Introduction to Business

Commercial banks

 Commercial bank provides array of services to individuals and businesses. They offer serves such as receiving, transferring money and provides security to customers. Individuals and businesses receive loans which they use in business operations and this increases the rate of deposits. Commercial banks also offer services to nations where they issues debit cards and creates wire transfer (Harker, 2000).  Banks acts as commercial transactions and provides merchants with checks and credit cards.  Profit is generated through charging higher interest rates and offering services such as electronic banking.

Savings and loan associations

 These financial institutions offer dividends to depositors and the amount offered is measured by the amount of savings. It also takes stock savings for profit making. Since these institutions are mutually owned, they offer lower rates of loans and higher interest for the purpose of making profits.  It mainly concentrates on deposits and mortgage loans and individuals and business are allowed to participate in making the managerial goals (Harker, 2000). They also act like bank-like institution by offering mutual funds and loans. Services in these institutions are similar with banks since customers are provided with similar financial services. However, a notable difference is seen on the spores of money since thrifts can obtain funds from public savings.

Credit unions

Credit unions lend funds with lower rates and charges high rates on deposits. There is restriction on membership where only members of a specific group such as religions and community organizations are allowed to participate in a credit union (Harker, 2000). The deposits of the members are a partial ownership and so only members are allowed to deposit and receive loans. Members use their shares to provide loans and accept deposits and income received is used for project development.  These differ from banks since their financial operations are for non-for-profit (Harker, 2000).

Non-deposit institutions

 These institutions acts as financial intermediaries which do not take deposits but they generate money through selling services. They do not offer direct banking but they promote financial system through mutual funds, pension finance, investment and more (Harker, 2000).  

Reference

Harker, P. T. (2000). Performance of financial institutions: Efficiency, innovation, regulation.

Cambridge [u.a.: Cambridge Univ. Press.

Introduction to Business

The role of commercial banks, savings and loan associations, credit unions and non-deposit institutions in the US financial system

Commercial banks

            Commercial banks play a significant role in the US financial system. They keep deposits received from investors into loans and later offer them to firms. This loans help in expanding business operation of these firms and in turn leading to more deposited funds into the banks again. Small deposits by from investors can be collected, merged up and used as large loans to these firms. They also employ analysts in assessing creditworthiness of the borrowing firms, a task that investors cannot perform by themselves (Ebert & Griffin, 2003). Commercial banks reduce the risk of holding money in cash as people safely deposit their savings in banks. Commercial banks are also responsible for payment system. They have introduced electronic payments for example the use of card payments, direct debits, transfers, etc, thus people use less cash and this has quickened transaction (Ebert & Griffin, 2003).

Savings and loan associations

Savings and loan association are one of the types of banks that offer financial services such as savings, accounts, credit cards, home mortgage loans and other consumer loans. In many respects, they resemble banks. This financial institution has provides mortgage and loans to homebuyers and that was its primary role of establishment (Ebert & Griffin, 2003). They have also broadened their operational scope to money supply. Thus, they contribute to economy’s money supply through traditional banks, mutual savings banks and credit unions.

Credit unions

Credit union are an option for exclusivity of commercial banks. Credit unions offer loans at lower rates and offer higher rates on deposits compared to commercial banks (Ebert & Griffin, 2003).

Non-deposit institutions

Non-deposit institution may also act as an intermediary between borrowers and savers but does not allow time deposits. They fund their lending activities through selling insurance policies, securities to the public (Griffi, 2007). They also play a significant role in the financial system by offering protection against loss or damage of property, natural disasters, and damages during accidents. They also offer life insurance for instance when death of a person occurs uncertainly. As security firms, they support the buying and selling of securities.

References

Ebert, R. J., & Griffin, R. W. (2003). Business essentials. Upper Saddle River, N.J: Prentice Hall.

Griffi, (2007) introduction to business. Published by Prentice Hall, 2007.

Investment Portfolio

Stock portfolio

Apple

Apple Inc. trades as AAPL at NASDAQ and provides a range of products including Smartphones, McBooks, personal computers and Smartwatch and various software products. The capital structure for the firm includes both capital and debt capitalization and cash holdings .Investing in Apple Stock now can have a good pay off in the long run. Even though some periods in the Company’s history would have seen investors experience significant losses in share price, general history of the stock has comprised very high gains. Currently the company has set high records and over the past one and half decade , the total annual returns for its shares has been over 35% , including those periods the company has undergone sickening declines (Apple Inc.,  2016).

 A major basis for investing in Apple is looking beyond the icon iPhone product. Although the firm has been generating most of its revenue from sale of iPhone, it has not shown any sign of decline. The product has been in the market for less than 10 years, has created a tidal shift in the industry and there is no indication that it is aging. The firm keeps on launching a new iteration of iPhone and is expected to unveil iPhone 8 an upgrade that is likely to bring about huge results in terms of share price. The recent versions of the product have been improved and many users may be various generations behind and a new demand for the upgraded product can be expected to be huge (Apple Inc.,  2016). The service business of the firm has been growing, and is currently on double-digit growth rates and has been second to iPhones in terms of sales generating over $ 24 billion. Since services segment has various revenue streams including Apple Pay and AppleCare, it is likely to be a major driver for growth as seen in 18 % growth in recent quarter and more customer activity in Apple store (Sparks, 2016).

 Moreover, the firm has been earning huge profits since 2001 and despite a slip in 2016 revenues the free cash flow was a high of $52.3 billion. The balance sheet for the company has been swelling driven by periods of strong generation of profits or cash. The $ 750 billion market capitalization is a very tantalizing valuation if the firm was to maintain the present profitability level. Lower-priced competition has not shaken the fortunes for Apple and it’s logical to believe that the situation will persist in the future.  Therefore, the big profits and strong balance sheet are adequate reasons for investing in Apple’s stock.  There company has also experienced high amount of capital returns, amounting to almost $ 15 billion returns to shareholders in the past quarter which included $3.1 billion in terms of dividend, a repurchase of shares worth $ 5 billion on open market and much more (Apple Inc.,  2016). The firm has been able to exhaust about $ 201 billion out of its large amount of capital return. Given the  amount of cash  returns that has been put in the pockets of shareholders over the recent periods and its marketable securities in the balance sheet , as per the year ending 2016 ,  it  is also logic to expect that capital returns in future will increase to the advantage of investors (Apple Inc.,  2016). Predicting that Apple’s icon product – iPhone will continue experiencing increases sales is not farfetched given the previous and current performance both in domestic market and foreign markets. In fact, in markers like India, the company is experiencing increased growth for both the older iPhone products and the new products (Business Insider, 2016).

Amazon

Amazon.com Inc. trades as AMZN at NASDAQ and is a platform for e-commerce and is among the largest retailers in the world. The capital structure for the company is heavily based on equity financing rather than debt, even though there has been an increment of debt capitalization as the firm matured. The debt/capital ratio decline in 2015 fiscal year but remained within the range of peers in the industry. For the year 2016, the firms Debt/Capital ratio was 26.19 %, as compared to 55.70 % in the previous year. The P.E ratio for the year 2016 was 202.85 (AMAZON.COM, INC., 2016). Amazon has been able to time and again trounce the market over the last decade. Even though the historical analysis for the company does not provide much information about present return – on- investment, the state of affairs indicated by the recent Price Per share - $974.60 and a market capitalization of $457.5 billion shows a lot of potential for the future (AMAZON.COM, INC., 2016)..

 A major reason for investing is that revolution in e-commerce is yet to reach its peak, and its growth is quite high. For instance, e-commerce made up 8.3 percent of overall retail sales in U.S market in the fourth quarter of 2016 and only 8.7 percent of global retail sales for a similar period.  There is a great potential for the Amazon to be consistent in expanding market share in both domestic and international market. The firm’s sales also look significant especially the unique goal of vertically integrating many supply chains for consumer goods around across the world. The firm’s long-term growth is enabled by AWS cloud sales which reached a high of $12.2 billion and this is just a small portion of the expected overall public expenditure on cloud services (AMAZON.COM, INC., 2016).

Investment in Amazon will be based on the expectation that it can sustain a 40 % growth in stock price each year.  For the year 2016, Amazon e-ecommerce growth represented a 33 % of overall e-commerce market which indicates the strong performance in market for this company. The firm also controlled 40 % of overall market for cloud service in the same year, and posted a growth of 55% which enabled it to attain and surpass projections with $ 12 billion in revenue for AWS cloud services (RENO, NV, (2017).  This performance has also been informed by the delivery of quality customer service that beat its rivals in the market. The company depicted a commitment for increased information, which includes patent warehouses and on-time delivery by use of drones.

 Even though the firm has not been issuing dividends to shareholders, it has experienced an annual growth in cash-flow over the past 5 years which presently is 30 percent, and after its stocks were split 3 times, the stock price has been more than $800. The dividend yield on average has been 1.74 % as per the Consumer Discretionary Sector and this yield is expected to increase in the future (Ervin, 2017). In addition, investing in Amazon stock is a good bargain for the purpose of long-term vision, given that its stock has already hit the $ 1000. This removes any worries about short-term performance of the firm and banking on the current momentum in growth especially in market for cloud services which is expected to continue growing over the next years.

Facebook

Facebook, Inc. trades as FB at NASDAQ is a provider for internet information – social network- and has more than 1.5 billion active monthly users. . The firm is also owns other subsidiaries including WhatsApp and Instagram. It has not been pursuing debt financing meaning that its capital structure is wholly based on equity capital.  The value of the firm is about $20 billion and has been growing rapidly over the past few years (FACEBOOK, INC., 2016). After the value of the company’s stock plunged back in 2002 due to uncertainty over management’s capability to steer the company during growth, the shares were to gain over 600 %. A major reason for investing in Facebook is the massive industry in form of digital advertising, whose growth is double digit on yearly basis.  Even though Google has the largest market share, Facebook’s share growth is higher, and in fact, it is projected to grow at 37 percent. Moreover, the average revenue for each user, whose growth has been the focus of the company, given its ability to provide marketers with ad spots that are most targeted that has facilitated the monetization of its users (Balakrishnan, 2017). The size of this platform – averaging at 1.86 billion monthly users is facilitating the incredible growth for the firm as per fiscal year 2016. Before any possible plateau in user growth, the growth is expected to increase making its stock a good by for the investors (FACEBOOK, INC., 2016).

Facebook revenue

    The sales and also the profits have grown substantially driven by the large growth in the users of the platform. With sales reaching $26.8 billion as per 2016 and net income $ 10.2 billion in that period, it is reasonable to bet on its future stock and performance (FACEBOOK, INC., 2016). A 117 % increase in net income in that year can only be tantalizing to investors. Even though the growth is expected to moderate in future, the company’s growth rate is still expected to be above-average in the near future. The earnings per share for the firm can expected to increase by 16-24 % for the 2017-2018 periods. The earnings per share for the company were $ 1.41 which was driven by a 53 % growth in ad revenue and the expectations is that EPS will continue to increase in the near future (Balakrishnan, 2017). Given the past performance, the annual average rate of growth for EPS is also expected to growth and this informs the decision to invest in the stocks of the firm. The growth is enough for supporting an investment decision where share price is expected to continue increasing for the stock of this company. Over the past year the average dividend yield for tech firm was 1.31 %, with a payout ratio of $ 4.89 Earnings per Share (FACEBOOK, INC., 2016).

