WSJ News Brief Chapter 8 William Boswell

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West Chester University of Pennsylvania *

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Jan 9, 2024

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Boswell 1 William Boswell Dr. Blazer BUAD 341 04/11/2022 Chapter 8: Common Stock The article I have chosen this week for Chapter 8 is “Shopify Plans 10-for-1 Stock Split, Seeks to Protect CEO’s Voting Power”. The article speaks on why Shopify is asking its investors to approve the changes for a 10-for-1 split and the founder share structure to help CEO Tobi Lutke increase his voting power to 40%. Shopify’s company’s shares, which surged above $1,600 last year during the pandemic, have fallen about 55% so far this year. They closed Friday at $603.18 on the New York Stock Exchange, giving the company a $76 billion market valuation. Due to this happening, Shopify has proposed to their investors to let Tobi Lutke receive a new “founder share” which will combine with his existing super voting Class B shares, increasing his voting power to 40% from 34%. Under the current situation, if a portion of super voting Class B shares go under 5%, then they would convert into Class A shares. With this information we can defer, that Shopify has a non-constant growth model, since the rates for future growth can change at any minute. Since the rates would be fluctuating ever so often, this could impact Shopify in a negative way with their rates as of now just rising over 2%. There are three components used that Shopify uses to get their required rate of return. They are dividend yield, earnings growth, and their change in the level of valuation, which is the price to earnings ratio or P/E Ratio. Other metrics Shopify could use to determine the value a share of stock would be Earnings per share (EPS), Price-to-Book Ratio (P/B Ratio), and the Debt-to-Equity Ratio (D/E Ratio). With the Earnings per share method, we could evaluate whether a stock is high or too low by the amount of company's profit divided by the outstanding shares of its common stock. If the company’s EPS is high, the more profitable it is. When using
Boswell 2 the Price-to-Book Ratio, investors evaluate an effective approach for investors to find undervalued companies with high growth and values a company’s stock price properly. However, this type of ratio has limits and may not be the best method to use to evaluate a company’s stock like the P/E Ratio. The debt-to-equity ratio is used to evaluate a company's financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. By doing this, we can determine if the company has a higher or lower leverage ratio, which indicates how much of risk a company’s stock is on shareholders.
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