Investment

Careful planning is required in initial public offerings (IPO) and a company must make the right market choice. There are a number of factors a company must consider in this process. The company must look into how accessible the potential investors are. Profile of benchmarked companies on the stock exchange is as important as the requirements to the entry of the company into the market and the level of monitoring going on and requirements for disclosure. By their very nature, a quoted company’s shares are available to the public.

The main aim of the company when it advertises for the shares is to reach as many investors as possible. Not only have to have that but the investors needed to be convinced that the company is worth investing in. The company therefore avails detailed financial and management information before being given admission to the market. In a bid to attract many customers with a lower price, the company ends up quoting a price of the share far much below its market value thus underpricing it.

This under pricing leads to anomalous first-day trading profits in initial public offerings as the share prices shoot abnormally on the first day as they are floated on the stocks market. This initial return, it’s understood, is more often money left on the table because the shares could still have been sold at a higher price hence raising more funds for the same stake in the company. We have seen that the company must choose the type of market to offload its share when it is planning its initial public offering. There are several markets in which this offering can take place.

However, there are several factors that will determine the primary decision made by the company. These factors are influenced by the fact that the markets provide the company with an opportunity to familiarize itself in the midst of the disclosure specifications and functionalities in exposing for communal companies. As a point of concern, the size of the Company is very important. This is because smaller companies will find that AIM market is best for them while the largest companies will find the Main Market suitable.

Hence the size of the company is an important factor in the determination of which market to offload the shares. Another factor is the age of the company since it’s more usual to float shares on the AIM market while it would need to have operated for at least three years to enter the Main market. The time and cost are very important because the drain on the management time and the floating cost must be considered. As a general rule, if the market is bigger then the disclosure will be more onerous and the professional costs will also be higher.

Lastly, the company’s objectives of seeking the floatation must be put into consideration because the conflicting needs of the business and the owners have a direct impact on the choice of markets, float method and choice of advisers. IPO Main market Capitalization In the main market we have 214 companies. Market capitalisation= 103562. 0071 million pounds The UK listing Authority has a requirement that for a company to be listed on the main market, among other things, it must have a minimum market capitalisation on issue of ?

700,000. If this is put into consideration, the companies that are not qualified for listing on the main market are… and those qualified are.

Under pricing of Initial Public Offering in the UK

A comparison between the Main market and the AIM market Data needed: Actual data of London Stock Exchange IPOs including Year 2004-2007. Data should be separated into 3 categories:

• AIM IPO: companies that are qualified for Main market listing criteria but choose to enter AIM instead
• AIM IPO: companies that doesn’t qualified for main market listing criteria with each company of all categories, the following data need to be obtained:
  • First day return
  • Initial return
  • Market capital

References

1. http://www. quotedcompaniesalliance. co. uk/market_comparison. asp
2. http://www. rdg. ac. uk/Econ/Econ/workingpapers/emdp388. pdf
3. Listing on the London Stock Exchange. URL http://www. londonstockexchange. com/NR/rdonlyres/2139CB47-DE3A-4A98-B3A5-49B9A01CAD0D/0/ListingaUKREIT. pdf March 5, 2008

The company was established approximately half a century ago where it developed a financial services set up that allowed the customers to receive high quality customer service and be able to allow to trust the company in terms of their savings and the return they would receive from the investment. The company is known as the largest tax provider and financial firm in the world that allowed the customers to decide their tax returns and decide their annual savings.

But along with the savings that they receive, the company provides an avenue of investing the savings so that the savings would provide some return to the customer. “H&R Block, founded in 1955, is not only the world’s largest tax services provider but also a fully-integrated financial services company that partners with its clients, helping them save for retirement, buy a home, pay for college, manage a business and much more. ” (H&R Block, 2009 ) Recommendation

Considering the future plan of the company, it plans to provide its customers with the highest value of customer service with the need of tax revisions as well as financial services. Analyzing the current market trend, all the shares are on the sell side where investors have lost their confidence in investing purely because of the overall economic recession. There is a need for the investors to understand why this overall economic recession had occurred and why this stock should not be invested into.