References

Activity Based Costing Theory - Case Study Analysis

Introduction

Activity-based Cost theory can be described as an instrument that is utilized in the management of cost. The adoption of the tool has in the recently gained much popularity as it is grounded on a simplified thought in that in any organization the operating expenses which are the overheads are mainly measured through several activities which are required to efficiently perform business and manufacturing procedures (Goektuerk, 2005). Based on its design the tool does not only offer relatively reliable cost information but in addition, all the information relating to the costs origin is indicated. The manufacturing expenses are usually assigned to respective products in a manner that is reasonable as compared to the traditional strategy which mainly incorporates costs allocation of the ground of hours. The theory gives an essential distinction amid resource spending as well as utilization (Goektuerk, 2005). ABC main prime task is breaking out all the indirect operations into useful pools which are then allocated to operative procedures in the approach that the mode in which costs are incurred. The system is therefore anticipated to recognize that firm’s resources are mostly consumed by products and processes in the differing portion for all the activities.

Problem Analysis and Recommendations

ABC system is an approach is where costs assignments are applied for services and merchandises. The approach was mainly created so that all the roles that are linked with traditional costs methods can be handled. The primary benefit of utilizing the approach is that it is a plan and control tool (Hansen & Mowen, 2017). Most of the outdated methods did not hold the capability to work with the costs involved in Information services and products in addition to their failure of supplying the required data as well as recommendations for all the operative sections of a firm. However, for ABC which is a theory based system firms are permitted to make merchandises as well as services in a decent and precise approach. The prime ABC features are that it mainly facilitates the cutting down of increased costs of operations per the unit of cost. However, the sole drawback is that it holds a description of operations and procedure which requires decent allocation which is at times challenging.

The company, in this case, utilizes traditional approaches which lead to the creation of total costs rather than indicating cost on every unit. With the use of ABC the company can benefit by enhancing the strategic decision making by managers in this firm (Hansen & Mowen, 2017). Fresh decisions and information regarding costs can be identified which was not previously being identified so that appropriate costing decision can be made. In this context, managers can gain a better understanding of the parts with most cost and actions can be broken in reference to maintenance and labor (Hansen & Mowen, 2017). One of the prime pooling cost can be regarded as the non-production volume. Further Cylinder Fabrication Corporation generates two differing merchandises one being an average merchandise with increased volume while the other is a customized merchandise that holds lower volume.

If Cylinder Company decides of utilizing machines hours particularly for the calculation of overheads rather than utilizing labor hours this means that the generated output is bound to be highly accurate. This is because machines hours are quite easier to establish as compared to labor hours. Given that the machines work on automatic systems from these machines reliable data regarding the total hours of these machines can be established that was utilized by each product.  In addition machines efficiency are almost similar which differs much from that of labor given that the efficiency of humans is never equal (Hansen, Mowen, & Guan, 2009). In reference to laboring hours, the distinction amid expenses for the average products and the customized one can be categorized as high. However, in regard to machine hours, this is a bit lower. It is apparent that customized products require more hours for the working machines as compared to standardized goods. This means that the gap should be lower. It can, therefore, be stated that absorbed expenses in reference to machine hours offer more accurate results as compared to the absorbed expenses relating to labor hours. Through the use of ABC system, it would, therefore, be easier for managers to establish the sales costs more precisely and thus opt for appropriate products pricing and profit maximization approaches (Hansen, Mowen, & Guan, 2009).

Outdated costs methods normally apply resources on the given products in two differing ways. Direct costs such as direct labor and materials are attributed indirect manner to these products while all other resources are assigned randomly characteristically to the products via direct labor time mechanism or machine hours (Hansen, Mowen, & Guan, 2009). Marketing, management as well as sales expenses are excluded in the products expenses. However, for ABC, it does not focus on altering the mode in which direct labor and materials are accredited to all the products that the firm manufactures with an exemption that in all cases direct labor will lose its customized location as the replacement application approach for the operating costs resources. An additional cost that is accounted to be a cost pool that is to be allocated to procedures and products in a useful strategy which does not differ from any given resource is direct labor.

ABC advanced method that differs from all outdated allocation strategies as it makes precise allowances for all the costs sources. Via the utilization of this strategy, this implies that the company will be able to make a more accurate estimation of costs of services as well as the associated products and the involved channels of distribution (Weygandt, Kieso, & Kimmel, 2010. This will create a more justified understanding of how expenses affect the organization and how they should be reduced. Through this, all the members who are restricting change are bound to embrace it given that the benefits will not just be acquired by the corporation but also by staffs. In that when efficiency has been achieved this means that employees will need to employ fewer efforts in their duties. The corporation will improve its production, performance gain a desirable reputation as well as get the opportunity of maximizing income via reduced operative costs.

In addition instead of using the total costs, it will be utilizing the cost units. This approach will interact properly with all the programs that are mainly intended at creating improvements. This will create wastes visibility that will enable the creation of suitable strategies to deal with issues. This will permit the standardization of procedures while supporting high performance as well as increased achievements (Weygandt, Kieso, & Kimmel, 2010. More will be understood regarding costs thus permitting expenses to be broken in a manner that is easy to understand. This will result in the development of strategic decision making by the administrators since all the information regarding cost efficiency and production will be made clear. The use of resources and accuracy of data will also be created by generating precise data regarding expenses.

Advantages of Switching To Machine Hours

With the focus on machine hour’s levels, Cylinder Manufacturing Corporation can make an accusation of all the involved operative expenses on the grounds of the machines. In addition with the assistance of machines overhead under preoccupation, the corporation can be able to establish the idle machine timing and develop strategic approaches on how it can be lowered (Weygandt, Kieso, & Kimmel, 2010). The company is mainly faced with the issue of costs and the lack of efficiency which has resulted in increased costs in its production while the generation of profit is below the predictions. This, therefore, implies that development might not be acquired in this scenario since costs and efficiency must be reduced and improved respectively.

The most important operation is that of increasing the production efficiency of the machines being utilized since the corporation can effectively accommodate the opportunity since all the expenses mainly rely on it. This is more of a scientific approach of making calculations of the firm’s overhead expenses in a precise mode. In this context, the corporation can begin by calculating the general cost that is acquired in the production procedures after which it will become even easier in making calculations of the prices sales for all the products. If the corporation absorbed operative expenses on the ground of machine based hours this means that the company can acquire for essential and precise costs of production while being compared to labor hours (Weygandt, Kieso, & Kimmel, 2010.

When Cylinder’s company case is analyzed then the overheads that will be established on the ground of labor and machine hours are as follows;

The planned labor level is 149.825 £

The total operative expenses for the average products, therefore, becomes 149.825 £ * 2500 which is equal to £ 374,562.50

The total expenses for the customized products accounts to 149.825 £ * 1500 which is equal to £ 224,737.50

Operating Costs In Reference To Machines Hours

Total Hours for the machine is equal to 6500

The total distribution overheads = 599,300£

Therefore the accounted machine hour burden is £ 599,300 divided by 6500 = 92.2£

The total overhead load for all the average products accounts for 92.2 *3500 = 322,700£

Total operating expenses for the customized products will thus be 92.2 *3000 which will total to 276,600£.

ABC System Implementation Advice

ABC tends to be more complex to implement because it requires expert knowledge and more time. In addition, the system will require the use of more funds in running the system’s implementation activities and maintenance (Cokins & NetLibrary, 2001).  In my opinion, Cylinder Company will require making more preparations given that the procedure involves a number and research should also be conducted. In addition to the setup period, the corporation can begin by temporary utilization of absorption and old marginal accounting approach. The focus of the firm’s management focus should also be modified and not just the general performance. This means that the operations involved in this performance should acquire efficiency given that success cannot be obtained by mainly focusing on a single area but the entire company should adopt.  The manager’s perspective of the firm and regarding change should also be changed. This means that there focus should not be grounded on cost but their attitudes and activities supervision should also be modified in referent to cost operations.

ABC system has proven to be more simplified as well as progressive when compared to traditional expenses approaches (Cokins & NetLibrary, 2001). It is clear that Davin should, therefore, focus on implementing the system given that the system comprises of some of the important aspects that take consideration of efficiency, cost and sound decision which results in increased production and maximized profit. These are some of the issues which are overlooked by most of the outdated approaches which mainly focuses on ensuring that tasks are accomplished and products generated (Cokins & NetLibrary, 2001). In addition, the methods offer indication of costs in general but cost in each unit is not given while understanding cost sources is essential in dealing with high cost and efficiency issues. On this grounds, it is apparent that Davina is required to follow the approach of ABC and should additionally incorporate staffs who clearly understands the approach which will result in net income increase. ‘The greatest worry that is held by Davina is that despite meeting the revenues mark the net income mark continues to decrease. This has mainly been caused by the lack of appropriate machine and labor hour’s allotment. The machine hours should, in this case, be portioned in a manner that the specialized products are manufactured in higher numbers by the corporation so that the net income can be increased and improve the firm’s value. In general, if the corporation implements the system appropriate through incorporating al the needed features and modifications the benefits of the actual system use will be guaranteed.

            References

Cokins, G., & NetLibrary, Inc. (2001). Activity-based cost management: An executive's guide. New York: Wiley.

Goektuerk, H. (2005). Activity-Based Costing (ABC) - advantages and disadvantages: How ABC can be applied to institutions of higher education.

Hansen, D. R., & Mowen, M. M. (2017). Cornerstones of cost management. Cengage Learning.

Hansen, D. R., Mowen, M. M., & Guan, L. (2009). Cost management: Accounting and control. Mason, Ohio: South-Western.

Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.

Finance

Institutional structure may require that the form and content of financial statements be developed around the distinctive model of the organization.  This would involve having a different mindset that will ensure that an integrated financial report is prepared. As such the form and content of the financial statement will present the model of the specific organization carrying out the reporting work.  A significant impact is that the financial statements may contrast the reporting based on established compliance.  The integrated financial statements must cover all the contents following the various laid down principles so as to enable stakeholders including capital providers to make decisions about the value and stewardship of the business (Jones, 2015).

The material information or data are retained in the financial statements so that all the relevant financial data is included, even if the form of presentation changes. To align with the institutional structure, the financial statements are well designed so that material financial data that shows performance follows naturally. For instance, an organization that is investing in assets base may feel frustrated that rules on financial reporting places their investments in the class of cost instead of asset. Woodside Petroleum Company indicates creation of new gas and oil may be reported .Annual reconciliation of proved dry gas and oil reserves is done to show a total of 1,292.4 MMbbl, to indicate the unique structure of reporting (Woodside Petroleum, 2011). This shows key performance metric unique to this company.

Cost of capital refers means the opportunity cost realized for making a given investment or cost used to acquire funds for financing business operations. Marginal cost of capital refers to the cost of extra unit of certain raised capital. Cost of capital forms a major part of process of capital budgeting, and affects the capital structure of a company.  Obtaining capital is a logic decision of return on this capital is higher than cost (Brigham, & Houston, 2013).

References

Jones, S. (Ed.). (2015). The Routledge companion to financial accounting theory. Routledge.

