FIN 6301-Unit III Essay-C.Austin

docx

School

Columbia Southern University *

*We aren’t endorsed by this school

Course

6301

Subject

Finance

Date

May 22, 2024

Type

docx

Pages

Uploaded by CoachScienceHedgehog5176

1 Unit III Essay Caroline A. Austin Columbia Southern University FIN 6301 Corporate Financing Professor Andrew Borg 16 April 2024

2 Unit III Essay Introduction. In the Investor’s Business Daily dated 26 July 2018, the author Aparna Narayanan put out an article which is titled “Royal Dutch Shell Finally Delivers Big Stock Buyback, But Shares Break Support”. This article information is pertaining to the Royal Dutch Shell Company Also known as Shell is a multinational oil company of the Dutch and British organizations. It is a very large oil petroleum corporation in the world. It engages in crude oil and natural gas. The company explores, produces, refine, and largest over 90 countries around the globe. This company is the second largest private sector energy corporation in the world and one of the six “supermajor”. Stock buybacks can signal a lot of confidence that the company has for the future. A drop in stock prices can spur the company to buy back its stock in order to stabilize its dividends and offer reliable income for its shareholders. Stable Dividend Policies Importance The importance of a stable dividend policy builds trust, confidence with investors, ensures regular and predictable dividend distribution, fostering investor confidence regardless of market fluctuations. It also puts a steady dividend payment out every given period regardless of the volatility in the market. The policy helps to maintain the market value of stocks and inspire confidence. The firm gets a more helpful grip on the finances that can be sourced from external resources and attract smaller shareholders who intend to earn regular income from their investment (Brigham & Ehrhardt, 2020). Therefore, the company distributes fixed amount of cash dividends, in turn it creates a reserve. This will pay a fixed dividend even when earnings are low or if there is any losses.

3 A constant dividend policy will be more suitable for a company whose earnings remain stable over a number of years. A dividend policy is what a company distributes profit to its shareholders. Dividends are a form of cash payment or share of stock and is paid to a class of shareholders. The policy sets a guideline that set out to determine what portions of a company’s profit will be paid to shareholders. Two main theories have emerged on how relevant dividends are to an investor. One is the dividend irrelevance theory which basically proposes that issuance of dividends should have little to no impact on stock prices. The second is the bird in hand theory which argues that investors prefer dividends to future growth and capital gains from re-investing profit. Stock Repurchases Reasons Stock repurchases occur when share pricing is undervalued and management may seek the opportunity when the stock is trading at a lower price while the company’s valuation is much higher (Stunda, 2017). To boost the share price the company will buy back shares to increase the share price when the outstanding share decreases and the demand remain the same. This procedure is also to get rid of surplus stocks and change the capital structure by decreasing the outstanding number of shares in the market that will impact supply and demand. Due to of this the number of shares will increase as the number of shares decrease. Individual financial metrics influenced by stock repurchase plans and returns Earnings per share and cashflow per share are metrics that are most affected by share repurchases. Return on assets increase because when using cash to repurchase the shares, it reduces the assets on the balance sheet. Return on equity increases because there is less equity on the balance sheet. Many companies will strive to reward their shareholders through continuous dividend increases and regular share buybacks. Share purchases will have a positive

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

4 impact on the investor’s portfolio because the share repurchases value depends on the stock markets future price, buybacks come with more uncertainty than dividends. Even though stock repurchases can have an impact, the earnings per share (EPS) are affected. The number of outstanding shares decreasing will in turn cause the earnings per share to increase. This will attract more investors and in turn will drive up the stock prices. The return on equity is affected by the buybacks that also with the reduction of outstanding shares will cause the equity base to go up, which then boosts the company’s return on equity. One downside to this is shortage of capital or cash flow that is unavailable. This can cause the company to borrow the cash to pay for stock repurchase. The company’s debt to equity ratio can increase that can increase risk or lead to a financial leverage for resources. The company must be careful so that the resources do not lead to an overvalue of stocks and cause a reduction of shareholder value. Every company has some sort of buyback policy in order to maintain its financial metrics and stock values. Stability of the company’s dividends are important to attract investors. All evaluations must be closely monitored to assess the markets and financial status for any stock repurchasing procedures that would be utilized to prevent potential risks. Amazon DWC Amazon is one of the biggest businesses dealing in the delivery business since 1995 (Bentley, 2017). In 1997, Amazon sold its stock after receiving its IPO at $18 dollars a share. Despite lawsuits with Barnes and Noble and Walmart. Amazon survived in order to have its shares rise and sell at $94 in 2001. By 2005 Amazon launched Amazon Prime, the service gave users unlimited two-day delivery of one million items in stock for a membership payment of $79 dollars a year. In 2007, Kindle, Music, Amazon Fresh were launched.

