Investment

Nike is a big industry and to take shares of this company and asset it into Zinc Finances would be very pricey but according to ratios worth it. Here I would look at Nike Inc’s total finances and compare it with Adidas and possibly other rival competitors including Reebok, which has come very close to Nike over the years with revenue and gross profit. As you can see from the research the years taken from Nike Inc and Adidas are a year or so different as Adidas finance information starts at Dec 1998 and ends in Dec 2000, whereas Nike Inc starts in Dec 1999 and ends in Dec 2001.

I have analyzed both companies with their ratios in the years where there is financial data on both companies in two particular years. Which in this case was Dec 1999 and 2000 for Adidas, while May 1999 and 2000. This could have created different results in the ratio. However, it was clear which company performed better. The performance, profitability and solvency ratios all show that Nike Inc is consistently financially better than its competitors.

But does this mean overall success for Nike? I would look at the Industry, History, Mission, Culture, Marketing overview, Brand expansion, International market, advertising, endorsements and come up with a conclusion for the references I have made.

Adidas is the #2 biggest footwear industry and after analyzing the ratios it has performed as well as Nike over the years, even though it is far behind Nike in revenue and profits. The share price of Adidas is currently at 4877. 0 compared to the opening price of 4864. 0 that was a 44. 0 change-0. 90%. The highest it has been being 4916. 0, which I would guess is cheaper than Nike. However, does the price of Adidas worth its value and most importantly if I was to buy shares from Nike for Zinc PLC I would look at all departments of ratios I used, here I would look at all the ratios I used and possible ratios I could have used. Adidas has performed consistently well insolvency and beaten Nike in the productive side of some parts of the current ratio wherein 2000 Adidas recorded figures of 2. 04:1 compared to the modest 1. 7:1 of Nike in that year. Indeed, it could be argued that the current asset for Nike is far bigger than the current assets of Adidas.

Therefore, meaning the current liabilities would also be high to balance out the assets where a firm like Nike, which has high current assets would therefore have high current liabilities because of the usage of assets means the usage of liabilities. So what does solvency point out? It could be that solvency ratios are not efficient as other ratios as a big firm like Nike may have a much lower current ratio figure to say Adidas for this instance, where Nike quite clearly has a better current asset figure than that of Adidas where Nike’s figure stands at 3,596. 4 to Adidas’s 2,623. 3, while the current liabilities stand at 2. 140. 0 for Nike and 1,288. 7 for Adidas in the year 2000. The purpose of solvency is to show the ability of a firm to pay off its short term debt.

However, I do not believe Nike will have problems covering short term debt in already having $9,488. 8 annual sales, having a huge marketing value of $15,491. 9 and 22,700 compared to Adidas’s 13,157 employees. Nike has shown a recovery with recent 2001 current ratio figures of 2:1 in comparison to 1999 2. 3:1 and 1. 2:1 in acid test ratio. Despite, some un-consistent form Nike remains in average better insolvency then Adidas as the acid test ratio prooves where 1999 figures of 1. 4:1 vindicate Adidas figures of 1. 04:1. Moreover, Adidas would be closer to liquidation then Nike would, even though some figures suggest otherwise as it has enough profit and sales to use for solvency if ever a problem occurs.

Both the Acid test ratio and Current ratio are useful in predicting the liquidity of each of the two companies. However, solvency doesn’t show how big a company is but instead looks at how close apart assets and liabilities are. This is not what I would look for if I was going to buy shares as it could be two very small companies that I could want to buy shares of with better figures than that of Nike and Adidas whereas both are bigger and yet, it shows the same value. Gearing ratio, which measures the working capital, which for Nike was 8. 29 per share could have been used to get a different spin on the ratios.

If I am to buy shares for Zinc PLC, I would have to look at the share information of Nike and its competitors. The revenue per share is $35. 83 compared to Reebok’s $50. 10. The dividends per share for Nike is $0. 48 and long term debt per share are $2. 33. It is important to know the price per each share because you can measure it with the ratios and see if it is worth its value. The profitability is broken down to gross profit % and Net/Operating profit %. The gross profit % of Nike is 42. 4% compared to 43. 3% in the year 2000.

Yet, again the gross profit is bigger in Nike-3,814. 9 to 2,380. 3 of Adidas. The sales figure is also higher in Nike then it is in Adidas. Gross profit has to be large enough to cover overheads in the long run. The starting point is always turnover. The first deduction from turnover is the cost of sales. This gives gross profit, which should be similar from year to year or better and Nike improved 2. 4% from 1999, whereas Adidas dropped 0. 3%. While Adidas defeats Nike in gross profit, Reebok’s gross profit was 38. 57%.

The operating profit margin can be calculated the same way as gross profit and is what remains from sales revenue after deduction of all operating costs, including overheads. The net profit for Nike in 2000 was 10. 9% compared to 7. 5% for Adidas and again the higher the better. The gross profit was pretty close, but the net profit prooves that Nike is technically more efficient.

It’s all beginning to map out on Nike’s favor now and Return on capital invested is currently at 13. 5% compared to a modest 10% for Reebok. The return on capital invested measures money, which can be earned by investing in physical capital. It reflects the effectiveness with which the business uses its capital equipment.