Brigham, E. F., & Houston, J. F. (2013). Fundamentals of financial management. Mason, Ohio: South-Western Cengage Learning.445-446

Woodside Petroleum,(2011).Annual Report

Methods of Entry, Export /Import Financing

Finance trade depicts trade financing which concerns international and the domestic transactions. International sales permit a number of payments which is either by credit or debit depending on the sellers choice. Some of the basic payments methods include credit letters, advance credit, consignments, documentary collections and open accounts. The most commonly preferred methods are wire transfer and advance payments based on the convenience that is created while checks payments may tend to be problematic due to payments delays or check bouncing. However, due to the differences held by the methods in reference to flaws the validity of the transaction should be determined prior to release goods. In addition, consumers will in most cases settle for companies that offer flexible and more secure modes of payment. While utilizing written payment strategies such as documentary collection and credit letters all the terms should be stated properly and specific amounts indicated (MSU, N.D).

It is true that an International Company Profile (ICP) is one of the best strategies that can be utilized in determine the foreign buyer’s credit to avoid inconveniences and fraud (MSU, N.D). Consignments in international sales are particularly risky because one is not guaranteed of receiving payment and the goods are usually placed on an independent agent’s hands (MSU, N.D). However, this method can help the exporters in acquiring competitiveness due to increased goods availability. In addition, this method lowers the general cost of operation since storage and the management of inventory is conducted by the agent. In this case, exporters should focus on partnering with trustworthy as well as reputable distributors.

One of the primary risks that are involved in foreign trade is based on the future rates of exchange uncertainty. In foreign trading, the payment is usually made using the currency of the buyer or an agreed currency by the traders. Since the currency can depreciate prior to the deal conclusion based on the stipulated period this implies that if the seller does not have adequate protection from such fluctuations they can incur losses. This is because the payment will arrive lower than anticipated and the appreciated may offer benefits. One of the best strategies that the seller can avoid risks is through quoting prices which mean that the risks and the associated burden being placed on the buyer when the payment option is quoted to be the U.S dollar (MSU, N.D). This is, however, a risky approach because it may result in the loss of exporting opportunities and lack of payments particularly for the buyers who feels that they may not meet the currency requirement. Prior to making sales negotiation after a consumer has requested to make payments in a certain currency one should consult the bank for advice regarding the involved risks. Avoiding debts issues is less easy as compared to trying to solve them based on the market’s complexity.

Debt conflict can best be resolved through attempting to negotiate and remain into contact with the clients while exercising patient since some technical issues must occur thus retaining consumers. However, if the strategy fails legal counsels can be consulted and if this fails arbitration which is less formal may be utilized (MSU, N.D). Currency risks and fluctuations shape different strategies for acquiring payments from different consumers abroad by helping an organization in deciding on the best strategy to use. Payments transactions can be acquired using credit letter that is effective in protecting the sellers as well as the buyers.

            References

MSU. (N.d). Methods of Payment. Michigan State University, International Business Center. Retrieved from https://globaledge.msu.edu/content/onlinecoursemodules/67/methods-of-payment/player.html

International Financial markets

Video 1: Executive Summary

The payments balance of a state offers a measure of all the transactions economically amid the state’s individuals and persons from different states. The trade deficit is the state that is achieved after a state spends more of its imports as compared to exports sales earnings (Welker, 2012). These are some form of economic, political as well as social imbalances which has risen in the recent decade while the Chinese economy has risen to be the largest in trade deficit worldwide. With the flow of commodities and services from one state to a different one, the States exchange rate usually fluctuates in the promotion of trade balance amid the two countries. However in some instances which can best be acquired from China’s scenario the central bank of any country is bound to make a market intervention in regard to its currency so that the rate of exchange can be managed against the one depicted by the trading state. In the occurrence of such interventions, the moderating impact that is caused by the hiking and falling of the rate of exchange is usually disrupted thus the imbalances becomes consistent (Welker, 2012). According to Welker, (2012), it is apparent that trade flow results in depreciation or appreciation of a country’s currency in reference to the exchange rate. For instance, China spends more on imports to the United States than it receives as an export from America which creates negative a negative trade. This trend has retained the U.S dollar to be particularly strong as compared to Chinese currency based on the increase of supply of exports from the Chinese market. If an increase of goods produced goods rises in U.S this means that its RMB currency will increase while that of the dollar depreciates. Therefore in order for a trade and currency balance to be achieved import and export earnings of a country must be balanced.

Video 2: Executive Summary

Foreign exchange is a currency market where foreign currencies are supplied and bought. McGlasson, (2010), asserts that the demand and supply must be there which is driven by several reasons. To begin with, foreign money is required in tourism and travel, investment in foreign countries or acquiring services and goods. For instance, in the recent years, a number of movies have been produced in New Zealand which implies that this may increase the demand for tourists to visit the state. The individuals will require the state’s currency during their visits. When the demand for a certain currency increases the value of that currency appreciates. When an appreciation to a certain currency increase this means that the value of the supplying currency reduces. Currency value can be manipulated by the government in order to increase its value through reducing the general supply. This trend helps in maintain a favorable balance of trade by ensuring that the state's goods are offered at relatively lower process while those of foreign states becomes expensive thus lowering the foreign value demand (McGlasson, 2010). The trade balance is a requirement for obtaining economic development in that the state tends to depend on the acquired earnings acquired from an investment. This has been the case of the U.S dollar which has maintained its strength based on the fact that the state tends to offer increased dollar supply to most foreign state and since its demand is usually high. This creates a balanced rate of exchange in its attempt to balance import as well as export earnings.

            References

Mary J. McGlasson. (2010). Macro- Episode 33: Exchange Rates. Retrieved from https://www.youtube.com/watch?v=xwtgByffoUw

Welker, J. (2012). The Relationship between the Current Account Balance and Exchange Rates. Retrieved from https://www.youtube.com/watch?v=cg17YTtsk2U

Use of Financial Accounting Systems in Firm’s Valuation

Abstract

In this study the utilization of financial accounting systems in the valuation of firms is evaluated as indicated by the case of Samsung Company. The results creates the indication that the accounting systems of information implementation within the corporation has led to the improvement its valuation. This has been accomplished through creating better strategies to make decisions, internal control and the financial reports quality that has thus facilitated the corporation’s transactions. The results additionally indicated that the process of evaluating performance has also been developed.

Acknowledgement

First, is to thank God for the power and strength of participating in the program and the capability to achieve my spiral objectives.

The completion of this research necessitated the assistance, support and guidance of several people to whom I would like to express my deep acknowledgement and appreciation as for them the complexity of the project was just an assumption.

I would like to utilize the opportunity to thank my project’s supervisor …… for his extensive support and guidance throughout the complete study preparation. The realization of this project would not have been acquired without his comprehensive and undying support and his encouragement that made this masterpiece to be a success.

For his particular special guidance as well as the unaccountable advice in doing the research and the extreme diligent in evaluating, issues, text chapters, concepts, exercises and solutions that paved the means in the formulation, preparation and the implementation of the research project.

I cannot forget to thank all the individuals particularly, colleagues, friends and family who offered their undoubted guidance throughout the textual development and the collection of data. I therefore express my sincerest appreciation for the professional and positive attention offered a great production procedure.

Introduction

Inquiry Overview

Financial accounting reports plays a primary role in the valuation of business firm in the modern economic sector today. For the organizations managers it is therefore important to understand the association amid accounting data and values through the integration of the valuation theory and the practice of evaluating financial statements (Nilsson, 2015). In addition there are several alternative accounting based financial valuation models and they demonstrate the relation amid accounting variables to the returns and prices of stock (Walton & Aerts, 2006). The objective of every firm whether it is based on profit or not is to produce maximum shareholder’s value. The objective of creating increased value is additionally achieved best when there are suitable mechanisms of monitoring financial management operations. Financial accounting is useful in such evaluations through offering reliable, relevant as well as timely and accurate data to the firm’s shareholders.

For most individuals financial accounting is considered to be the business language and thus business cannot evaluate success without the application. The general significance of financial accounting reports for the objectives of valuation cannot be doubted. The effectiveness and the relevance of financial accounting reports to the firm’s lenders, investors and creditors is a concern that is expressed in differing degrees on normal basis (Bebbington, Gray & Laughlin, 2001). In that financial accounting system tens to release outdated information since the data are collected for a specific period and most of the firm’s managers have already acquired means through which they can forge the accounting numbers so that the personal objectives can be achieved.

Problem Statement

In the global economic sector accounting systems are the major drives of organizational performance. The use of effective accounting systems leads to the generation of positive performance while weak systems lowers potential and the general business performance (Meitner, 2006). Corporation’s such as Samsung operate in the global setting and thus the use of the financial systems of accounts affects their performance in general. This is because they are mainly considered to the economic development determinants based on their extensive operations. In addition they are not limited to either stock or financial resources and therefore adapting suitable systems of accounts and the relevant application is useful for the business. However, not all managers that understands the usefulness of these systems and the right applications. Most organization lacks the application of updated systems of accounts and even though they are updated and properly installed the utilization cannot be categorized as perfect. The systems therefore utilizes poor technologies and the lack of qualified and knowledgeable system application affects the general valuation process. This has therefore led the researcher in conducting a detailed study on financial system of accounting use on the valuation of a firm, its effectiveness and how it compares to other models that are mainly based on value in reference to Samsung Corporation. After the assessment of the issues faced by corporations in the implementation of financial systems of accounting and other value based valuation models recommendations will be formulate for improved decisions to be embraced.

Aims and Objectives of the Study

The study’s objectives will be alienated into two parts that is the general as well as the specific objectives.

General Objectives

This research project is particularly designed to provide analytical information in regard to the use of financial accounting systems in firm’s valuation, its effectiveness in valuation and how it has impacted Samsung company valuation.

            Specific Objectives

1. To investigate the use of financial accounting information in a firm’s valuation
2. To establish whether financial accounting systems are effective in valuating firms
3. To establish the relational amid financial accounting systems and other alternative valuation models that are accounting based.

            Research Questions  

1. What is the use of Financial Accounting Reports in the valuation of a firm?
2. Is the Financial Accounting System effective as a valuation model?
3. How does Financial Accounting System compare with other alternative accounting based models of valuation?

            Literature Review

            What is financial accounting system?

            Financial accounting can be described as a customized accounting branch that maintains the company’s financial transactions tracks (Nilsson, 2015). With the utilization of standardized measures the financial transactions are particularly recorded, analyzed after summary and presented through financial reports also known as financial statements like balance sheets and income statements. Financial statements are offered by corporations on routine basis and the statements are accounted to be external since they are presented to individuals outside the firm and the primary recipients are the stakeholders and a number of lenders (Nilsson, 2015). If the stock of the firms however traded publicly this implies that the circulation of the financial statements tends to be extensive and the information can be obtained by secondary receivers such as the employees, consumes, competitors, investment analysts and labor corporations.

            A financial accounting system can be described as an integrated financial system of accounting that monitors, records and maintains all the financial and accounting transactions. The system mainly accumulates the reports and processes of the system in regard to the performance of the entity which includes profits and loss its position financially with an inclusion of shareholder’s equity, liabilities or assets and the financial position changes (Hooke, 2010). Financial system of accounting inputs includes transactions of business that are supported completely by document sources like board resolutions, invoices, memos management and so on.  The inputs are normally processes with the utilization commonly accepted principles of accounting and the processed data is then reported through financial statements that are standardized. The objective of financial accounting statements within the organization is not to make report of the company’s value rather the objective ids to offer adequate information for other individuals to make assesses of the company’s value individually.

