when they prefer the option of avoiding a loss than the option of acquiring gains.
• Self-serving bias is the tendency to distort a process because of the need to maintain and enhance once self-esteem.
• Planning fallacy bias is the tendency to underestimate the time that it will take to complete a task.

These are only some of the behavioral biases that play a significant factor in the psychological process of making decisions. It has to be taken into account that all of them could affect an investor

5. Conclusion

“The human brain has evolved to be very efficient at pattern recognition, but as the confirmation bias shows, we are focused on finding and confirming patterns rather than minimizing our false conclusions. Yet we needn’t be pessimist, for it is possible to overcome our prejudices. It is a start simply to realize that chance events, too, produce patterns. It is another great step if we learn to question our perceptions and our theories. Finally, we should learn to spend as much time looking for evidence that e are wrong as we spend searching for reasons we are correct. ” (Millions, 2008). After looking at previous evidence, it is clear that both Private Bankers and Clients have a misconception about risk.

Behavioral biases transform risk into fear which if not mitigated by Private Bankers leads to inefficient allocation in Client’s portfolios, and a controlling position in their relationship. This is why Bankers usually oversee those investments that they are not familiar with and reject them or cause Clients to reject them without studying their process and risk/reward ratio. This is the case with vast majority of Alternative Investments. We encourage Clients to keep a critical point of view with regards to their portfolios and continuously question their Banker’s recommendations. By being involved in their investment decisions and being up to date on current market trends Clients will have a correct attitude towards risk when it comes to investing.