Since the major portion of the business is to invest in the market, there is a need for the investor to have the confidence that the company will continue to do better. However, the stock market and the other markets have been on the downward trend where any investor or individual would not receive high returns for the high risk that they would incur. The company has divided its investment portfolio into the following components. 1. “Investment planning 2. Cash management, banking and lending 3. Retirement planning 4. Protection planning 5. Small business planning 6. Legacy planning 7. Tax planning” (H&R Block, 2009 )

As all investors are well aware, the concept of putting in money into any market would be considered as an alienated idea because there are a number of families who have lost out on their purchasing power and are unable to plan their daily chores in a manner to save enough for investment. Even though this tough time is considered to be a sell option for most investors, the main idea that Warren Buffet would have considered to take as a step would be to buy the stock and keep it for the long term. However, this can only be done by those investors who have money to spare and are not facing a financial crunch on their own.

For investors who cannot spare the money to invest, they must look for avenues of saving elsewhere and hence, keep the stock with themselves for a long term because once a market goes down, it is bound to go up and hence, there would be an opportunity for the investor to earn big, once the market grows.

References

1. 1. H&R Block. (2009). About Us. Retrieved on April 17, 2009 from: htp://www. hrblock. com/career/about_us. html
2. 2. H&R Block. (2009). Investments. Retrieved on April 17, 2009 from: http://www. hrblock. com/investments/index. html

Throughout this paper the masculine gender is used when referring to developers. This is purely for convenience and does not imply that successful developers have to be male. Demand for new buildings from tenants and owner occupiers is the basis of all commercial property development in the United Kingdom. A typical development scheme will be initiated by a developer identifying a demand for a new building or buildings in a certain location. A major office user for example may wish to combine a number of regional offices into one new building able to accommodate new echnology and enable all of the Company’s departments to be housed under one roof. The image to be presented by the new building will also be important and the Company may prefer a prominent town centre location with easy rail access or a fringe of town location on the motorway network.

The experienced developer will know that if a development is to be successful the location must be the one which will appeal to tenants or purchasers who will either pay rent or a capital sum to occupy the property. There are many examples of unsuccessful schemes which failed because of poor location. With shopping centre evelopment the choice can be very subtle and a slightly ‘off-pitch’ location may be enough to discourage tenants from leasing shop units in the new centre. If a site for a new development is identified and the site (or redundant buildings) is available for purchase, planning consent for the scheme must be sought from the Local Authority. It is usually the case that the developer will have concentrated on those locations where the planners will support development proposals and planning consent is likely to be received. If the location is correct and planning consent is likely the developer must also rrange finance to buy the site, build the scheme and let (or sell) it.

He may also wish to sell the completed income producing investment. If he does so and the money he receives from the sale of the investment is more than the capital and interest he borrowed to build the scheme, he will receive a monetary profit. There are many sources of finance for developers but conventionally money will be borrowed from banks to buy the site and build a scheme with long term finance being provided by life assurance funds and pension funds. Long term finance in this ontext means the purchase of the completed investment by the fund which will enable the developer to repay all his short term debt and (hopefully) give him a profit. The investment market and development market are therefore closely linked and the developer will be mindful of the fund’s requirements from the start of the development process. The most common form of development funding which involves the institutions if known as ‘profit erosion, priority yield’.

This method allows the developer to borrow most of his short term finance from the institution and not pay it back until the cheme is completed and let. At this time the fund takes over the scheme in return for providing the developer’s short term monies. The developer departs with a lump sum fee for carrying out the project which will be calculated by capitalising that amount of rent from the scheme which will be calculated by capitalising that amount of rent from the scheme which exceeds the fund’s required return on the money lent; in other words its ‘priority yield’. Even if the rent from the scheme does not exceed the fund’s priority yield, the developer will still receive a fee but obviously not as uch as he would get if he lets the building(s) at a high rent. There are many other types of development funding some of which are described in ‘Property and Money’ by Michael Brett (see the bibliography at the back of this booklet).

The developer will employ a professional team to design and cost the proposed building. The architect as leader of the design team has a crucial role to interpret his client’s intentions and produce a design which will meet the requirements of tenants, planners and long term funders. Other commentators such as journalists, he general public, and the Prince of Wales may also criticise the design of a scheme where it is perceived to be ugly or inappropriate for its location. Successful commercial development requires therefore a combination of good location, planning consent, good design and funding. Even if these factors are present the scheme may still fail, at least in the short term, if the economy is weak and firms cannot expand. This introduction provides a resume of a typical development and the process can now be considered in more detail. The Developer The developer is the instigator of the scheme.