Rising ROCE values in one firm raise the opportunity costs of capital in other firms and other industries. Ratio’s that I could have used returned on equality, assets, and pre-tax profit margin, which all show that Nike is considerably a better firm to take shares out. Furthermore, a firm like Adidas will find it hard to maintain profits in the long run as Nike can. The performance ratio leads to the conclusion that it would be wiser to take shares from Nike and not Adidas. The performance ratio gives an indication of how efficiently the business is performing in areas such as stockholding and chasing up customer debts.

It is a good way to see how efficient a firm like Adidas or Nike is in stock and assets and how much usage of it is converted into cash. The stock turnover measures how long it takes for the business to sell its stock. It is a target of all businesses to sell their stock in a few stock as possible. It takes 89 days to sell its stock for Nike. Meanwhile, the asset turnover for Nike in 2000 was 1. 54 days to 1. 45 days for Adidas. However, the ratio that stood out from the rest was the debt collection period, which measures how long it takes a firm to collect its debt.

It would take a mere 58. 61 days for Nike in the year 2000 compared to Adidas who would take a huge 118. 65 days. I would have looked for a firm that performs to the highest ability and consistently at a yearly basis and Nike fulfills that criteria. Performance is probably the most evidential that Nike is worth taking shares of and even other competitors such as Reebok fail to deliver as with the high quantity of numbers for everything including annual sales, employees, market value, profitability and performance, it would be foolish to pick any other company to take shares out of.

I found out that the ratios don’t look at quantity, but rather the quality of solvency, profitability and performance shown by Nike’s defeat to Adidas in some areas, even though it would have bigger values. I’m now going to look at the technical department of Nike to prove if it is really worth taking shares from… -Industry: – Nike belongs to the non-rubber footwear industry. The Athletic footwear industry is highly competitive. The market share data shows Nike and Adidas as the major players in the industry. In 1991, Nike led the way with a 29 percent share. Reebok held 23 percent of the market, while the rest of the industry split the remaining 48 percent.

As a group, the industry reported a 4. 8 percent increase in sales in 1992 but posted a 19. 5 percent decline in profits. During 1992, Nike and Reebok recorded 94 percent of the profits in this industry. Nike, Adidas, Reebok and Fila can be seen splashed all across the front of athletic clothing. This represents a double benefit for the industry because people pay to be seen in the company’s apparel, and the industry gains free advertising. The latest industry statistics show total sales increased by 7 percent on 6 percent unit sales figures from 1994 to 1995.

Domestic consumers bought 344 million pairs while spending $13. 3 billion in 1995. For four straight years, the 12 and under female categories have shown great increases. Also, in 1995, adult women accounted for 45 percent of total dollars, while adult men contributed 42 percent of total sales. This men’s figure was up 5 percent over 1994, another high growth area. The industry as a whole concentrates heavily on advertising. Some well-known sports figures endorsing Nike include Michael Jordan, Bo Jackson, Deion Sanders, and most recently, golf phenomenon Tiger Woods. Reebok spokespeople include Shaquille O’Neal and Emmitt Smith.

Risks in relation to Opportunities, measurement of decisions Appendix 10. 5: 24 Probability of risk occurrence Appendix 10. 6: Provisions of outcomes incorporating and eliminating the influences of controllers 25 Appendix 10. 7: 26 Influence of a risk in relation to costs Appendix 10. 8: 27 Checklist for evaluating risks 2 1. 0 The risks are now attached powers related with the lifep of hotel ‘s projects or activities in the specific region, combining unreliable nature of vague commodities, quickly changing market, advances in technology, and the revolution of the customer’ s requirements.

Hotel ‘s projects usually consume large capital investments to achieve profitability and momentum within the market, but perhaps associated unpredictable risks generate restrictions or even a substantial loss of investment. Consequently, risk management is applied uninterruptedly through the life cycle of the hotel ‘s project to reduce or minimalism the undesirable effects of risks from the project’ s schedules, costs and performances, in order to ensure achievement of economic goals.

This report is initiated to analytically examine the procedures of risk management regarding the hotel industry. Initially, this report ascribes theoretical context of risk management and of its perception and significance within the industry of hotels. In addition, this report analyses and reviews risk a managing procedure, including risk identification then the analysis and controlling of risk, to finalize with risk reporting. The report investigates how risk potential dangers and facilitates the project’s procedure regarding decision-making (Kite & Eluding,1997, p. ). This report also shows how risk management sequences benefits the assignment ‘s responsible to evaluate if they acquire satisfactory possessions for the project to manage the risk connected with high existence possibility and significance that not all risks are of equal weight. Furthermore, risks may be various and theoretical; consequently the report will establish the significance of finding parts and mutual risks methods, which are advantageous to aware the management of the hotel from dangerous risks.

Additionally, the report shows the value of the statistical normal distribution, and the likelihood of risks within the project management of hotels, including a strategy of efficient warning methods and emergency forecasting in order to monitor future risks. This report continue explaining in what way risk reporting would be efficient in delivering the results of the conducted analysis and control of risks so the hotel ‘s project to accelerate investing conclusions.