            What is Valuation a Firm?

            The valuation of the firm refers to the procedure of establishing the current assets worth or the corporation with the utilization of several techniques. When an analyst is placing a specific value on the corporation it check at the firm’s management, the capital structure composition, the potential future earnings and the assets market value (Mercer, Harms & Mercer, 2008). The security of the market value is determined by the willingness of the buyers to make payments to the buyer in assumption that the transaction was voluntary. When this security of the exchange trades, buyers and sellers established the value of the market.  Intrinsic value concept is however perceived as the value of the security that is grounded on future earnings. This is the procedure of a company’s valuing assets for the purposes of financial reporting.

            Valuation models

Simply, a firm’s model of evaluation is the channel with sets procedures and processes that are utilized in the determination of the general worth of the business. This requires the adoption of different measures. Some of the approaches utilized in valuation include;

• Asset-based approaches
• Earning based approaches
• Market value approaches

There are numerous reasons as to why businesses should be updated one being the need for equity financing to facilitate expansion, increase shareholders value and form grounds through which the business can be sold. However, regardless of the rationale, the general worth of the business particularly depends on different forces from the existing economic state through to the financial statements within the corporation. Samsung Corporation has consistently worked on maximizing its values through increased sales and market expansion which is effective in raising the shareholders shares within the given market (Lunt, 2009).

Asset Based Approaches

In short the approaches under this valuation methodology totals all the business investment which can be conducted on the grounds of liquidation of an ongoing concern. This involves the listing of the general net worth of the business based on the assets value and them making specific subtractions from the liabilities value.  The liquidation approach is utilized in the determination of the net flow that can be acquired given that all the possessed assets have been sold while the liabilities are all pad. Asset grounded approach is more beneficial for Samsung corporation since it is not a sole business and thus the shares for all the investors can be determined at ease. In such a corporation all the involved assets are fully owned by the corporation and in normal cases they would be incorporated in the business sale.  Assets within the corporation exists in the possession of the shareholders and they are all utilized for business operations. This is unlike sole business which possess most challenges in the attempt of separating the personal as well as business utilization (Warren, 2017).

Income Value Approaches

These approach of valuation a business makes their predictions regarding its general values through the thought that the actual value of the business lies in the general capability to generate adequate wealth in the nearest future (Warren, 2017).  The most utilized income value strategy is the utilization of capitalization past the stated income. With this methodology, the existing value is determined through the expected cash flow level for their corporation that utilizes the incoming generation records, normalizes them for the uncommon expenses and those makes the multiplication of the anticipated normal flows of cash from sales through the capitalization force.  The capitalization force can be determined as the general reflection of the general return rates that a reasonable purchaser would make anticipation on the made investment as well as the general risk measure that the anticipated earning may not acquire. This can additionally be achieved through discounted future income rather than the use of the average past income this approach utilizes the average of the predicted future income trend thus making divisions with the capitalization force (Warren, 2017). For Samsung which has been in existence for an extensive period it is usually easy to make bot future as well as the past income valuation since its  consumer loyalty is  connected directly to the quality of the  products that are offered within the specific market  rather the ownership of the business operations unlike sole proprietorship.

Market Value Methods

Firm’s valuation with the utilization of market value strategies is the attempt to seek to establish the business value through making comparison of the business and similar others that are sold in the recent. This approach normally works best for the global corporation that exists in competitive surroundings since it normally necessities an adequate number of firms that are similar with the business so that the valuation can work best (rucco, 2015). The assignment of value to the business that is owned by a sole operator on the grounds of market based valuation is challenging. From the definition sole ownership involves businesses that are owned individually and thus this can be challenging to find prior sales data from the public surrounding of such a business which may result in misinterpretations and inaccuracy. Despite that for most large corporation income value strategy is the most commonly utilized approach in valuing a business most corporation’s works with a combination of several approaches as the fairest strategy. Franchise agreements normally develops strategies and description of how the business can be sold but this approaches varies from one vendor to a different one (rucco, 2015).

The Use of Financial Accounting Information in Valuing Samsung Company

Financial accounting system is utilized by Samsung Corporation in the collection, storage as well as financial processing and the accounting of data that is then utilized by those that make decisions.  Samsung Corporation is from the origin of South Korean as a multinational conglomerate that is headquartered in Seoul in Samsung Town.  Samsung group  that is commonly referred to as Samsung is a multination technology and innovation company that is involved in the designing, formulation and the sales of electronics such as  phones, computers, laptops, computer software’s as well as online direct services (rucco, 2015). Some of the electronic products that have performed well in the market includes the Galaxy products  which holds similar features as those made by the competing companies such as Apple Inc. Android Kit Kat, lollipop and marshmallow are some of the effective software’s in the market. These software’s are utilized by most of the large corporation in the manufacturing of smartphones which acts as the revolution center in regard to technological development (rucco, 2015). Samsung is considered to be among the leading market leaders in the application of software’s and the manufacturing of innovative products within the enterprises market (Warren, 2017). This software’s are useful to other corporations in the fighting of the destructive  implications  of complexity  that prior electronics held  and this creates fresh opportunities  for development and innovation  and thus positioning the corporation well in  sustaining their competitive advantage.

Accounting information within the corporation is normally utilized to improve the general efficiency as well as the effectiveness in maximizing the generation of income within its market. In addition the system is objected at strengthening the corporation’s internal control through offering adequate funding to control the general operations (rucco, 2015). In addition through the financial reports the corporation is able to make sound decisions and thus determining specific objectives to be attained to sustain its competitive advantage within the market. This strategy is essential to the corporation since it helps in lowering the redundancy risk, assist in the generation of a working surrounding that is efficient, offers more knowledge regarding operations within the market and helps in solving the barriers of trade and of currencies based on its operation in the international markets which are normally challenged by fluctuation of currency. The strategy is however expensive since it normally involves the outsourcing of valuators in all its markets and it is located in differing markets which makes it hard to achieve efficiency.  In addition the strategy requires to be conducted within the varying of periods rather than any time that  it is required which may end up generating  data that can best be categorized as outdated as it may not be adequate in positioning the firm competitively. The electronics market is one that is characterized by intensifying competition based on the fact that it hold some of the largest companies globally and they are well established in the market which requires the adoption of differing approaches every time and this may also be challenging if the acquired financial data does not help in establishing the positioning of the company and what should be done to solve the issue through the adoption of strategic objectives (rucco, 2015). The company’s financial accounting valuation is normally based on the value of its market.  Income statements are utilized in the presentation of data on the income results of the firm’s activities over a certain period.  This statement reports demonstrates the much of revenue that is generated by a corporation over a time period and the general cost that is incurred in relation with the generated revenue. Through the company’s cash flows report information that regards its cash payments and receipts is retrieved during the whole accounting period and therefore shows how the specific laws of cash are connected to the ultimate cash balance to that of the statement that was present in the beginning (rucco, 2015).

Samsung Corporation is one of the most valued corporations globally. The statement is grounded on its value within the international market which was roughly 400 billion dollars in the last financial year (Porter & Norton, 2009). Despite the fact that markets are bound to experience fluctuations sometimes even in increased gaps it no wonder that Samsung among other corporations such as Apple have survived the challenge and marinating their respective leading positions. Its value market value in the last financial was greater in a huge gap as compared to the competing and the following companies. The company has ceded its leading location and benefits on most occasions but the most crucial is that through its innovation it has been able to sustain a positive position. In making the determinations of the much that a company can be paid the valuation is not done on mere estimations rather the investors normally rely in the documented financial and accounting data that are released on public trading by the corporation (Porter & Norton, 2009).

Accounting is considered to be the business language because it offers detailed data in which the managers, shareholders and the potential investors can utilize in evaluating the general performance of the company. Factually the primary objective of the use of financial accounting in the company’s valuation is to assist the investors in making decisions that are informed in particular. Financial accounting is the one that is full responsible for the general  preparations of the firm’s financial  statements that  includes owner’s equity statement, income statement, cash flows and balance sheets statements that offers a summary of the company’s past performance thus evaluation the existing  financial  situation (Porter & Norton, 2009). If a corporation is involved in public trade on markets that deals with stock like NASDAQ this implies that the statements are normally displayed publicly (Porter & Norton, 2009). This differs with the management accounting which is mainly objected at assisting managers in making solid decisions. Financial accounting implies that the statements have to be in adherence with the accounting principles and this is normally essential in enhancing accuracy. Financial accounting is utilized to establish whether the corporation created any kind of profit thus furnishing other data in regard to the financial situation of the company. Through the  created information  the owners and managers of the  company  are able to utilize the report  in taking  corrective actions  despite that the information  generated  by management accounting  provides  deeper levels. Through the statements the creditors as well as the investors furnishes all the funds that are required by the corporation in operating and also understand how the business works. Continuous investment decisions is conducted on the grounds of evaluating the general performance. In addition financial accounting is normally utilized by other users such as consumers, employees and suppliers (Porter & Norton, 2009). The respective suppliers for instance needs to understand whether the corporation that they make their inputs ales to is being faced with the challenges of paying their expenses or there is a risk of sinking. On the other hand the employees and any involved labor organizations are normally interested since different compensation forms and salaries are reliant on the performance of the company (Porter & Norton, 2009).

The statements normally accounts for the total of the sold goods and the general expenses of operation in exemption of the sold goods. The distinction amid the general sales and the cost of the goods that have been sold is normally regarded as gross profit. On the other hand the net earnings of the company is established through subtracting the operating costs from the gross margin. Balance sheets are utilized in making reports regarding liabilities, assets as well as the equity of owners. For Samsung similarly to their corporations financial statements are prepared on the basis of a year (Porter & Norton, 2009).

Effectiveness of Financial Accounting System

A system of financial system can be an authoritative tool in reference to the investors of a business.  The effectiveness of the system is mainly acquire when the needs of the corporation are considered. The system is more time, accurate and reliable as compared to other models as it utilizes the effectiveness of credits as well as the existing debits in the conversation of data into a structure that communicates the actual interactive and personalized information regarding the company. Through the provision of feedbacks on the performance of business this generally allows the control of the result (Porter & Norton, 2009). Though financial accounting the company is able to determine the amount of money in the bank. This presents opportunities through which even the transactions whose recording has not been done is acquired that includes deposits, and prior authorized payments which may not be seen manually. This recording allows the conducting of a thorough evaluation which is useful in the prevention against unpermitted and mistaken transactions. In addition this helps in the determination of the much owed by consumers, owed to suppliers and the general cost of operation. This helps in determining the much that the business generated from sales and the available inventory (Porter & Norton, 2009).