He provides the entrepreneurial flair to identify the development opportunity and bring it to a successful conclusion. In doing so he will make use of established relationships with commercial estate agents and his knowledge of the occupier market. Most large development companies specialise in particular areas of the market. Slough Estates for example, built its reputation in the development of industrial and warehouse property whereas Hammersons developed the first shopping mall in the United Kingdom at Brent Cross. Some life assurance funds act as their own developer and one example is Norwich

Union in the development of the Bentalls centre in Kingston on Thames. Various government agencies also act as developers such as District and Regional Health Authorities with hospital building. Increasingly, the newly privatised utilities will carry out their own developments. There are many types of developers. Some are ‘developer traders’ who build with a view to selling the scheme when it is complete. Others will develop and hold the completed investment in their investment portfolio. Some developers are quoted on the stock exchange and others are little more than one man bands.

Throughout the development process, but crucially at the start before funds are committed, the commercial developer will carry out an appraisal which will predict the eventual profits to be earned from the scheme. A considerable amount of work has to be done to produce a full appraisal as all the costs of the scheme have to be considered. The site itself will have to be fully investigated and this will involve bore hole surveys to enable the structural engineer to estimate the cost of the foundations. An environmental impact study may be required before planning consent is forthcoming.

With the assistance of his agent, the developer will also predict the rent which the scheme will produce and (if the investment is to be sold), the investment value. If a scheme is to be successful the investment value less all capital and interest costs will have to leave an acceptable profit. If a developer has used rents in the appraisal which are too high, perhaps in expectation of rent rises in the development period, he may eventually make no profit at all and the scheme (from the developer’s viewpoint) will have failed. To avoid risk and to attract other tenants to a development, a developer will often eek a pre-let tenant for a scheme. Before construction starts, a tenant will sign an agreement to lease all or part of the scheme at an agreed rent.

This is particularly valuable in shopping centre development where an anchor tenant such as a department store will make a commitment before development commenced, thereby giving confidence to other lessees to take shop units. A developer who borrows money to buy a site, construct a building, and seek lessees will have no appreciable earnings until the scheme is let. It would be difficult therefore, for any interest on capital borrowed to be repaid during the development period.

It is usually the case that interest is repaid as a lump sum when the fully let investment is eventually sold. Interest in these circumstances is said to be ‘rolled up’ until the end of the development period. In arranging finance, the developer will often have a short term interest in the scheme, whereas the fund purchasing the investment when fully let, has a long term interest. Funds are, therefore, particularly interested in tenant quality in the longer term and building flexibility which may not be of primary importance to the developer. Local Authorities may initiate development, particularly retail, by making town centre ites available on ground leases to developers. The Authority will have a long term interest in the scheme’s success, as they will receive a grounds rent, probably geared to the full rental value of the development. Not all developers have a short term interest in a development. Major developers may hold completed investments in a portfolio rather than arrange long term finance by selling the investment to a fund. Planning In the words of Clara Green ‘planning applications (like prayers) receive one of three answers – yes, no or yes but. ‘

The process can be one of great frustration and ifficulty for developers and for a major scheme it is usual for a specialist planning consultant to be employed to negotiate a consent with the Local Authority. Planning law is complicated but in general terms, planning consent is required for most major building in the United Kingdom. The department of the Environment is responsible for planning and the Secretary of State for the Environment is advised by teams of professional planners, surveyors and architects. All applications are made to local councils and it is only the most important or controversial applications which will be of interest to the higher tier of overnment. Most applications are, therefore, decided locally although the Secretary of State may decide to call in any application at his or her discretion. To obtain planning permission, an application will be made to the District Council although applications in the future also may be considered by the new unitary authorities. The developer can choose the type of application he wishes to make. If he wishes to seek approval to the principle of development, he can make an outline application.

This is sometimes referred to as a red line application, as a red ine is drawn around the site plan supporting the application. If consent is granted, this will be subject to reserved matters and the developer will have to seek a subsequent consent for these detailed matters later. Alternatively a full application may be made which will include all detailed matters as well as the basic principles. The Local Authority will decide the application in the context of plans which will have been previously published and approved by the Secretary of State. Under the present two tier system of Local Government, the County Councils produce structure lans for their area which show in strategic terms the type and location of development which will be permitted during the period of the plan.