5 By 2009 Amazon was buying out the smaller competition companies so his vision of Amazon being the biggest delivery company would come true. It was also of being accused of anti-competitive behavior, but it did not stop Amazon from getting its hands on Zappos for 850 million. In 2011 Amazon has amazon videos which gave members access to over 5000 movies and TV shows. In 2014 Amazon acquires Twitch and paid $970 million for the stream on-line video gaming website. Amazon then launched its programs called Echo and Alexa complete with Apple’s Siri and Google’s Cortana. 2015 was the year Amazon opens its physical retail stores but unfortunately 68 of its stores were closed. Amazon’s kindle fire has been running full steam and is a top competitor in the market. Amazon then made some changes and continues to be the most customer centric company (Bentley, 2017) . Amazon Q4-2023 annual report dated 31 December 2023 announced the results of its fourth quarter report (About Amazon, 2024). The Net sales increased 14% to $170.0 billion in the third quarter. Operating income increased to $13.2 billion in the third quarter, compared to $2.7 billion in the fourth quarter of 2022 (About Amazon, 2024). The report showed a net income was reported at $10.6 billion for 2023, or $1.00 per diluted share, compared with the $0.3 billion, or $0.0.03 per diluted share in the fourth quarter of 2022 (About Amazon, 2024). Amazon’s working capital is its investment in current assets such as cash, marketable securities, inventory, and accounts receivable ( Brigham & Ehrhardt, 2020). To figure out the current days of working capital that is available, Amazon would use this formula: operating current assets minus operating current liabilities to get the net operating working capital. Currently Amazon fourth quarter reported current assets total is $172,351. Current liabilities total is $164,917 which is subtracted from $172,351 equals to 7,434 million. Take the total and multiply the working capital days of 365of the year will give you the working capital

6 Revenue total. The days working capital revenue for Amazon is $2,713,410 billion. The 2023 Net working capital for Amazon is 2023 = 172,351 - 164,917=2,713,410 Million . The Net- working capital for 2022 for prior year for comparison is 2022=146,791 – 155,393 = -8,602 Million.  Averaging the working capital = (2,713,410 + -8,602) /2 = 1,352,404 billion  Sales revenue = 574,785 million  DWC = 1,352,404 / 574,785 * 365 = 8.59 days Apples DWC Top Competitors is Apple. Apple revolutionized and invested in personal technology through the introduction of products that they invented such as the Macintosh in 1984 (Apple,2024) . Apple is a leader in the world of technology with many creations such as the iPhone, iPad, Mac, Apple watch, and Apple TV (Apple,2024) . Apple’s software platforms is the iOS, iPadOS, MacOS, watchOS, and tvOS which gives seamless experience service across the Apple devices . (Apple,2024) . This technology has empowered people through the use of techno savvy services for its customers as well as its shareholders. Apple also invested in physical stores to sell their product the App store. Currently the Apple iPhone is its top brand in comparison to Amazon kindle fire tablet. Both Amazon and Apple reduce their cost by having innovative production processes and create value with their customers by providing high quality products and service ( Brigham & Ehrhardt, 2020). Apple and Amazon also create value with their employees through training and have employees be fostered through an environment that allows their talents and skills be utilized efficiently which adds or contributes to the company (Brigham & Ehrhardt, 2020) Apples Annual report dated 30 September 2023 announced the results of its fourth quarter report through their newsroom released. The Net sales was reported as $383,285 million which

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

7 was a decrease from last year 2022 fourth quarter report of $394,328 million ( Apple, 2024). For the three months ending 30 September 2023; Apple netted in a $89,498 million. It’s operating income decreased to $26,969 million in the fourth quarter, compared to $24,894 million in the fourth quarter of 2022 ( Apple, 2024). The 2022 report showed a net income at $ 99,803 million for the fourth quarter or $6.11 per diluted share, compared with the net gain of $6.13 per share in the fourth quarter of 2023 ( Apple, 2024). For their 2022 working capital assets to their current liabilities is $135,405 - $153,982 = -18,577 million. For their 2023 the working capital of Apples current assets to their current liabilities is $143,566 – $145,308 = -1,742 million.  Average working capital = (1,742 + -18,577) / 2 = -8417.5 million  Sales revenue = $394,328 million  DWC = -8417 / 394,328 * 365 = -7.80 Comparing ratio The current working capital ratio of Apple is -7.80 shows they have made some working capital for the company and the shareholders would not be upset but Apple took loses in 2021- 2022 during the covid epidemic and causes them to close their stores in order to make up the losses. The working capital ratio of Amazon is 8.59 this is very high because Amazon, being a supply delivery company, was bult for the covid epidemic and did not slow them down at all and this was what made Amazon shares sore and revenue. Comparing ratios to the industry average shows how important it is to the company. This comparison will show the company shareholders if the company is performing adequately or underperforming the medium speed for each year as well as each quarter. Comparing ratios to an industrial average are definitely important due to the industries average is at a medium rate of companies. The results are comparison checks to make sure a company has not underperformed