A well formatted and designed financial accounting method is essential to corporations wellness as this helps in the provision and the identification of the areas that can be useful to the corporation in saving costs for instance the need to make less expenses on specific items and renegotiate products with the suppliers, lower the charges of the bank by acquiring either greater or reduced quantities and the general consideration of the respective strategies of lower (Porter & Norton, 2009). The implementation of financial accounting systems within corporations helps in the facilitation of improved ability to make solid and informed decisions, increased internal management, facilitating the corporation’s financial transactions and reliability of all the financial statements. Finacial accounting systems involves the general transactions recording and the compilation of report. One of the primary significant accounting information benefit over all other kinds of information is mainly the fact that it is grounded on numbers. The statistics in the reports are so straight that they demonstrate what is present by showing the presence of losses of benefits (Stickney, 2010). A primary objective of accounting information is the fact that it is highly objective and it is based on the highly embraced principles of accounting. The application of these rules during the preparation of the reports helps in creating comparable as well as standard data. All the data that is utilized in the financial system can be categorized as verifiable data which is not based on desires or opinions and this makes accounting information not to be grounded  on biases. In addition accounting information is characterized by increased reliability for instance if the data indicates that the corporation owes a certain amount of debts this implies that the amount is the one that is required in payments. Any questions in regard to a certain subjects can be answered through reviewing the reports which demonstrated the calculation of numbers (Bhattacharyya, 2011).

So that any form of data can be included in the financial statements it has to be made of as form of sense by having adequate documents as backups. In accounting department that holds proper running reconciliations are usually made and the involved processes are in a place that assures both information accuracy as well as reliability (Stickney, 2010). Accounting information reports can usually be analyzed in the provision of financial  information to the management  that can utilized  in effective running of the  business, make some plans and additionally place changes if the business begins to head in the direction that had not been anticipated. In that if the general sales of a certain product can be categorized as  low which differs with the developed expectations the accounting statements are utilized  in demonstrating the particular reality  and through this the management the management is able informed decisions in its regard which is an apparent benefit of the accounting information effectiveness (Stickney, 2010).

The system is additionally characterized by speed and structured classification of data that creates efficiency. The speed of processing data is influenced by the classification of data in that data is utilized in forms of classification and can thus be utilized in the compiling of more detailed and well-structured statements (Stowe, 2007). If any calculation necessitates some revision this offers an easier way of doing it by directly addressing the specific data of concern. Classification allows the users to understand the reports at ease since it eliminates the complexity that is presented by all other approaches such as income based and market value that normally classifies items in general and the need for correction of a certain sector may imply that the whole calculations have to be redone. Through the recording of the respective data safety is enhanced since the data can be reused in the future since these results are considered to be regular backups that are reliable in making future predictions (Stickney, 2010).

Financial Accounting System That Samsung Uses To Value Their Firm Compared To Other Alternative Accounting Based Valuation Models.

In comparison to other accounting valuation strategies financial accounting utilized tends to be more effective as compared to equity valuation and the earning valuation models. The earnings model of valuation which is commonly known as abnormal income valuation approach is a methodology that is utilized in determination of the worth of the company that is grounded on the earnings and the value based on the books (Zhang, 2014). This model is more residual based since it looks on the decisions of the management on whether they have resulted in better or poor performance. The model normally states that investors should make higher payments given that the income is higher as compared to the general anticipation. The value of the corporation from other models is settled for after making comparison on the competitors. However financial model is more objected at establishing the position of the company in an individual nature to establish whether the company’s worth is adequate as anticipated (Stickney, 2010).

On the other hand equity valuation is mainly purposed at estimating the company’s value. The model is driven by the assumptions that any company’s security is influenced by the significant aspects of the corporation that underlies the conduct of business in any given period.  These model utilizes three different approaches which are cost cash flow discount and the comparable methods (Nasev, 2009). The basic comparable method approach is that the value of equity should reflect to differing equities that are under a similar classification. The valuation is normally achieved through making comparison to the general worth of the competing firms within the market. This also differs with financial accounting that is utilized by Samsung which is valued based on its market value rather than making comparisons with the rivals. The differences obtained within the equity value strategy is utilized in demonstrating the present chances. This strategies are mainly based on opinions as well as assumptions by making comparisons with the worth of firms in the same sector and thus they are not as accurate, timely and reliable when being compared to financial accounting. Finacial accounting is mainly grounded on facts and the most suitable data in making conclusion regarding the company’s value (Stickney, 2010).

3.0 Research Methodology

This section will provide a detailed analysis of the research method that was utilized for the dissertation. The chapter offers detailed outline of the study strategy, method, and data collection, and sample selection, process of research, analysis of data limitations and ethical consideration of the study.

Research strategy

The conducted research by the study was more of applied as compared to a fresh one in the context of financial system of accounting. The research utilized a systematic review of several pieces of academic research that had been conducted in a few years back in regard to the utilization of financial system of accounting in evaluating the firm specifically focusing on Samsung Corporation. In this context the research utilized a form of a study that is more of new but based on a research subject that has been in existence.

Research Method and Approach

So that the aims of the dissertation would be fully satisfied the research conducted a qualitative research. This approach mainly utilizes reduced samples to ensure that the results are both finite and quantifiable. This offers an advantage because it offers a comprehensive investigation and an analysis of the subject of research even without limiting the study’s scope and the responses nature (Tavakoli, 2013).

The study followed an inductive study strategy. Based on the theory of the approach the researcher starts with the basic subject’s observation which is then utilized in the generation of concepts and assumptions that are derived from the research. The approach was selected because it considered small samples and ensure that the context is followed so that qualitative information can be generated (Tavakoli, 2013). However the approach is characterized by major weaknesses since it generates generalized assumptions and concepts that are grounded on the low scope of observation thus creating inaccuracy which can be categorized as unreliable.

Data Collection Method and Instruments

The objective of the study was to investigate the use and the effectiveness of financial account as an evaluation model for a firm.  In this context after gathering data from the previous research detailed questions that comprised of both closed and open-ended queries was utilized. Interviews were not detailed since the participants are busy personnel’s but they help in the creation of direct connections. The use of this particular strategy was essential in the generation of maximum data which is well structured and directly supports the objective of the study. The structuring of the questions created both flexibility and the potential and accuracy thus creating a more reliable chance for creating assumptions (Tavakoli, 2013). The sample population was mainly chosen based on their knowledge in relation to financial accounting as a strategy for evaluation.

Ethical Consideration

The current study was particular subjected to a number of ethical concerns. Authorization has to be acquired from the firm so that the case can be based on its operations. In addition all the respondents made reports of their acceptance in regard to their responses in the study through a written and signed introduction and a consent form. In addition withdrawal was voluntary since the members were fully permitted to exit at any time without having any proper explanation. The responses were treated as confidence since the research was involved in the personal analysis of the data and ensured that sensitive information regarding the company is not published. The primary objective of asking for consent was to assure the respondents that the study was both confidential and voluntary and thus one would decide to participate or note. In addition the respondents were fully informed about the purpose of the study while asserting that their responses would also be treated confidentially and will only be utilized for academic operations without any commercialization.

Limitations

Similarly to other studies this study was faced with several limitations. To begin with the sample size was small in particular since it only involved the senior employees who were available to participate in an online survey. A large sample would have been essential in enhancing the study’s reliability. In addition the use of qualitative research failed to allow of some of the examined issues such as financial accounting flexibility. In addition the effectiveness of the use of financial accounting in valuing a firm may have been influenced by several other aspects that were not mentioned. In addition the participants were not willing to offer sensitive information in reference to their corporation. Time as well as cost were additional constraint since much of the time was to be utilized in acquiring primary data.

Data Analysis

Data acquired from primary sources such as the filling of online questionnaires and interviews was analyzed with the utilization of content analysis. The data was gathered in this nature so that it can be compared more to the other that was acquired from previous literature. The existing literature data was analyzed through the utilization of systematic review. This strategy of analysis is important because  it helps in the lowering of the of the length of the collected data through offering simplifications while still generating results that can be measured with the utilization of quantitative methods (Vogt, Gardner & Haeffele, 2012). In addition content and systematic evaluation offers the researchers the capability of structuring qualitative information that is gathered in the manner that satisfies the studies aims.  However, such strategies are normally limited by human errors since the data can be misinterpreted thus creating unreliable and untrue assumptions.

            Time Line

Conclusion and recommendation

Evaluation of Findings

The findings acquired from the study can be categorized as accurate and also dependable. Through the study the findings supports the hypothesis that financial accounting is essential in the creation of competitive advantage through the utilization of statistical facts. In addition the data was acquired from reliable sources which were then evaluated on the grounds of their findings. The primary data that was gathered from the utilization of both questionnaires and interviews increased the general reliability by offering maximum and firsthand information that increased the general reliability.  However, the data acquired through systematic review is one that is limited to errors based on the fact that it can be said to be outdated and errors may have been incorporated in the review.

Recommendations & Conclusion

In summary, Financial accounting reports plays a primary role in the valuation of business firm in the modern economic sector today. All the firms are mainly objected at growing the value of the involved shareholders and therefore establishing its worth is essential. Finacial accounting is useful in establishing whether the corporation is headed to the anticipated direction. This system is very useful in the evaluation of accounting reports through its relevancy. The reports generated through the evaluation can then be utilized in the management and monitoring of the financial operations. For most financial accounting is the language of the business and therefore success of failure cannot be evaluated without its application. The importance of financial accounting can never be underrated. However financial accounting is limited because it only creates information that is outdated based on the time period required in creating these reports.

With respect to the above analysis it can be recommended that financial accounting is particularly effective while incorporated with other strategies such as income earnings of equality models in evaluating the firm. In that the worth that is established internally can be compared with that in the external surrounding. In addition the collaboration may be useful in the elimination of issues that are related to the information being outdated. This strategy can help the investors in making decisions that are highly informed thus increasing reliability as well as accuracy.

Appendices

Appendix 1: Financial Accounting Users

Khalid (2012).

Retrieved from:https://image.slidesharecdn.com/financial-accounting-120522225821-phpapp02/95/financial-accounting-23-728.jpg?cb=1337727680

Appendix 2: Accounting impact on profit

Zori (2011)

Retrieved from http://solomonzori.blogspot.co.ke/2011_09_01_archive.html

Appendix 3: Finacial statement analysis

Cambridge business (2013)

Retrieved from http://images.slideplayer.com/16/5258533/slides/slide_4.jpg

            References

Bebbington, J., Gray, R., & Laughlin, R. (2001). Financial accounting: Practice and principles. London: Thomson Learning.

Bhattacharyya, D. (2011). Management accounting. Delhi: Pearson.

Hooke, J. C. (2010). Security Analysis and Business Valuation on Wall Street + Companion Web Site: A Comprehensive Guide to Today's Valuation Methods. Hoboken: John Wiley & Sons, Inc.

Lunt, H., & Chartered Institute of Management Accountants. (2009). C2: Fundamentals of financial accounting: CIMA Certificate in Business Accounting. Oxford: CIMA.

Meitner, M. (2006). The Market Approach to Comparable Company Valuation. Heidelberg: Physica-Verlag Heidelberg.

Mercer, Z. C., Harms, T. W., & Mercer, Z. C. (2008). Business valuation: An integrated theory. Hoboken, N.J: John Wiley & Sons.

Nasev, J. (2009). Conditional and Unconditional Conservatism. Wiesbaden: Gabler.

Nilsson, F. (2015). Financial accounting and management control: The tensions and conflicts between uniformity and uniqueness.

Porter, G. A., & Norton, C. L. (2009). Financial accounting: The impact on decision makers. Mason, OH: South-Western Cengage Learning.

rucco, S. (2015). Financial accounting: Development paths and alignment to management accounting in the Italian context. Springer.