The District Councils produce local plans which deal with detailed matters related to specific areas of land. If the planning application does not accord with the local plan, the Local Authority will be justified in refusing the application but obviously a developer would be unwise to make an application of this type. Structure plans have a life of between 5 and 15 years and comprise a lengthy written statement supported by explanatory diagrams.

The important matters dealt with in the structure plan are strategic matters such as tourism and leisure, waste disposal, new housing, employment and transport. The Authority has a two month period in which to decide an application but it can ask the applicant for more time. If the application is refused the applicant can appeal to the Secretary of state and the matter in the majority of cases, will be decided by a Government Inspector. In major cases, the Inspector will make recommendations to the Secretary of State who will, after advice, take a decision.

There may also be a Public Local Enquiry here evidence is heard by the Inspector over a number of days from all interested parties. In producing their structure and local plans as well as deciding applications, Councils have to take into account policy statement produced by the government. These are called Planning Policy Guidance Notes (PPGs) and they are published or amended from time to time. Two of the most important are PPG 6 which relates to out of town retail development and PPG 13 which deals with transport. There are a total of 25 PPGs and many are frequently revised. For example a new PPG 12 was produced in April 1999.

This revision emphasised the importance of regional planning which now has it own PPG (PPG 11) and also stressed the government’s commitment to a plan led system. Any developer seeking to build against government guidance as stated in the PPGs faces a long, expensive and uncertain battle and therefore is well advised to tailor development proposals to accord with published guidance. The government is at pains to demonstrate that the plan led system is sensitive to demographic changes and this is seen in the revisions to PPG 3 (Housing) which take account of the prediction that ‘7 out of ten new ouseholds forming over the next 20 years are likely to be single person households’ (Nick Raynsford, Housing and Planning Minister).

A topical revision PPG 25 (Flood Risk) which aims to avoid development in flood risk areas and emphasises a precautionary approach in marginal areas with flood defences to be shown to be in place (and paid for by the developer) before development is approved. The Development Team The team will be employed by the developer at the start of a project and it role will encompass design, costing, funding and marketing. In summary its functions are as follows:

Architect The Architect is the leader and coordinator of the design team who has a major role in interpreting his client’s requirements and producing a design brief. The brief establishes the client’s basic requirements and from this the Architect and other members of the design team will produce detailed design drawings. These will eventually be given to selected building contractors who will tender for the job of constructing the building. During construction, the Architect will inspect the work as it proceeds on behalf of his client. Because the Architect’s work is so important he ill be paid a fee based on a percentage of the total cost of the building work. For a new building this will normally be between 4% and 5% of the cost of the work. Quantity Surveyor The Quantity Surveyor estimates the eventual cost of the new building and will produce regular cost checks as the design is developed.

Before tenders are invited from building contractors, he will inform the client of the estimated cost of the works (the pre-tender estimate) and the client can then proceed to tender with confidence. Services and Structural Engineers In some instances the engineers will be responsible for producing design drawings nd specifications of the building services (air-conditioning, electrical installation etc) and the structure (foundations, structural frame). Increasingly however, the services engineer will only produce a statement of how the services will perform (a performance specification) rather than a full design. In these circumstances, design becomes the responsibility of the contractor. Estate Agents Developers usually have established relationships with firms of estate agents who will be aware of development opportunities. The agent will also provide marketing advice and will be responsible for letting the building.

Other Consultants Other consultants include solicitors, landscape architects and planning consultants. With some complicated and large schemes, a project manager may oversee the project on behalf of the client. Specialist noise or environmental consultants may be required where development will take place in environmentally sensitive areas where special planning conditions have been imposed. Successful Schemes A scheme will be successful if its location and design has attracted a number of first class tenants and will continue to do so in the future should any tenants vacate. A uccessful scheme will provide a secure and growing investment for the eventual long term investor as well as an adequate monetary profit for the developer.

There are many reasons why development schemes are unsuccessful, some of which are discussed below: Poor Location This is the most obvious but nevertheless very common reason for failure. A shopping scheme may be located where there is a lack of pedestrian flow. An office building may be located where vehicular access is difficult or the chosen site does not provide the required image and identity for the tenant/s. On a wider scale, he development may be located in a city which is in decline, to the detriment of long term investment quality. Some commentators are casting doubt on the future quality of fringe of town retail warehousing schemes which do not have the support of an established town centre. Poor Design A shopping centre must be designed to maximise pedestrian flow and enable shoppers to both park and gain easy access. If the design fails to do this, the public may avoid the centre and tenants will be hard to find.