8 or exceeded the speed of this comparison. This comparison will also see how they fair against other competitors in the same market. The well-managed supply chain Supply chains are an important assembly line that is vital for a company to keep its supplies constantly rotating for its customers and future earnings and sales. The important part is the efficiency of what the supply chain involves during the shipping or movement of supplies. Its function to convert its inventories into sales, get a return of any profits or collect owed debts. The supply chain fosters a management system of working capital which includes inventories, receivables, payables, forecasting sales, managing supply and demand. Maintaining cost and preventing undersupplies. Forecasting it operations through its finances reports can draw a clear picture of what is happening with its day-to-day costs, inventory, supply and demands, as well as monitoring surplus and overhead costs/inventory. Companies will also look to see what cash flow they have for further investments as well. They also want to make sure their expenditures don’t exceed their sales.

9 Conclusion Financial laws are important to regulate how companies do business with share holders money. The operations of companies deal with their product in a very stressful day-to-day process. Working capital is an important part of any business and they cannot do business without cash or cash flow. Profit will make any company happy, including the shareholders, but if the company goes in the negative this can cause shareholders to bail out and make the company to fail at managing their business. Many businesses fail when there is not enough cash to manage operations in a medium pace process of sales, revenue, stocks, and supply.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

10 References About Amazon (2024), Amazon.com announces fourth quarter results , Investor Relations, News release details, https://s2.q4cdn.com/299287126/files/doc_financials/2023/q4/AMZN-Q4-2023- Earnings-Release.pdf , Apple.com (2024), Apple reports fourth-quarter results (pdf), Investor Relations, Press Release Statement Q4, Newsroom, https://www.apple.com/newsroom/pdfs/fy2023-q4/ FY23_Q4_Consolidated_Financial_Statements.pdf Bentley, M. (2017), Fighting Amazon’s supply chain takeover , Logistics Management, 56(2), p42-47, https://web-p-ebscohost- com.libraryresources.columbiasouthern.edu/ehost/detail/detail?vid=12&sid=9a75dbf9- cda8-49c9-8584- 4f6b2b689ba3%40redis&bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#AN= 121187384&db=bsu Brigham, E. F. & Ehrhardt, M. C. (2020), Financial management: Theory and practices (16 th ed), Cengage Learning, https://online.vitalsource.com/#books/9798214343686 CSIMarket (2024), Amazon.com Inc’s working capital ratio, https://csimarket.com/stocks/singleFinancialStrength.php? code=AMZN&Wcr#:~:text=Amazon%20Com%20Inc%20%27s%20Current%20Assets

11 %20grew%20by,Capital%20Ratio%20remained%20below%20Amazon%20com%20Inc %20average . Fink, R. (2001), Forget the float , Article, 17(9), p54, https://web-p-ebscohost-com.libraryresources.columbiasouthern.edu/ehost/pdfviewer/ pdfviewer?vid=4&sid=bbd10a7f-30d6-41fe-9e13-20651b42f0%40redis Green, H. (2009), Why is it so hard to get a read on Amazon , Businessweek, 4127, p72-73, https://web-p-ebscohost-com.libraryresources.columbiasouthern.edu/ehost/pdfviewer? vid=4&sid=b8191c21-0d27-4323-825a-b07eec1cc8bb%40redis MarketBeat (2024), Shell (SHEL) Dividend Yield , Date & History, https://www.marketbeat.com/stocks/NYSE/SHEL/dividend/ Narayanan, A. (2018, July 26) Royal Dutch Shell finally delivers big stock buyback, but shares break support, Investors’ Business Daily, https://libraryresource.coulumbiasouthern.edu/login?url=https//search.ebscohost.com/ login.aspx?direct=true&db=bth&AN=131003207&site=ehost-live&scope=site Pae, Y., Baek, S. (2022), Does leveraged stock buyback improve firms’ profitability ? Applied Economics Letters, 29(10), p939-946, https://web-p-ebscohost- com.libraryresources.columbiasouthern.edu/ehost/pdfviewer/pdfviewer? vid=5&sid=01c1adc8-788b-440c-a009-ef06bd674768%40redis Stunda, R. A. (2017), Corporate stock buybacks-do they enhance or worsen company performance over time ? Quarterly Journal of Finance & Accounting, 55(17), p1-26,

12 https://web-p-ebscohost-com.libraryresources.columbiasouthern.edu/ehost/pdfviewer/ pdfviewer?vid=5&sid=01c1adc8-788b-440c-a009-ef06bd674768%40redis

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version