Yet, this report shows important debates concluded through a concise summary of the risk management progression and its values within the hotel industry. Additionally, references, and appendices serve an as extra resource that highlights key philosophies in this report. 1. 1 Aim & Objectives This report main aim is to analyses the procedures of risk management and how it effects project management within the industry of hotels. Goals: To diagnostically examine the academic frame of risk management in relation to project management within the industry of hotels. 2.

To identify the settings of risk management and its effects on hotel ‘s project. 3. To investigate the procedures of risk management within the hotel industry. 4. To discover the significance of managing risk in project management within the industry of hotels. To analyses the risk management procedures and its effect towards hotel ‘s approach of managing risks within projects. In accordance to Serener, (2006, p. 1 1), risk management is defined as an organized function procedure useful in a methodological approach in order to cope imaginable risks offered to a company.

Moreover, Mills, (2001), argues that risk management if systematic, is a crucial tool for company’s in order to control and obtain the possible occurring risks, which could simplify the process of dealing with the actual risk. Moreover, the risk management procedure where the team monitoring is accountable for couple of areas of responsibility: recognizing, evaluating, forecasting, tracing, controlling and communicating (NASA NIPPERS. A 2004 p, 5).

The usefulness of risk management provides hotel management to a opportunity to reduce the risk through using the systematic approach for better a better adaptable response to risks, and eliminating the accomplishment of strategic objective and profits (Rival & Fuchsia, 2007, p. 4). Noticed by Mills, (2001) that risk management don’t only emphasizes on classifying the risks after a ranking system, it also monitors and administers risks to be able to decrease imaginable damages to the business ‘s entity.

However, Serener (2006) claims that the purpose of risk management is not to serially eliminate risks, therefore, focusing on the risks that are involved in the furthermost effective method or reactive actions. Further down the line of a project, the possible risks could drive the project or organization to unnecessary expenditure, fiasco, or liquidation (appendix 10. 1). According to Scott, (1997) there is a significance importance to include the process of risk management within the decision-making procedure by hotel ‘s leaders, in order to reduce the negative impacts of risks such as efficiency, implementation and budget problems.

Within the hotel association, inconsistency concerning established objectives and actual implementations is created due risks being very stretched to projects (Kindlier, 2009). To continue, there are very high cash investments within properties and assets belonging to hotels, which triggers a bigger risk if the particular hotel fails to produce profit and inevitably lose investor’s investment.

In addition, prompt alterations and high manipulations origins greater risks to hotel ‘s developments, impacting the day-to-day procedures and generating insecurity in decision-making (Serener, 2006). So, through arranging risk management at the entree, hotels can certify adaptive reactions to risks in a well-timed method; evade upcoming damages, enabling supervisors to create a contingency plan to response towards risks, and seizing hypothetical opportunities (Kindlier, 2009).

Enterprise Risk Management (ERM) – Project Risk Management Enterprise Risk Management shortened term ERM, is perceived as a procedure, stimulated via an independent panel of managers, executives, and other employees, which is combined with tactical instructions throughout the business, to be able to pinpoint probable impacts measured to be forceful to the independence (Rival & Fuchsia 2007, p. ). Kindlier (2009, p. 323) argues that ERM embraces all the management of assignments, agendas and collect the concepts of risk management within a structure.

In order to seize business development and reduce dangers the ERM could be focused towards the safety and security department of a hotel. In addition, ERM is appreciated within project risk management in order to compute and manage risks with great safety, henceforth focusing the practice of capitals. Further, discussed by Stuntman et al. , (2011, p. 336) PRM ‘s function as a procedure, which monitors all actions in order to guarantee a positive result from investments.

Moreover, when a new project is offered to a hotel, PRM is highly useful in order to evaluate the foundation of the dangers, the comprehensiveness of risks, and hypothetical results designated from risks. Nonetheless, hotel ‘s plans are indistinguishable to stint of time regulating, highlighting the introduction of latest commodities or assistances towards the market, nonetheless limited by limits and certain objectives according to Groove (1997).

Therefore, it is essential to apply PRM uninterruptedly during the project lifep to successfully moderate risks and achieve project’s objectives in relation to he strategic schedule, financial plan, and implementations (Stuntman et al. , 2011). The risk management process is alienated in four different boxes; it starts by identifying the actual risk thereafter follow an analysis and control of the risks and management process in order to safeguard stability between the profits versus the costs within operations (Kline & Eluding, 1997, p. ). Continuously, another elaborated definition discussed by Groove (1997) the risk management procedure is one-chain rotation, due to each step commences in a systematic approach to be able to execute risk management efficiently. Moreover, Kindlier (2009) emphasizes the importance of utilizing the risk management process, managers and supervisors would gain a holistic overview of the entire activities, reduce the uncertainty and making the hotel project reliable and profitable.

In addition, the process is valuable in order to clarify if the projects are feasible or problematic. Chapman & Ward, (2010) introduces the first step of the risk management procedure, first step: risk identification, a procedure where potential and actual risks facing the hotel, gets revealed and diagnosed. Risk identification tributes to instructing the reject supervisors of related obstacles or risk being a factor where the achievement of goals develops the base for risk analysis and control.