Also shopping centres must allow frequent changes of image and must provide the correct ambience for the ublic. Attention to detail with the internal design will allow this to benefit the investment. Thee are many examples of office buildings constructed in the 1960’s and 1970’s which do not provide the necessary ducting and image for modern tenants using today’s technology. These developments may have been regarded as successful when they were first constructed, but in terms of a long term investment are of dubious quality. Lack of flexibility with many buildings means that where occupier requirements change the buildings cannot and voids are the result. Increased Costs during Design or Construction

If a developer allows costs to increase, he will eventually make no profit whatsoever from the scheme. If costs increase beyond those used in the appraisal the developers profit will be eroded. The expertise of the design team to contain costs whilst, at the same time, producing a quality building is of vital importance but sometimes mistakes are made. A lack of coordination between building work and services is a typical example leading to redesign, delay and increased costs. Planning Errors When a contract is awarded to a contractor, it is important that the site of the evelopment is firstly in the legal control of the developer and secondly the same site for which planning consent has been granted. There have been many examples of mistakes in this area to the detriment of the project. Empty Property A newly built shopping centre with few tenants is clear evidence of a scheme which falls short of success. There are many examples amongst those centres completed during the recession. As with office and warehousing property pre-let tenants are particularly valuable in recessionary periods. Public Sector Development The Private Finance Initiative.

In the past public sector development such as roads, hospitals and bridges were built by government contracting with the private sector for the design and construction works. Civil servants and their consultants would work to precise specifications of what was required to be built. When the development was complete the government would then be responsible for running the completed hospital, road or whatever to the benefit of the public. The Private ~Finance Initiative (or PFI) is intended to revolutionise the traditional method of producing public facilities described above.

It was conceived in 1992 during Norman Lamont’s troubled chancellorship and was vigorously supported by his successor Kenneth Clarke. In essence PFI only required the government to state how the building is to be used and the performance it must achieve. The private sector is then invited to tender for the design, construction and running of the new facility. The reward for doing this is negotiated with the government agency responsible for the facility and will usually take the form of a regular monetary payment so long as the facilities provided continue to meet the agreed criteria.

Kenneth Clarke stated that PFI is ‘a radical and far reaching change in capital investment in public services which will break down further barriers between the public and private sectors’. The central argument in favour of PFI is that the private sector is more capable of promoting efficiency than government and will provide business solutions to public sector requirements. It is also argued that the risks of increased construction and running costs, which appears to be a feature of public sector schemes, will disappear with PFI where all the risks are borne by the private sector.

Critics of PFI point out that it is extremely difficult to produce a performance specification for, say, a highly complex building such as a hospital and this will lead to private sector contractors being allowed to cut corners to the detriment of the public. It is also pointed out that the government can always borrow money more cheaply than the private sector and that this will inevitably lead to increased costs which will be passed on to the public. The change of government in May 1997 led to a thorough review of the experience gained from using PFI in the previous five years. Malcolm Bates was appointed to arry out a review which resulted in 29 recommendations aimed at rationalising and reinvigorating the PFI process.

The ‘Treasury Taskforce’ was the government’s response to the review and this body consisted mainly of city financiers who were charged with building up PFI expertise in government. The taskforce had a life of three years and is replaced by ‘Partnerships UK’ which will operate as a joint private/public consultancy to assist with the PFI process. There are currently hundreds of PFI schemes in the process of completion and the present government is wedded to this form of procurement for public sector projects.

There are many beautiful places in the world that offer people a nice and comfortable life, regardless of some minor problems that exist even in the most developed countries in the world. One of those places where life is pleasant is Montenegro. Actually, it is not one of the nice places, but it is the best place to live among all of those beautiful places. Montenegro was a republic of former Yugoslavia, and it recently became a part of a new state called Serbia and Montenegro. Although it is a small place with about six hundred thousands people living there, Montenegro has everything that a big place can offer for living.