Stickney, C. P. (2010). Financial accounting: An introduction to concepts, methods, and uses. Mason, OH: South-Western/Cengage Learning.

Stickney, C. P. (2010). Financial accounting: An introduction to concepts, methods, and uses. Mason, OH: South-Western/Cengage Learning.

Stowe, J. D. (2007). Equity asset valuation. Chichester: John Wiley.

Tavakoli, H. (2013). A dictionary of research methodology and statistics in applied linguistics. Tehran:             Rahnamā.

Vogt, W. P., Gardner, D. C., & Haeffele, L. M. (2012). When to use what research design. New York:             Guilford Press.

Walton, P. J., & Aerts, W. (2006). Global financial accounting and reporting: Principles and analysis. London: Thomson.

WARREN, C. A. R. L. S. (2017). FINANCIAL ACCOUNTING. Place of publication not identified: SOUTH-WESTERN.

Zhang, G. (2014). Accounting information and equity valuation: Theory, evidence, and applications. Springer.

                              ENTREPRENEURIAL FINANCE

Countrywide PLC case study

Select one IPO, with available prospectus, and answer the following questions

1. I) what is the most reliable method of valuing new companies in primary (i.e. IPO) markets?

Comparable transaction analysis (Deal Comps) _ deal comps mostly relies on transaction multiples rather than trading multiples which is from several comparable business enterprises in the industry. Moreover, the goodness with this method is that in the process of valuing new business which have entered in the primary, for instance the IPO, market,  it makes use of premiums and multiples which were to be paid in comparable transactions so as to value the company (Castillo & Mcaniff, 2006 P. 148). In the act of using this approach to value the company, several attributes had to be taken into consideration. These include; size of the company i.e. (market cap, assets, and revenues), the geographic location of the company, business mix i.e. (its distribution network, market served, products, and so on), timing i.e. (transaction ought to be recent), and industry group (Rosenbaum & Pearl, 2013 P. 4)

Contrary to that, although the deal comps is similar to the assembling trading comps, the information to be collect can be relatively difficult to locate. The ultimate reason for that is because the main source for the data to be computed with the aid of this method is contained in internal resources of the firm (Rosenbaum & Pearl, 2013 P. 4). Conversely, the available metrics for valuing the firm are absolutely tied on the sales and profit gained. Since the precedent transactions are not easily comparable, it means that not all aspects of the firm’s transactions can be captured.

On the other hand, it should be noted that in the process of using this evaluation technique, there is the need of comparing other business organization which have publicly traded securities in the stock market (Geddes, 2003 P. 76). The reason for that is to ensure that the value regarding the comparable firms has been properly estimated. Moreover, this model works best when non-controlling and small stake contained in the company, with respect to the standards of the stock market, is readily acquired or just the newer issuance of its equity is taken into consideration (Rosenbaum & Pearl, 2013 P. 4). Although this doesn’t have the capacity of causing any significant change in control, the fact is that there will be no control premium to be perceived by the company. This is to imply that there will be no value which will accrue as a result of the change in control whenever a newer entity owns all of the company’s voting interests which offers the capacity of having full control of the business (Castillo & Mcaniff, 2006 P. 148). Consequently, since there is no change in business control occurring, it means that this method is the most efficient or reliable technique for valuating new corporations in primary that is initial public offering (IPO) market.

1. II) How should the selected company go about valuing the company?

With respect to the various evaluation methods available, typically the evaluation of a company entails the determination of its worthiness.  The determination of the worthiness as well as acknowledging what drives its prevailing value remains to be a prerequisite in deciding the appropriate prices to be met or receiving to be used in corporate restructuring, taxable events and so (Rosenbaum & Pearl, 2013 P. 4).

Nonetheless, in valuing the company, its management authority should ensure that they have found a true intrinsic value of its assets as well as other associated resources which are used to run its day-to-day economic activities. This involves a series of computations and assumptions which are based on the specific statistics of the company and the industry. This obviously will include key or effective planning, adjustments of the financial statement as well as applying the suitable valuation method/s (Geddes, 2003 P. 76). On the other hand, in the act of valuing the company, perceived risks, operational history, operational and management control, difficulty of quantifying cash flows and earnings, as well as the capital structure of the company are the main factors which should be considered (Beaton, 2010 P. 46).

Conversely, it should be acknowledged that although there existence of multiple acceptable valuation methodology, the result which is obtained from each one of them should be based on the company’s sensitivity of inputs (Geddes, 2003 P. 76). Usually, the cost of capital for the majority of privately held business organizations differs greatly. The reason for that is because a large percentage of them do not have the opportunity of accessing capital through equity financial institutions. Therefore, since not all valuation techniques are applicable to all business organization, the management authority of the company should ultimately depend on suitable evaluation model i.e. comparable valuations, which enable it to underwrite its shares or stock in the public in advance to the initial public offering (Castillo & Mcaniff, 2006 P. 146). Therefore, in valuing the company, the following should be taken into consideration;

1) Finding the total shares of the common stock which will be outstanding just after the offering

2) Finding the existing and outstanding options _ due to the fact that there are several means of accounting the outstanding options, there is the need of simplifying the valuation technique. It should be acknowledged, therefore, that in the process of valuing the company, its shares are essential since they correspond to the strike prices (Geddes, 2003 P. 77).

3) Computing fully diluted common outstanding shares through the use of a suitable evaluation model.

4) Determining fully diluted common shares via summing all types of outstanding shares.

5) Calculating equity value via multiplying the diluted common shares with the offering price.

6) Calculating enterprise value through the general adjustment of cash and debt of the company. This is achieved through taking primary shares provided and then multiplying it with the offering price so as to find how much the public funding is raised by the company less the IPO costs (Beaton, 2010 P. 46). Conversely, there is tallying of the net cash which is contained in the balance sheet of the company (cash – debt). Therefore;

                  Value of the enterprise = value of equity – (net cash + IPO proceeds)

III) Estimate the value of the company (i.e. offer price) using at least two valuation methods. At what price should the stock be offered?

Discounted Cash Flow (DCF) = (5.28/21.5) + (5.94/21.5) + (5.90/21.5) + (6.49/21.5) +                                                                 (8.80/21.5) + (10.97/21.5)

                                                      = 0.2456 +0.2762 + 0.2744 + 0.3018 + 0.4093 + 0.5102

                                                      =2.0175 %

Enterprise value = equity (market cap) + debt - cash

                              = 1129 + 64001313-308

                              = 64002134

With respect to the above computations, it essential to understand that the value ascribed has the potential of controlling the business rather than merely owning a percentage of the company’s equity in it (Wyatt, 2009 P. 89). Basically, the offering price refers to the price of the securities which are publicly traded and readily made available for purchase by the general public. The offering price of the publicly traded securities comprises of the management fee and the underwriters fee which is highly applicable to this context. This is because most of the time underwriters do consider several factors whenever trying to determine the offering price of the securities. Preferably, the above result indicates that the company should efficiently do an assessment of the securities, raise sufficient funds, as well as sell them to potential investors at a fair offering price (Marsh, 2012 P. 171).

On the other hand, the selling of the company’s stock is perceived as the means of generating funding which is used for the purpose of growing the business. Despite of that, the prices of the stocks has the potential of fluctuating whenever they are publicly traded or offered. Therefore, the management authority should bear in mind that the corporations which undertake the issuing of new stocks has the possibility of diluting the shares hence causing the ultimate drop of their value (A.I.C.P.A, 2013 P. 104). As a result of that, what is acknowledged from these assumptions is that although stock offering is mainly used for funding the operations of the company, the truth is that they has the capacity of spurring corporate growth as well improving earning hence fostering long-term profits to the shareholders (Geddes, 2003 P. 78).

1. IV) Compare your estimated offer price with the price disclosed in the IPO prospectus. Explain the difference.

With respect to the above computations, the fact is that what were taken into are the four main key portions of the prospects. The result obtained light on the issuer as well as that of the underwriter objectives. Since this was also aimed at predicting the magnitude of the first day initial public offering (IPO) return and the long-run post IPO performance of the company, the fact is the litigation risks associated in the industry performs an essential determining the main pricing of IPO as well as the strategic disclosure of prospects’ information (Smith, 2006 P. 304). The result obtained clearly supports the conventional theories regarding book-building or disclosure with other interesting exceptions.

The issuing manager of the company plays a crucial role in the book-building processes. In return, greater management disclosure ends up generating relatively higher prices or superior long-term performance (A.I.C.P.A, 2013 P. 104). The disclosure obtained from the response information is perceived as being systematic; therefore, prospectus revision usually occurs whenever that data is negative.

In connection to that, since it not relatively easily to find firms which are similar as compared to the targeted company, it essential, therefore, for the appraiser to be able to make use of the available information more creatively. Due to the fact that comparing the ratios is more useful unlike the absolute amount of the sales, it easier to have a clear picture of the weaknesses and strengths of the firm as compared to those in the same industry (Chechile, 2004 P. 9). In return, once arriving at the preliminary range of the valuation values using the suitable evaluation technique, it is important to make adjustments on the prices for any situation which are typical to the company (Marsh, 2012 P. 171).

Additionally, there is the need of backing up the prices or subsequent adjustments so as to account for its competitive advantage in the industry. This has the ability of making investors and buyers to examine and understand any justification for any valuation which might be higher than the apparent comparables. Thus, the values computed above tend to be a good indicator of the business risks, industry trends, and market growth (Chechile, 2004 P. 9).

1. VI) Compare the offer price disclosed in the IPO prospectus with the stock’s closing price on the first trading day. Explain the difference.

Due to the fact that the majority of the private companies have the capacity of changing their balance sheets as well as earnings for some alternative purposes, there is the need of recognizing or modifying its capital structure and earnings accordingly. For private companies, it should be noted the some of the non-traditional may not be applicable for such an analysis of the capital invested, assets appraisal, capitalization of earnings, and replacement cost (A.I.C.P.A, 2013 P. 104).

Likewise, in the act of comparing the revealed offer price contained in the IPO prospectus with the closing price of the stock on the first day, it was noted that stock has a greater potential of reflecting both the performance as well as the general potential selling of the company as compared to others in the industry. The reason for that is becomes it assist in coming up with an easier means of arriving at a value i.e. the stock price. Therefore, the appraisal used in this technique will be examining other companies which not only operate in the same industry but also offering similar services or products (Chechile, 2004 P. 9). The justification with this technique is that it provides the potential customers with the possibility of considering buying it or with which to compare.