Second step is called a risk analysis, where a process takes place of analyzing various risks by the usage of specific techniques such as statistics. This step is also recognized as the “action” step, to conduct an analysis against the risks, which has been identified in the previous step. Furthermore, follows risk control, by endeavoring to manage the risks for modifying damaging influences and defending productivity. Last step in the risk management process, risk reporting explained by Kline & Eluding (1997), either written or oral communication of the findings from the conducted.

Hotels are affected when impacted by the occurring fluctuations that are uncontrolled, such as the financial state or advantages of competitors, which are usually invisible at the early phases of the hotel plans (Stuntman, et al. , 2011, IPPP). It is further argued by Scott (1997) in order to receive high returns on invested capital, hotels should apply the process of risk management in order to systematically diminish the negative influence of risks.

Continuously, the process is also beneficial regarding the assistance provided to hoteliers in order to increase the certainty of the project’s future, which leads to overall better confidence in the decision-making process regarding anything related to the project from cost efficiency plans or contingency plans versus possible upcoming risks. 8 diagnoses possible impacts of the company that could trigger the risks both internally and externally.

Risk identification is the first step before the risks gets analyses and purposed, thereafter becoming the foundation of the next steps in the recess; analyzing and controlling risks (Scott,1997). According to Keen, (2011) the most problematic and difficult step in the process is the risk identification, because it outcomes of strangeness or vagueness of forthcoming occurrences. However, identifying risks allows managers to distinguish the partnership between the causes and consequences of events, thus enabling the strategy of the stronger risk image, protective plan, and increase self-confidence in decision-making.

If the management of the hotel disappoints in identifying any upcoming potential risks in the projects or operations, then unfortunately the non-identified risks will become hard to manage and cultivate to be devastating (Tchaikovsky, 2002). Additionally, the stage of risk identifications includes a complete analysis of the settings both internally and externally in order to interpret nature, and measure influences from risks (Meredith & Mantel 2012).

Furthermore, Groove, (1997) argues that by recognizing foundations and influences of risks, for instance operational or market risks towards the projects of the hotel, the management could therefore categorize these risks if they are manageable or uncontainable. Nevertheless, even if risks are identified as uncontainable such as inconsistent seasonal demands, the management within hotels could still plan and work out a protective plan for producing short-term demands in order to change the undesirable outcomes (Ammonia. , 2008, p. 1 1).

In addition, when risk management process is implemented, the procedure should be on-going and not perceived as one-off activity, as new risks are constantly occurring regarding the changes occurring within the micro and macro environment said by Tchaikovsky (2002). 4. 1 Identification of the major significant participants – Steadying groundwork, lassoing pieces – communal risks When identifying the foundation and stabilizing it, hotel’s directors must have a look at the entire party of personnel carrying this project out instead of Just concentrating on the information (appendix 10. ). The managers must identify and know they key people, in other words are the very important participants, who in turn will give the vital information for the risk performance identification and enquiry steps. Furthermore, in order to stabilize the groundwork, manager or directors have to gain every part of necessary and significant data in a certain period of time. Such as the different and various sources of risks and influence areas to have a performance on the risk study efficiently and effectively (Scott 1997).

However, by the conversion of information into different distinct pieces, managers should know and recognize the different risk components in the hotel’s plans and the corresponding relationship in each component, which is why planning specific goals can become easier in specific risk. Additionally, when identifying and ordering distinct components and pieces, there are two available approaches; it is either doing it independently or with a group (Serener, 2006). Identifying individually is considered as efficient when considering time, but can lead to limitations, narrow perceptions or own biases by ignoring the hotel’s atmosphere.

Uncooperative, Stuntman et al. , (2011) have argued by the identification of risks in a group, an additional stable and serious identifications can be accomplished, but, the period could take longer, costly, and very difficult for adding various information into one piece. Meanwhile, it has to be recognized that the human error, results and occurs of them who see the event on occasion basis can produce bias in recognizing risk Keen, 2011). Moreover, mutual risks have to be found and identified for its great level of danger challenging the projects.

Through common risks recognition, the project managers can focus efforts on risk with great impact, because not all the risks are the same and they all require different attention and treatment (Pritchard, 2010). Nevertheless, the 10 mutual risks differ as the project proceeds, because the consequence of the risks may reduce; yet others become dominance. For example, in the lodging industry, the hesitation of the market fluctuations, economic rejections, and as well inflation may to show at the beginning of the hotel’s projects.

Thus, forming inconsistency among the plans and the authentic upcoming implementations argued by Haze &Kouki (2009, p 262). Analysis of risk occurs when managers’ converts information gathered throughout the identification process when handling risks like rational knowledge by operating designated methods (Kline & Eluding 1997, p. 59). Risk analysis is also related to activities of examining assignments or functions to observe dangerous areas including risks in a methodical method, which might relieve risk control procedures Pritchard, 2010).