Its schools, hospitals, public transportation, and various institutions that are important for making life comfortable are all organized as in any other developed country. But what this place distinguishes from all other places in the world are the following characteristics: climate, seaside, nature, sustainable development, mountains, and many other important factors that determine the attractiveness of Montenegro. The climate is the most significant factor that makes the life in Montenegro unique. There are all of the four seasons throughout a year.

Winter, spring, summer and autumn are all equally important seasons. The whiteness of snow and the fresh air of a winter day, the exhilarating feeling of spring and melting of the white cover in spring time, the constant sunshine in summer, and the calm yellow color of falling leaves in autumn are all factors that determine the physical and the mental health of people. For example, winter brings fresh air and various snow sports can be played at this time to improve the physical condition, while the colors of spring can affect our mood and determine ones mental state.

Although it seems that one place having four seasons is a widespread appearance, it is not the case very often. Many places have only one season, and many of them have two seasons, usually summer and winter combined. Definitely, the splendor and benefits of all of the four seasons cannot be replaced by any other advantage that any place in the world can offer to its citizens. Furthermore, the beautiful Montenegro is set on the Adriatic coast. All its beaches have kept their natural beauty; there is no artificial sand as it is the case with many famous beaches all over the world.

The beaches vary from very long to quite small. Some of the largest reach up to three kilometers. Some of the main advantages of the long beaches are that entrance on these beaches is always free, price of food and beverage is lower, and the offer of sport and entertainment programs is wider. On the other hand, the small beaches can offer more privacy. Business people who want to escape from everyday duties and responsibilities, and who want to spend their holiday in a peaceful environment usually visit these more expensive and serene beaches.

In addition, Montenegro has some very small beaches that are very difficult to reach, or they can be reached only by boat. They offer an extra quiet holiday for only a couple of people who want to be in a complete isolation. Thus the advantage of Montenegrin seaside is that there are different kinds of beaches created to meet needs of different people. Moreover, there are many foreign investors who recognized the potential of Montenegrin cost for tourism, and whose investments should make the cost even more attractive.

Since the core consequence of the investments would be increased population (because of newly build facilities), the conservation of the environment could be in question. In order to protect nature from the consequences of the new investments, the government of Montenegro issued some regulations that protect natural beauties of Montenegro. Therefore, one of the main conditions for the foreign investors who want to invest in development of the tourism was not to destroy nature, but to make it better and more attractive.

The investors will have to find out new ways of maintaining water, air, beaches and parks clean and unpolluted while building new facilities and bringing tourists into Montenegro. These environmental regulations are very significant because they help sustainable development of this wonderful place. Beside fabulous seaside, Montenegro has two mountains. On one of them, there is a ski center that is visited not only by domestic visitors, but by foreign tourists as well. The domestic guests benefit a lot from having the ski center in Montenegro.

First of all, they do not have to travel abroad in wintertime when the trip can be unpleasant because of wet and slick roads. Than, prices are much lower than anywhere abroad, which allows people to stay longer for the same amount of money than they would stay anywhere else. Also, because of the convenient climate in wintertime, the quality of snow is mostly excellent, which means that artificial snow is never used. That is very important for skiers (especially for professionals), because quality of snow directly affect quality of skiing. To sum up, Montenegro is definitely the best place to live in the world.

Some of the convincing reasons have already been mentioned, but there are many of them that could be further discussed and used as the supporting material. This small place that offers everything needed for pleasant and comfortable life, say enough for itself. Whoever visits it or comes to live there is amazed by its gorgeousness, and wish to stay to live there. Therefore, I have not been trying to convince readers that Montenegro is the best place, but to convince them to visit it. Once they visit it, the people will have their own opinion that can be nothing else but that Montenegro is the best place on earth.

International Financial Management is unique primarily because the firm must deal in more than its own currency. [2] A multinational is a corporation that has operations in more than one country. [3] It is also called an International Corporation. It ordinarily consists of 1 parent company and about 6 foreign subsidiaries, typically with a high degree of strategic intervention between them. E. G. The Coca Cola Company is a multinational company, selling in more than 200 countries and having net sales of $7169 million in the 1st quarter of 2009. 4] Financial advantages of foreign operations An overseas market provides a larger market and thus, a potential increase in the sales of the firm’s products. For some corporations, it might mean a fall in production costs if their opening a subsidiary in a country that offers cheap labor, raw materials or machinery. Also, instead of only exporting goods to other nations, once an NC starts operations in another country, the risk of detrimental laws restricting the sales of their products as well as an increase in the tax on their products, decreases considerably.