On the other hand, the closing price of the stock during the first day of trading indicates that peers in the industry can easily be grouped based on several criteria, such as growth or size of the company, industry focus, and so on. The various multiples which were derived from this kind of analysis indicate that evaluation of stock during its first day of trading were timely but can equally change with time. The point of consideration is that the trading multiples do not have the capacity of reflecting control premiums or synergies (Castillo & Mcaniff, 2006 P. 148)

Typically, there are various a financial ratios which assists in measuring the value of the company based on its gross revenue or net sales. The effectiveness of using any of the valuation methods is that they offer the opportunity of evaluating or measuring the returns of the company. Conversely, the truth is that the obtaining a considerable statistical population offers effective revenue evaluation hence making it to be more reliable. This then means that with stock, there is the provision of a wide range of multiple of revenue and average for the general evaluation. Since the company’s objective is the profit maximization, it then means that growth, revenue size, and revenue model are the main factors which are considered at the end of the first day of its trading as compared to the offer price which is contained in the IPO prospectus. The reason for that is because it has the ability of influencing valuation and comparison of the prevailing value in the industry which is mainly revealed in the initial public offering (IPO) of the prospectus together with the fair price during the start of the trading day (Wyatt, 2009 P. 89)

The reason for that consideration is because the recurring revenue models to be used for the evaluation the company will typically be commanding higher valuation ranges which in return reflect the extent to which the organization has grown in respect to stock (Ogilvie, 2009 P. 598). The value to be obtained after the termination of the first trading period of stock will ultimately indicate the revenues obtained from the same client i.e. on recurring basis or through increasing characteristics. Contrary to that, the truth is that in the process of comparing the offer price which is revealed by the IPO prospectus together with the closing price of the stock on the start of the trading day, the fact is that the maintenance revenues will equally be valued more highly. This will only happen in case the firm has an efficient technological roadmap that will offer realistic value to the clients as well as incentivizing them to be loyal to it and make sound judgment in purchasing the stocks (Wyatt, 2009 P. 89)

VII) Evaluate long term performance of the stock up to 1 year after the listing.

From the above computations, it should be noted that always internal public offering (IPO) underperforms by an average of 1% per month for duration of four years. This indicates that firm will have a positive performance which is reported in the beginning year followed by a negative value in the following 3-years and finally a positive trend in the 4-year. Therefore, this is an important trend to equity assurance or an impressive explanatory power. In hypothesis, in case the company manages to successfully time its offering during the time when equity capital costs are perceived to be relatively low, the probability is that it will subsequently manifest lower returns for its potential investors (Ogilvie, 2009 P. 598).

In addition to that, the probable means of realizing that is through identifying the period when their market is overhauled or when the potential investors have the chances of overpaying for a certain IPO in relative to other companies in their industry (Schön, 2007 P. 6). In the early offering period of stock, their prices will be relatively higher with some huge differentiation of opinions for the anticipated future returns. Despite of that, in the long-run, the possibility is that prices decreases as a result of optimistic investors lowering their appraisals.

In connection to the above considerations, it should be noted that investors are always regularly over-optimistic about the forecast of the companies in entering the stock market. Therefore, IPOs becomes more and more beneficial to the company in case issuers have the ability of timing their flotation/s so as to ensure that they have coincided with the period of energetically high predictions or expectations amongst investors (Sepp & Frear, 2011 P. 96). This equally implies that the heterogeneity of these beliefs has the capacity of supporting the provisional bubble theory and the overvaluation of the initial public offering (IPO) straight away after its issuance.

With respect to the current state of the company, the fact is that the general performance of the company’s stock in the long-run (for duration of one year following its listing) is depended on the expected future performance of IPOs (Sepp & Frear, 2011 P. 96). The reason for that is because always IPOs perform efficiently when stock expects focuses on lower growth projection. Other hypothesis that the firm ought to entails manipulating its financial statements and accounting numbers so as to be able to make its offering to be more appealing to the customers (Schön, 2007 P. 6). This in return has the effect of beguiling investors to pay more than the fair price. The empirical result obtained above, therefore, indicates that the potential investor/s who would be investing in IPOS through direct subscription will be earning a positive stock market adjusted returns via the period of listing (Ogilvie, 2009 P. 598). Contrary to that, investors who will be buying the shares on the IPO listing day will most probably be earning a negative returns for a period of twelve months (1 year) from listing date hence anticipate to be earning positive market adjusted returns thereafter.

                                    References

CASTILLO, J. J., & MCANIFF, P. J. (2006). The recruiting guide to investment banking. Solana Beach, CA, Circinus Business Press.

ROSENBAUM, J., & PEARL, J. (2013). Investment banking: valuation, leveraged buyouts, and mergers & acquisitions. http://public.eblib.com/choice/publicfullrecord.aspx?p=1204848

GEDDES, R. (2003). IPOs and equity offerings. Oxford, Butterworth-Heinemann. http://www.123library.org/book_details/?id=37452

BEATON, N. J. (2010). Valuing early stage and venture-backed companies. Hoboken, N.J., John Wiley & Sons. http://www.123library.org/book_details/?id=5751

SMITH, D. (2006). Zero-to-IPO & other fun destinations: the essential guide to surviving startup -- & cashing out! [Calif.], Cambridge Manhattan Group.

MARSH, C. (2012). Financial management for non-financial managers. London, Kogan Page.

OGILVIE, J. (2009). F3: financial strategy. Oxford, CIMA/Elsevier.

SCHÖN, D. (2007). The relevance of Discounted Cash Flow (DCF) and Economic Value Added (EVA) for the valuation of banks. München, GRIN Verlag.

CHECHILE, R. A. (2004). The ABCs of IPOs: investment strategies and tactics for new issue securities. Lincoln, NE, iUniverse.

Hershey Company Financial and competitive analysis

Hershey financial health and performance

The financial ratios indicate that Hershey indicates a decline in revenues at the close of the year 2015 after experiencing growth in revenue between 2011 and 2014. Even though the percentage growth margins for the company improved from 41.6 % to 45.9 % between 2011 and 2012, and remained a bit constant in 2014 and 2015, the performance does not offer very good prospect of growth. This is because the net margin ratios show that earnings per share did not impress. The growth in operating cash flow also remained low between 2011 and 2015, reaching its lowest in operating ash flow ratio in 2014 at -29.47 The slow company growth was also experienced in return on total assets which remained largely constant between 2011 and 2012 and later declined to a low of 9.35 % in for 2015. Another decline was observed in return on capital ratio which reached a low of 15.85 % in 2015.  In addition, the current ratio remained quite low over the 5 year period and this measurement shows that financial health of the firm is not very good as per the indicated period. The current ratio remained at low of 1.72 % to 0.83 % in 2011- 2015 period. 

This analysis presents a perception that Hershey has been seeing a slow growth which may not present a good buy out option for investors. The change in the rate of revenue growth is not encouraging and seems to indicate that Hershey is experiencing stagnant growth in sales which will eventually be reflected in the earnings per share and return on investment. The slow growth can also be as a result increased competition from larger rivals such as Mondelez International Inc. which has been experiencing better growth in revenue and operating income. However, this should not prevent investors from considering this buy out since it may perform better in the long-run, but it does not offer a short- run investment.

Hershey resource and capabilities for competitiveness

Introduction

Hershey Company prides itself as the largest producer of confectionary products and chocolate in the whole of North America. The firm operates as one reportable segement through the manufacturing, marketing, selling and the distribution of different package kinds of confectionery products, chocolate, food and beverage, mint and gum refreshment products using over 80 brands.  It has five operating segments that comprising of geographical regions of United States, Brazil, Mexico and Canada and some other international locations like China, India and Korea (The Hershey Company, 2015). The company’s confectionery products are market in about 50 countries around the globe.  The company’s marketing strategy is focused on utilizing various resources and capabilities to build a competitive advantage over its competitors in a very dynamic environment. The strategy adopted by the firm aims at leveraging a marketing and sales leadership in Canada and United States, focusing on major global markets fir strategic growth and building capabilities that capitalizes on unique consumer and customer trends. Many of the company’s brands enjoy a broad acceptance by consumers and have become among the leading brands found in the market place (The Hershey Company, 2015). These brands are sold in a market that is highly competitive where other local, regional, national and multinational firms some which are way bigger and having more resources and larger international operations. To build a competitive advantage, the firm has had to engage its resources in building capabilities in an environment that is highly competitive and dynamic. These resources includes the capital , high quality production machines and equipments, highly qualified and competent human resources , research and development, trademarks  and service marks.

Financial resources 

The firm’s competitiveness can be related to its working capital structure which has seen it enjoy a fair financial strength. This strength has enabled the firm to adopt a business level strategy whose focus is on combined strategy which integrates overall differentiation and low cost.  The focus has seen the firm perform an overhaul of its supply chain, a reduction on production lines, outsourcing production of parts of its products and setting up its operations in new markets such in Mexico where it built a manufacturing plant so as to offset rising production costs and pass on the savings on costs to consumers (The Hershey Company, 2015). The firm has also utilized its financial strength to make build on its distribution capability by making its supply chain efficient and thereby rising its global footprint. The firm has also been able to outsource production of products that are value added. To achieve this, the firm has sought to outsource operations and therefore, reduce the number of production lines by more than a third.

Increase competition in the market has had significant effects on Hershey’s business and this has forced the firm to utilize its financial resources to raise its expenditures in advertising and promotions of its products in existing and new markets (Kash, 2012).  This has been enabled by the strong brand capability which is seen in its innovation and superiority, features that are enhanced by distribution capabilities and manufacturing expertise. The firm is also focused on improving its margins over the long-run by investing in huge retail coverage, consumer marketing and broad premium brands’ range. 

Distribution networks (value chain)

The value chain capability has been enhanced by the company’s efficient distribution network of its products. The efficiency in distribution network has given the firm a competitive advantage since it has assisted in maintaining sales growth and providing superior services to its customers. The Hershey Company engage in planning optimum levels of stock and working with it customers so as to come up with reasonable times of products’ delivery. In addition, this efficiency in distribution network enables for better shipments of products from the manufacturing plants to the various distribution centers situated throughout Canada, Mexico and United States. The common careers are primarily used in delivering the company’s products from the distribution centers to the many customers (The Hershey Company, 2015). Due to the efficiency in value chain, Hershey has full-time food brokers and sales representatives that provide its products to its customers. This is necessary given that the firm’s major customers includes the wholesale distributors , mass merchandisers , grocery stores , drug stores , wholesale clubs , vending machines , dollar stores departmental stores , stores of natural food and vending machines. These Hershey customers then resell products to consumers in more than 2 million business outlets across North America and other global locations. For instance , Hershey sales to Mc Company has previously accounted for a large portion of the profits , and this firm has been a primary distributer to major retail stores like Wal-Mart Stores Inc(The Hershey Company, 2015).

Advanced production equipments

The company’s resources also includes highly technologically advanced facilities such as the chocolate manufacturing facility introduced in 2012, an acquisition that was enabled by the financial strengths enjoyed by the firm. Such acquisitions have made it possible for the firm to position itself for the next decades of global growth and thus enhancing a competitive advantage of the firm over its competitors. These facilities have state-of-the-art technology, proprietary features that have not been used before in confectionery manufacturing. The chocolate facility has technology that was developed specifically for this plant and includes high automation and large-scale operations for Kisses Chocolate produced by Hershey. The technology enables smooth operations to run in 24 hours a day (Business Wire, 2012).