Hotels could be quicker adaptable and better responsive to perceivable occurrences, which comprehends chances and disorders (appendix 10. 4) by using risk analysis. Keel & Eluding, (1997, p. 8) states two types of risks analysis, one being quantitative and the other qualitative. Still, statistic plays a important role when risks is being analyses, in order to explain outcomes by taking a look at the frequency scattering using authentic numbers or calculations, to be able to compute data. Frequency scattering is utilized in risk analysis to review big volumes of

Running head: CASH MANAGEMENT AND SHORT-TERM FINANCING Cash Management and Short-term Financing University of Phoenix Cash Management and Short-term Financing Structured cash management and efficient short-term financing are both beneficial and important for a company to remain competitive in the market; this will help increase potential profit and shareholder value with the rising stock. Cash management is a tool for the company can use to manage idle funds (cash balances) that are not generating revenue giving the company the ability to use the freed cash to build sources for short-term financing through interest building securities.

Cash management techniques include marketable securities, international cash management, collection/disbursement float, and Electronic Funds Transfer. Short-term financing give the company the ability to secure cash needed for production enabling the company to maximize profitability. Short-term financing methods include inventory financing, commercial paper, trade credit, bank loans, receivables financing, foreign borrowing.

Cash management Techniques Float is the difference between the recorded available cash and the amount that has been credited by the bank, this results in a time delay when dealing with banking system and the mail service and clearing checks. A company will use the float to minimize collection times and increase disbursement dates to give them more time with the cash on hand to use in interest building securities. Electronic Funds Transfer is quickly replacing the out-dated check system, with the EFT system the ease of electronically deposited funds; this reduces the lag or down time traditionally associated with the manual check.

This system increases the efficiency of the banking system and decreases float times for the company. International cash management allows the company to deposit money in countries with a high interest rate returns. This allows the company to invest in high return loans in a source of generating additional revenue. Marketable securities turn non-generating cash into interest generating revenue through CD’S, treasury notes, treasury bills, savings deposits, Eurodollar deposits and commercial paper.

The techniques used in cash management are used to reduce or eliminate unwanted cash balances that do not generate revenue and turn them into interest earning securities. Collections control and management is vital in eliminating unwanted cash balances, the entire purpose is for the company to retain the highest rate of cash solvency to maximize profitability. Companies have reduced the use of “float” methods with the increase of EFT’s, time is not an issue with the EFT, and this transition takes place immediately.

However, both float and Electronic Funds Transfer can be used in collections to maximize return. International cash management allows the company to reach for the highest interest rate of return not found in the United States, the use of this technique is more challenging; the ability to manage funds through different geographical locations and time zones can be extensive. The International cash is always susceptible to currency fluctuations, interest rate changes that could end in a lesser value than originally deposited.

The International cash management runs at a high risk for the company but also has the potential for the largest gain. Marketable securities are a good technique for cash management but run the risk of company loss with increasing interest rates. Trade credit occurs when a seller or manufacturer of goods extends credit to the company in the form of accounts payable. Bank loans can be used to provide the necessary cash to implement expansion or new product development. Commercial paper is a certificate issued to the investor, by the company; this constitutes a debt that will be repaid.

Foreign borrowing lets a company seek outside the normal parameter to obtain loans at a lower rate. Inventory and receivables financing let the company try to get based on their current asset value. Between all the financing options Trade credit constitutes approximately 40% of all short term credit to companies with trade credit a company can take advantage of discounts when the payments are made in a timely fashion, this give the company flexibility in deciding on how long to carry their credit debt. Both bank loans and trade credit are short-term provide immediate funds of financing.

However, bank loans are at risk of requiring a higher compensating balance, which lowers the amount of actual money lent to the company. Commercial paper methods of financing have the advantage of being issued below the prime interest rate that banks charge. Commercial paper does not have the challenge of compensating balance requirements but the paper can be lost, stolen, misplaced, or damaged. The commercial paper process has mostly been replaced by a computerized version. Foreign borrowing, like the other techniques, is also short-term but runs the risk of foreign currency inflation or fluctuations.

The use of receivables and inventory as collateral in financing is also short-term. Receivable has the advantage when the asset level inflates, as the value increase the amount of money increase that the company can borrow against. The uses of short-term financing or cash management both maintain the goal of ensure sufficient funds the company will need to maximize profitability. Cash management utilizes control over the receipt and payment of cash as to minimize non-earning cash balances and to capitalize the freed up cash in interest earning modes.

Cost synergy effects reflect the advantages of large-scale production which bring about economies of scale (Farrell and Shapiro, 2001). The new organisation which is now larger gains a higher bargaining power vis-a-vis suppliers so that discounts and lower prices for supplies reduce costs (Bower, 2002: 12-23; David, 2001: 187). Again, there is the elimination of some intermediaries with mergers and acquisitions as well as laying off workers thus reducing the overall input costs (Ferris and 2001: 96). Reduction in costs is associated with cheaper products that will guarantee a market for the company.