Exchange rates and their effects An exchange rate is the expression of the value of one currency in terms of another amounts currency. [5] There are two ways of expressing this value: 1. Direct quotation: Domestic Currency / Foreign Currency 2. Indirect quotation: Foreign Currency/ Domestic currency The two methods are different ways of expressing the same thing. Throughout the project, ERE is quoted in direct quotation. Banks in most countries use a system of Foreign Exchange Market and its Fluctuations The volume of international transactions has grown considerably in the past 50-70 years.

Trade and investment of this magnitude would be impossible without the ability to buy and sell currencies. The latter must be done for one currency is not the acceptable means of payment in all countries engaged in trade. The foreign exchange market is one of the largest in the world which facilitates the buying and selling of currencies, whose price is determined by the ERE. The market is over-the- counter, I. E. Trade is carried out using computer terminals, telephones, telecoms devices and SWIFT; an international banking communications network that electronically links brokers and traders.

It is not confined to any one country but is dispersed throughout the leading financial centers of the world. Participants The major participants are large commercial banks that trade with one another, channeling most currency transactions through the worldwide interbrain market. Their transactions are conducted through foreign exchange brokers, who specialize in matching net supplier and demander banks. The brokers charge a brokerage fee and in return, offer anonymity to both parties and minimize the contact of banks with other traders.

Small banks and local offices of major banks have lines of credit with large banks or with the home office. Customers deal with the bank, which then makes use of the line of credit. Other players are brokers, international money centre banks, central banks of many countries, portfolio managers, foreign exchange brokers, hedgers, traders and speculators. Another actor in the market is the arbitrageur, who seeks to earn risk-free profit by taking advantage of difference in interest rates between countries and make use of forward contracts to eliminate ERE risk.

If the value of home currency A decreases relative to the value of currency B, A is a weakening or depreciating currency and B is a strengthening or appreciating currency. ERE quoted indirectly will fall. For the importers of country A, ore of their home currency is required to purchase goods of country B. The vice versa is true for country B. Therefore, the attractiveness of a country’s goods and services abroad is Judged by the relative values of the currencies of the importing and exporting countries. Types of Transactions 1 .

Example, Ryan and Aaron only get sales of about $17,000 in the first year but they put more effort on their business ND start to double their sales each year and eventually reach an amount of $1 5 million a year. Although they gain a lot of profit through the large amount of sales, but they bravely plow most of the money back to the firm so that the profit of the firm can grow dramatically in a short time. This shows that we need to be brave to face the risk so that we can get a better result in our business.

Before Ryan and Aaron start their business, they set a goal for themselves which is to help small businesses to compete with large businesses by having an inexpensive way which is by rumoring online. The above shows that we need to set a goal first before start working on something so that we won’t confuse when we are middle of our working. Ryan and Aaron also realized the American economy and made good use of the internet and other technology. It will be hard if we don’t understand the economy of our working area.

It will be more easily to start a business when we understand the economy of our working area. Not only that, if we made good use of the internet and the technology around us, we will be able to minimize our work and maximize the result. Lastly, Ryan and Aaron hire smart people and train them well to work with them so that they can handle a diverse customer base. This show that we needs to hire not only good but also smart employees so that we can higher our profit and lower our expenditure.

Answer for question 2 Stakeholders of ‘Contact are people and groups affected by, or that can effect an organizations operations, policies, and decisions of [Contact. To balance the need of the stakeholders, we need to prioritize business and stakeholders needs. In order to feel like the company is still yours without offending or losing big stakeholders that intricate money to keep your company in business you need to take a moment and prioritize business needs and stakeholders’ needs.

This means that we have to capture business processes and link them to projects software and capabilities. We will also need to modify our procrastination as our understanding of the application an s Keener needs change. We need to take Into consideration ten customer needs as well by involving them in the project. Center development activities around stakeholder needs are also one of the ways to balance the need of the stakeholders. By leveraging certain developments or user center designs we can accept the fact that stakeholder needs will change over time.