The introduction of such huge capital investments has enabled the firm to expand its business globally while at the same time maintaining its values and heritage which is founded on more than mere production of consumer products and innovation of confectionary. With such expanded global reach, the firm improves on its brand capability and its products continue growing in popularity in the global markets. The continuous investment in technology that is productive and in combination with great employees makes it possible for customers to always enjoy the iconic products (Kash, 2012). The latest manufacturing equipment for proprietary candy and manufacturing technology speeds up the production process, offers high quality that is consistent and provides chance for future production of new products.  This high speed, new lines of production that are high-tech improves the capability or capacity for the company to boost its growth in business presently and in the future.  In fact, the Kisses Chocolate production lines have the capability to produce over 70 million chocolates bars each day (Business Wire, 2012).  This investment brings significant economic benefits to Hershey and enables it to stand tall among its competitors in production of high quality products. The introduction of such manufacturing efficiency indicates a relationship between an organization resources and capability which assist in coming up with the right marketing strategy for products in a global market that is highly competitive.

Strong Brands as capability

In addition, the basis of the company’s marketing strategy is the brand equities that are strong, production innovation and constantly products of superior quality which are informed by expertise in manufacturing , high tech facilities and capabilities for mass distribution.  The firm also utilizes its strength in form of large amount of resources to identify, develop, test, produce and market its new products. Various promotions enhance this capability, which is carried out through promotion programs to its customers, and advertising programs or the consumers of such products. The promotion programs are used to stimulate sales of various products at specific periods in a year, which helps in maintaining the firm’s market share (Kash, 2012).  These capabilities enables the firm to change products’ weights and prices when it is necessary in order to accommodate changes in costs , profit objectives and competitive nature of the environment while maintaining consumer value.  The changes in weight and prices increment assist in offsetting the rise in cost of input which includes packaging materials, raw materials, utilities and transportation costs. These changes are important to ensure that, even though the firm will have to continue with its marketing strategies it does not experience losses or poor growth. However, the impact of these prices increment is delayed most of the time since the firm has to honor commitments made previously to customer promotions and planned consumer and events of merchandising following effective price increment date (The Hershey Company, 2015).

Trademarks and Service Marks

Hershey’s trademarks and service marks are used under rights offered by various licenses and they are of material importance to the company.  The firm has various license agreements with some companies to produce and less specific products so that the products of the firm can reach wider markets. This goes a long way in popularizing the company’s brands in the market and improving competitiveness and market share of the firm. Another important capability for Hershey Company is the accessibility to raw materials. The firm is able to purchase cocoa from many producers, processors and exporters globally, which is enhanced through direct interaction with them.  The company partners with producers of coca to establish sustainable programs where it shares a common goal with producers so as to encourage their efforts. Through programs such as capacity building and farmer organization the firm engages the community in sensitization of farmer skills and training directed towards productivity hence improvement on income level and even ethical labor practices(The Hershey Company, 2015).

Strategic partnership

The firm also forms partnerships with subsidiary companies like Scharffen Berger Chocolate Marker whose source the raw produces from farmers directly. The establishment of the partnerships ensures that raw materials produced are of high quality and can be obtained as needed and this translates to high quality end-products (The Hershey Company, 2015). The firm is able to maintain its competitive advantage by ensuring a constant supply of its quality products to its consumers. In addition, Hershey’s capability is indicated in hedging practices and forward purchases when it comes to raw materials. These practices ensure that the company’s costs will are not necessarily reflected in the fluctuations in materials prices. This fact is also indicated in that discounts and premiums are not necessarily affected by times of delivery or demand and supply for grades and varieties of cocoa butter, liquor and powder. Through forward purchasing the company minimizes the impacts of fluctuations in future prices which relate to purchase energy requirements and main raw materials’ purchases, and this covers future production requirements. Hence the company is able to maintain the costs of raw materials at minimum and hence, provide the savings on costs in consumer products prices (The Hershey Company, 2015).

 The company has also involved Information Technology as a resources and capability that will enhance its position in the global market. The firm has embraced the partnership with IT firms like Infosys in building Predictive Analytics Capability using the Open Source Information platform, which enables it to obtain quick insights into data while at the same time taking advantage of flexibility and reduced costs of a platform that is cloud-based.  The firm is able to analyze data from retail stores and hence, gaining insights that are valuable and revenue-generating more rapidly than could be delivered by implementation of a conventional analytics (Infosys, 2016).

Human resources

Human resources competence is another aspect that the firm has utilized to gain competitive advantage in the global market.  To accelerate growth and preserve the legacy if the firm, it has resulted to re-investing in its employees since they form part of the exceptional culture that fuels performance and greater success. To maintain quality products, effective management and effective marketing strategy, the company needs highly skilled and motivated human resources which will serve the customer right. The macro-economic trends have become a challenge to consumers and hence the firm has to respond with innovations, marketing and distribution strategies that are new to the market. Developing people’s capabilities has been at the centre of these efforts and hence, the company has focused more on identifying, attracting and developing the best employees (The Hershey Company, 2015).

 A commitment to shared goodness is assisting in attraction of the appropriate workers who are talented and determined to bring change.  The capability of the firm to achieve a leading rate of employee retention has been informed by this commitment to develop and reward workers for their efforts and skills that they offer for the good of the company’s performance. The company upholds inclusiveness, diversity and engagement translate to high performance culture and this becomes part of the competitive advantages that assist in a continuous winning in the global market place (The Hershey Company, 2015).. This idea of talented employees is reflected in the global footprint of the firm.

Innovation capability

Innovation has been a strong capability to Hershey Company, and it has been developed through various research and development practices.  This has seen the development of new products, improvement on the existing products’ quality, modernizing the production processes to improve them, development and implementation of new technologies (The Hershey Company, 2014). This has enabled the company to enhance quality and therefore, value of production lines. Hershey leverages its capability in developing, manufacturing and distributing its products to explore other opportunities that can allow for meeting consumer demands outside the traditional lines of confectionary product.

Research and development 

The research and development has seen the expansion into newer categories that promise to offer portable nutrition and wholesome snacking through various products like Soft Soya Milk. This innovation has extended into the marketing function, with an aim of growing and maintaining traditional sales .The firm is able to identify opportunities that can build on its brands, assess the potential in a realistic setting and change strategies before they are executed.

Conclusion

Hershey has put in place various strategies based on its resources and capabilities to gain an edge in a competitive environment. These include high quality production machines and equipments, highly qualified and competent human resources, research and development, trademarks and service marks and technology driven innovation. The capabilities arising from these resources have helped the firm in expanding its operations and market reach while remaining among the market leader in the industry. However, the analysis on financial ratios indicates that these capabilities and resources have not improved substantially the firm’s performance and its competitiveness.

Reference

The Hershey Company,(2015).FORM 10-K. Annual and Transition Report. Retrieved from: http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_HSY_2015.pdf

 Kash, R., (2012).The Hershey Company: Aligning inside to win on the outside. Retrieved from: http://iveybusinessjournal.com/publication/the-hershey-company-aligning-inside-to-win-on-the-outside-2/

Business Wire, (2012).Hershey Unveils World’s Most Modern Chocolate Plant in Birthplace of the Hershey’s® Milk Chocolate Bar. Retrieved from: http://www.businesswire.com/news/home/20120918006008/en/Hershey-Unveils-World%E2%80%99s-Modern-Chocolate-Plant-Birthplace

The Hershey Company,(2014).CORPORATE SOCIAL RESPONSIBILITY REPORT. Retrieved from: https://www.thehersheycompany.com/content/dam/corporate-us/documents/csr-reports/2014-hershey-csr-report.pdf

The Hershey Company, (2015). CORPORATE SOCIAL RESPONSIBILITY REPORT. SHARED GOODNESS. Retrieved from: https://www.thehersheycompany.com/content/dam/corporate-us/documents/csr-reports/hershey-2015-csr-report.pdf

Infosys, (2016).Press Releases. The Hershey Company Partners with Infosys to Build Predictive Analytics Capability using Open Source Information Platform on Amazon Web Services. Retrieved from: https://www.infosys.com/newsroom/press-releases/Pages/build-predictive-analytics-capability.aspx

.

Appendix

Hershey Financial ratios

The Stock Market Game

The current value for Intel Corporation stock is $ 35.90 per share which represents a loss of $ 0.58. In the case of Apple (AAPL), the current market value is $ 139.78 which represents a gain of $21.87. The market price for DDR Corp. (DDR) is currently $14.32 which is a loss of $ 0.77 (NASDAQ,1).

The constant change in stock prices can be attributed to market forces which include demand and supply (Wehn, Hoppe &Gregoriou,220). The fall in prices for Intel and DDR Corp. can be attributed to less people willing to invest due to a feeling by that the company is no offer better returns for their investment. There is also the possibility that the potential investors were not attracted to include the two stocks into their portfolio due to lack of anticipated growth. The earnings of the two firms did not offer low price per sales ratio making them unattractive to investors. The performance for Apple (AAPL) indicates a considerable gain which is most likely driven by higher earnings per share which attracted investors increasing the demand and hence the price.

The drop in Intel stock prices can be attributed to a disappointing guidance which showed the firm poor outlook in the year, with management warning that there would be drop in earning margin (Marcial,1).  The DDR Corp stock price has dropped mostly due to poor performance in the real estate sector which experienced a reduced demand. The gain in Apple’s stock price can be attributed to increased demand for its products especially iPhones 7 plus (Balakrisnan,1). An important aspect learnt in the exercise is that stock prices market is very volatile and a single event can trigger significant changes.

References

Balakrisnan, Anita.Apple shares close at all-time high.2017. Retrieved from: http://www.cnbc.com/2017/02/13/apple-aapl-stock-all-time-high-price.html

NASDAQ. Retrieved from: http://www.nasdaq.com/

ECONOMICS

Return on Equity measures the extent to which a firm is able to manager investors’ funds effectively by indicating whether the value of the company is growing at the accepted rate. Return on assets is ratio that indicates the amount of profit a firm earns for its assets. Such asset includes property, inventory and accounts receivable. This measure is normally a product of management of debt-equity, asset turnover and the operating performance. If a company can acquire debt and use it to get higher return than this cost , the resulting leveraging leads to more revenue for investors in form of increased equity (Boundless, 2016).

The return on assets is connected to both the asset turnover and the profit margin and it indicates the investors and creditors return rates. It also measures how effectively the firm is able to control costs and utilize resources. A firm may have low profit margin yet its return on assets is high since its assets turnover is higher (Jan, 2013).

Financial leverage refers to the extent to which a firm utilizes fixed-income securities like preferred equity and debt. It refers to a firm using debt to obtain more assets.  The firm’s financial leverage will increase as its use of debt financing improves. The benefits of financial leverage include the multiplication of the finances that are invested in operations and its usage in buyouts and acquisitions. In a short period when a business has a certain objective for growth, finance leveraging is very beneficial.  On the other hand, the higher debt level can put the firm into a higher leverage state which exposes it to more risks. Another risk is the high interest rates required for compensating investors for leveraged loans and bonds (Boundless, 2016).

References

Boundless, (2016). “Benefits and Risks of Operating Leverage.” Boundless Finance Boundless,. Retrieved 14 Feb. 2017 from: https://www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-structure-13/thinking-about-operating-leverage-105/benefits-and-risks-of-operating-leverage-450-3798/

Boundless,(2016). “ROE and Potential Limitations.” Boundless Finance Boundless. Retrieved 14 Feb. 2017 from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/analyzing-financial-statements-3/the-dupont-equation-roe-roa-and-growth-44/roe-and-potential-limitations-221-3897/

Jan, O., (2013).Net Profit Margin. Retrieved from: http://accountingexplained.com/financial/ratios/net-profit-margin