It also benefits consumers who can now afford quality service at more affordable prices (Kaplan, 2000: 33-45). The concept of worker retrenchment however raises ethical issues and companies undertaking M&A have been blamed for fuelling unemployment (Scherer, 2002: 102-105). The Avaya merger shows just how firms are optimistic about synergy effects that they are likely to benefit from in the event of a merger. In June 2007, Avaya merged with Silver Lake which is an investment company and which focuses on industries that are technologically driven and TPG capital, a private investment company as well (Avaya, 2007: 1).

On making this announcement, Avaya CEO Louis D’Ambrosio said that the merger would enhance service delivery in communications solutions due to pooling of resources and know-how (Avaya, 2007). Reduction in costs associated with economies of scale is also some of the benefits that Avaya, TPG and Silver Lake are going to obtain. As a result, Avaya will become stronger and more aggressive in the market (Follet, 2007: 1). Benefits of reduction in cost come in handy now that companies have to spend more in research and development to keep their products going in the market.

Given the soaring costs of research and development out of the global need advance technology, telecommunication firms often find it hard to make it on their own (Kang, 2001: 38). M;As provide a convenient solution to enhance innovation and development. Companies can pool together financial resources, manpower and technology making it easier for them to maneuver through the challenges rather than when they could have done it alone (Farrell and Shapiro, 2001: 689-71). Consequently, more innovative products and services are produced (Matsusaka, 1993: 371).

This not only works to the benefit of the company from increased sales but also gives consumers better products to choose from (Clemente and Greenp, 1998). Financing synergies mostly result from the large asset base that is likely to emerge following M;A. This means that the companies can put together resources that can be used as security in accessing credit (Eckbo, 1983). Increased credit-worthiness means that the newly formed company can now access finances for development.

Smaller companies that cannot afford certain amounts of credit have been known to take advantage of this synergy effect to advance their businesses (Reel and Lajoux, 1998: 42). For instance, when McCaw Cellullar Communications was sold to AT;T in 1995, the company was facing constraints that could not allow it to get into the wireless communication business (Bruner and Parella, 2004: 329). By selling to AT;T, the company whose credit ratings at the time were CCC could benefit from AT;T’s AA credit rating.

This means that McCaw Cellular gained from financial synergies resulting from the acquisition. This is exactly the case for T-Mobile which is facing danger of shutting down. Further, the revenue of consolidating firms will most definitely rise not only from the sale of the joint products but also as a result of the reduction in costs. The increased customer base also helps to ensure that more revenue is collected by the company from increased sales. This leaves the companies with more finances at their disposal.

In every business setup, the aspect of reporting financial results in an adequate manner is one of the management aspects of a firm. In all cases such report should be based on standard financial requirements where accuracy and validity should highly be monitored. Business finance includes both costs and revenues. The health of the business is determined by the strength of these two components. However, there has been indifference in the understanding between the current period studies and the prior studies on the understanding of the relationship between transparency in reporting and management of earnings.

Formerly, greater transparency has been viewed as a contributor to developing earnings management. However, in the current period greater transparency in cases of firms with big incomes will reduce their chances of earning management if the firm engages in such great transparencies. (Hunton, Libby, Mazza, 2006) Following the results got from their financial report in relation to their transparency, firms will regulate their financial strengths through varied ways. Where a firm has fewer earnings than expected, it will sell its securities to achieve such an income deficit and the opposite is true for firms with high income.

For huge financial reporting however, transparency is geared towards the reductions in the decreasing or increasing income earning management to ensure that financial report forecasted is what is actually achieved. Method of investigation In the investigation regarding the relationship between transparency in reporting and earning management, this has been achieved through the authors study on how the users of these results behave towards the aspect of earnings management in the reported financial results.

In his research, he has realized that, transparency in reporting enables the users to visualize high standards of management of earning. However, this has been results based on the former research studies. Contrast to the current, research findings, users of financial results are less satisfied by complicated financial reports in which managers may have used difficult and complicated financial entries to report these results(Hunton, Libby, Mazza, 2006).

In many of the companies investigated, it is revealed that there is less detection of earnings management when all the information have been adequately discussed in full and in a less transparent financial statements of the equity reports to the stockholders. In many of the companies with stocks of available-for-sale, the use of less transparent reporting methods has seen as the most favorable way to achieve earning managements to the stockholders. (Hunton, Libby, Mazza, 2006).

In a research which the author entered into showed that many managers will involve in less transparent reports in which case this has been seen to favor firms wishing to trade on their available-for-sale stock in creating income for their investments. With use of highly transparent financial reports, this will reduce the involvement to the managers in focusing on earning management. To foster these highly transparent reports, the author has found that this can be more attributed through use of more methods to ensure its achievement. (Mazza, Porco, 2004)

However, to highly ensure management of earning in available-for-sale stocks, the current research has revealed that, managers should attempt to use comprehensive income reporting styles which will adequately produce the results of the possible gains or losses of the firm in its reported earnings. This is because, the available-for-sale stocks of securities are usually given as a report in fair value of the balance sheet in which case report involves unrealized gains from the holding and any possible gains that may be realized in trading with these securities.