As our business changes so will the needs of the stakeholders and we will also need to meet their changing needs. The most important way is to understand available assets. By understanding what assets are available to the business we can also balance asset reuse with stakeholders needs. Some examples of business assets would be legacy applications, reusable components, etc. Answer for question 3 The two entrepreneurs most impressed me is that we are almost the same age when hey starts their business.

By their age, I’m still studying but they already started their own business and started to earn money by themselves. They are also very brave to face the risk. As we know, they plowed most of the money back to the firm so that the firm can grow dramatically over time which shows that they are very brave to face the risk. They seem very different from the typical college student. Usually, a typical college student Just represents certain subject or society in the college, but they starts they own business which is no relation with the college.

This Increase was necessitated by the fact that Macadam’s had embarked on an solution spree Ana required tons Tuning to secular Lavas Brothers In I-array 1996, as well as to fund the investment in new factories, land and distribution warehouses across the country. The short term debt had increased by 229%. This increase would have been necessary to fund their working capital obligations, as short term debt is significantly more expensive to service than long term debt. Despite the massive increase in debt, the interest cover ratio is still healthy.

This however, is not a cash based ratio and gives us no indication as to whether the many is able to make its cash payments to service the increased quantities of debt. The current ratio and quick ratio gives us an indication of the company’s ability to repay its short term debt. Macadam’s have a very high current ratio, which shows that on the accrual basis the company’s short term assets are readily available to pay off its short term liabilities. The inventory on hand days have increased, together with the debtor’s collection period.

This further exacerbates the cash flow problems as their cash is tied up in working capital. The longer collection period is probably indicative of more relaxed reedit terms – while this may boost sales and may well be a contributing factor to the increased turnover, it also presents a problem to the businesses scofflaws as well as an increased bad debt risk. Both the fixed asset turnover and total asset turnover have declined, due to an increased asset base resultant from large acquisitions in the current year, as well as the inability to use these assets as efficiently as possible.

This is supported by the increased profit margin discussed below. Profitability The business displayed healthy turnover, which increased by 58. 5% from the prior ear. The group is obviously doing well in terms of growth, but perhaps they were trying to grow too fast. A 58. 5% increase in turnover cannot be sustainable without a strong balance sheet to support it. The turnover growth in the current year (1996) was largely attributable to surging demand for their products, a favorable exchange rate for their exports and acquisitions of businesses which complement their existing operations.

Their operating margin was up from 10. 8% to 14. 9% showing that the company was operating more efficiently. Net profit margin increased from 7. 4% to 8. 5%. Not only were they boosting turnover, they were also managing to increase their margins. Total net profit attributable to shareholders was up 81% from the prior year. Cash flow From the ratio analysis above as well inspection of the face of the income statement, Macadam’s appear to be making higher sales and larger profits off of these sales. Upon inspection of the cash flow statement, a different picture is seen.

The large increase in working capital of 595% from R 2, 7 million to R 19 million, resulted in Macadam’s Delve unmade to Tuna tenet operating Ana Investing satellites. I Nils introduction between the two statements highlights the increased profitability, but negative (and worsening) cash flows. A further draw-down of increased working capital cost is explained in the balance sheet with an increase in inventory of 66% (R 12 million) to meet consumer demand which was funded out of cash resources as well as increased debtors of 129% (R 15 million) due to increased credit sales.

Furthermore, creditors increased by 87% (R 8 million), which only partially offset the increase in current assets. Conclusion Macadam’s is earning high sales and profits, but has serious cash flow problems I. . The business is too successful, as they are trying to grow too quickly. Cash is seen to be the lifeblood of a business and the accrual of accounting profits are meaningless unless they are converted into cash flow.

There are certain options available to overcome this problem, being: ; Cutting back on growth (which is never popular) ; Increasing borrowings (which wouldn’t be a wise choice, as the movement in the cash-flow statement shows an inability to service current interest payments) ; Improving working capital management (which would necessitate a cut back in Roth) ; Arrange alternative financing (a reasonable solution by means of sale and leasebacks), or ; Issue more shares (which is what was chosen) Macadam’s nearly failed as a business despite the fact that they had a successful idea and product that was in high demand.

They resolved this by issuing more shares to institutions for cash, as well to fund the acquisition of Livings Pros and other fixed property acquired. They also recommended a capitalization issue in lieu of cash dividends to retain as much cash reserves as possible. If I owned shares in this company at this point I would (buy/sell)