This use of comprehensive income should be focused since in all cases, income reports should never be manipulated but given in their actual view. However, earnings may be manipulated by the mangers to ensure they achieve their targets in convincing their stockholders. (Hunton, Libby, Mazza, 2006) Having used comprehensive report, the firms can merely apply strategic timing to achieve management in the earnings which involves proper timing of how the firm realizes its gains and losses which may have accrued to the investment securities.

Rather than relying on the transparent reports, the authors study has thus revealed that, most of the stockholders would actively time on the possible periods which the firm recognizes its realized gains or even possible losses in its investments. (Mazza, Porco, 2000) His research has revealed that, use of comprehensive income reporting methods enables the client easily extract the relevant information on the gains and the losses which would effect their equity.

However, in the view to deal with the comprehensive income reporting, the use of performance statements would highly enhance a visibility in the investors view regarding the firms finance reports and would thus increase the investor’s use of whatever information may be contained in the performance statements. This research has revealed that, the use of this performance statement is a mere simplicity of the comprehensive report in which case, use of this statement would simplify the investors attempt in understanding the comprehensive reports.

Different forms of performance statements can be used by firms to elaborate their comprehensive financial statements, depending on what they have in the reports. (Hunton, Libby, Mazza, 2006) Conclusions The use of comprehensive financial reports can adequately be of a high implication benefits to investor than more transparent statement. Though the former research revealed that use of transparent reports would enable investors to understand the realizable gains and also losses of the firm they would like to invest in, the author’s research has however revealed the benefits which may accrue to a firm in use of comprehensive reports.

In which case, clients will better understand the financial health of the firm through the comprehensive reports more than highly transparent ones. Contradiction of research and study topic: Although the topic was geared towards revealing what transparency in reporting may affect the management of the earning as the result of the earlier studies, this research is a contradiction to the study topic. In its findings, transparency in reporting does not necessarily attribute to earning management. This is in the view by managers that financial reports should never be manipulated in attempt to meets that firms investment goals.

However in the finding of this research, comprehensive report would be more influential to the clients especially when accompanied by performance statement. In its view, clients are more interested in comprehensive reports than transparent cases. Reference: Mazza, C and Porco. , B (2004) An assessment of the transparency of Comprehensive income reporting practices of US companies. Working paper: Fordham University. Hunton, J. , Libby. , R & Mazza. , C (2006) Financial Reporting Transparency and Earning Management.

FASB interpretation no. 35 has given the criteria to be applied in dealing with equity method of accounting for investment where an enterprise invest less than 50% of the voting stock in a company. Through the guideline given by APB opinion no. 18, equity method should be applied when an investor is able to exercise significant control over financial and operating policies. Though the ability to exercise control is based on percentage on ownership if there is evidence to the contrary then such presumption should not override the need for judgment. APB no.

18 was restricted to investment in voting common stock therefore the emerging issue task force(EITF issue no. 02-14) was set up to determine whether equity method of accounting could be applied to other investment vehicles other than common stock and how it will be applied to those investment(Williams & carcello, 2006). The consensus reached was that equity method of accounting should only be applied for an investment in common stock or when an investment is in-substance common stock. In-substance common stocks are those investments in an enterprise which has risk and reward similar to an entity’s common stock (Siegel, 2007).

The following characteristics should be considered by the board of director of painless. inc. in determining whether their investment in preferred stock is substantially similar to the entity’s common stock. Equity method and common stock 2 1. Subordination Where an investment in an enterprise has substantive liquidation preference over the entity common stock, then they cannot be regarded as in-substance common stock. However some liquidation preference which is not considered significant compared to purchase price of investment cannot be regarded as substantive. 2. Reward and risk

The board needs to compare the risk and reward of that preferred stock to the enterprise common stock to determine if they are substantially similar. Where an investment does not participate in earning and neither appreciates nor depreciate similar to common stock then they cannot be considered as in-substance common stock. 3. Obligation to transfer value Where an investment holds redemption provision which are not available to common stock then such an investment is not substantially similar to common stock. Furthermore future fair value of both the investment and the common stock should be considered.

Where you expect to have a low correlation between the future fair value of preferred stock and common stock then such an investment is not in-substance common stock. In assessing the possibility of treating painless. inc investment in preferred stock as in-substance common stock then there is a need to check against the three characteristics. Such preferred stock hold a liquidation preference over common stock and in comparing the fair value at the time of investment of $15 million with the redemption amount of $15 million then such redemption is substantive and therefore

Equity method and common stock 3 cannot be considered as in-substance common stock. Furthermore since such preferred stock have cumulative divided it means that incase an entity experience loss in one year then the outstanding divided must be paid in the next financial year when profit are made therefore does not participate in risk and reward as common stock and hence cannot be regarded as in-substance common stock.

Finally the number of board members appointed by painless which is 3 compared to the total number of seven means that painless have no significance influence in financial and operation policies as board members are entrusted with the duty of drafting and implementing those policies therefore such an investment cannot be accounted for through the equity method (Morris, 2004).Equity method and common stock 4

References

Morris, J. E. (2004). Accounting for M&A, equity, and credit analysts. New York: McGraw-Hill. Siegel, J. G. (2007). Gaap handbook of policies and procedures. [Chicago, Ill. ]: CCH. Williams, J. R. , & Carcello, J. V. (2006). 2006 Miller GAAP guide level A: Restatement and analysis of current FASB standards. Chicago, IL: CCH. .

In recent months, the Foreign Exchange market has fluctuated significantly. The US Dollar is not strong anymore, and the Japanese Yen is getting stronger. JPY/USD (Japanese Yen against US Dollar) rate dropped from 117 to 112. The carry trading trend is over, and a strong Yen is an important trend in the FX markets.

No More Carry Trading

Borrowing low interest currencies and investing in higher interest currencies is called carry trading.  It used to be the simple strategy of FX trading. Japanese Yen was the most popular currency to borrow since its interest rate was near zero percent.  Many investors sold Japanese Yen against the US Dollar, which is a higher interest currency, or bought the US Dollar against Japanese Yen, to make a profit by the interest-rate differential (spread). Carry trading is the major reason the JPY/USD rate hiked up from 101.77 on January 9, 2005 to 124.12 on June 17, 2007.

However, on August 16 and 17, 2006, with a growing sense of anxiety over the sub prime mortgage issue, the US Dollar dropped from 116.65 to 112 and it reached 111.58 once. There hadn’t been this large of a drop for a long time, and since, the Japanese Yen has been strong and the US Dollar has been sold (Interbank FX).

Stronger Japanese Yen & Weaker US Dollar

The US Dollar has always been a strong world currency, and many economists have presented a rosy picture of the U.S. economy. However, since the large drop of the US Dollar against the Japanese Yen, the trend continues. Carry trading depends on an inexpensive Japanese Yen, so this change has brought on the end of carry trading (Global Guru). Some reasons the US Dollar got weaker and the Japanese Yen got stronger are:

• S. Sub prime mortgage crisis
• Japanese Yen’s interest rate hike and US Dollar’s interest rate reduction

 U.S. Sub Prime Mortgage Crisis

Beginning in late 2006, the U.S. sub prime mortgage industry declined, causing many sub prime mortgage lenders to fail or file for bankruptcy. On August 15, 2007, concerns about the sub prime industry caused a large drop in the stock market (Wikipedia). Although the U.S. market recovered those losses within 2 days, investors could not erase fears within the U.S. economy. Therefore, investors thought the US Dollar declined in value and started selling the US Dollar against the Japanese Yen. In addition, in response to anxiety about the market, investors made “flight to quality,” which means quitting risky trading and investing in safer products.

Usually, if there is “flight to quality”, investors sell stocks or company bonds and buy government bonds that are said to be safer. When bonds are bought, the bond market price hikes and yield rates go down. This makes the US Dollar’s interest rate lower since the interest rates are based on the yield.

Japanese Yen’s interest rate hike / US Dollar’s interest rate reduction

With the lower interest rate of the US Dollar, there is no point buying and holding it. Therefore, investors worldwide started shorting (selling) the US Dollar and started buying Japanese Yen. Also, it has been rumored that the Bank of Japan will raise the Japanese interest rate in the near future.  Many investors think they should own the Japanese Yen when it is cheaper. On the other hand, there were some rumors that the Federal Reserve System (FRB) would reduce the U.S. interest rate. In fact, FRB reduced it significantly – 0.50% of the U.S. interest rate on September 19, 2007 (Yahoo! News). With the Japanese interest rate’s hike and U.S. interest rate’s reduction, the spread between those interest rates became smaller so carry trading is no longer an appealing strategy.

Value of Japanese Yen

What is the value of the currency? Most of the time, currency is evaluated by its interest rate. Therefore, higher interest rate currency is favorable for investment. Also, the country’s economic strength factors into the value of the currency. The Economist’s Big Mac index suggests that Japanese Yen is undervalued against other currencies (Economist). Even though the Japanese economy is strong, the value of the Japanese Yen is weak because of the lower interest rate and carry trading. Since other countries believe it is not fair for other countries (for example, if Japanese Yen is cheaper, Japanese cars can be unreasonably cheap so no one wants to buy American cars, etc.), the BOJ (Bank of Japan) believes they should raise the interest rate. Mr. Bruno Lettich, Managing Director of Fixed Income Trading at Merrill Lynch, says, “BOJ will raise the Japanese interest rate very soon, and Japanese Yen will be stronger. This is the end of the carry trading trend. USD/JPY rate can be lower than 105 or lower.”

Recommendation and Trading Idea

Although FRB’s Chairman Ben Bernanke and President Bush often make positive comments about the U.S. Economy, investors can’t shake the fear of insecurity of U.S. markets. As shown above, there is a strong trend that the US Dollar will weaken and the Japanese Yen will increase in value. My recommendation:

• Stop carry trading;
• Sell the US Dollar against the Japanese Yen;
• Buy the Japanese Yen against the US Dollar; and
• Buy Put Option of USD/JPY.

Carry trading used to be enticing since it was a very simple and easy strategy, expecting return with a lower risk. However, the USD/JPY rate will decrease in the near future so buying the Japanese Yen is recommended. Moreover, regarding Currency Options trading, buying put option of USD/JPY should produce a profit when the Japanese Yen strengthens.