As for low gearing, more profits are distributed to shareholders due to lower interest bills. However, low gearing can signify that the firm is not effective enough to compete or may have limited opportunities for
For example, a reduction in product quality that lowers production costs will produce a quick increase in profit, but lowered quality standards can also tarnish a company 's reputation and provide the competition with an advantage. Lowering or eliminating a company 's employee training or research and development budget will lessen operating expenses and also maximize short-term profits. However, the competition may not follow suit and instead produce a much better product or service. The long-term result could be a significant loss of market share for the company that decided to lower its budget to pursue a short-term profit gain. It ignores risk factors and time value of money.
Be that as it may, in the meantime, the acquiring company gets the greater part of the assets and liabilities of the target firm, in this way roughly killing the impacts of the dilution. Should the merger demonstrate beneficial and give adequate synergy, the present shareholders will gain over the long run from the additional appreciation given by the assets of the target firm. However, an all stock option is not the most desirable form of financing an acquisition. The third option that Shell can consider would be a combination of cash and stock. Mergers and acquisitions are basically associated with the concept of buying, selling or combining different companies for the purpose of expansion and growth for the companies.
The answer is obviously to find socially CSR projects that can be advantageous to the organization; however, many believe that this defeats the aim of carrying responsible business practices. It is controversial as to how much a business should sacrifice in its aspiration for social responsibility. • Shareholder Resistance to CSR Some investors do look to acquire stock in socially responsible corporations, but, on the whole, investors purchase stock on the expectations of turning a profit. While some companies, such as Toyota and GE, have profited from corporate social responsibility, companies that adopt such policies often prove as likely to lose money. Given the spotty track record of corporate social responsibility in demonstrating profit increase, investors may resist attempts by executives to move a company in that direction.
Companies that use long-term debt tend to avoid dividend payments. Generally, the cost of debt financing is lower than equity financing. Moreover, debt financing has tax shield effect. Managers avoid excessive debt ratio to stabilize their job and personal wealth. It is also possible that corporate financing decision is a signal to convey information to investors about the company's business risk and profitability.
The relationship between price elasticity of demand and total revenue bring together some important microeconomic concepts (Miller 2012). In the previous question, you can see how raising a price can bring the demand for a product down. This will have an obvious effect on total revenue and will help a firm when it comes time to change its price. There are times when changing the price of a product will not create less or more of a demand for a
Current dividends, on this analysis, represent a more reliable return than future capital gains. If dividends are preferred to capital gains by investors, dividend policy has a vital role to play in determining the market value of a company. Companies that pay out low dividends may experience a fall in share price as investors exchange their shares for those of a different company with a more generous dividend policy. As so it is possible to criticise a number of the assumptions made in (Modigliani, 1961) as being
This presents a host of benefits to a company, from reduced inventory carrying costs to a shortened supply chain. When managed well, this can reduce stock-outs and wasted product. But VMI carries potential disadvantages, as well. When a business relies on vendor-managed inventory, it 's placing a big bet on that company 's ability to deliver. The vendor has to be able to determine when to send new stock, what specific products to send and in what quantities.
Last but not least, Internal rate of return (IRR) is another discounted cash flow technique which is discount rate that cash inflows of a project, produces a zero net present value. The criteria of accept and reject is if the IRR is greater than the cost of capital, the project would accept and the excess amount will give to the shareholders as a return. The advantages using IRR are it recognize the time value of money. And it based on cash flows basis, no accounting profits. This will help the company evaluation the approximate or nearest rate of return.
A branded product manufacturing company doesn’t focus on the reduction of the price of the product, but on providing the quality product on time. Too much reduction of the price can also make the customers to have a negative impact on the product and thus can affect the future sales of the same. When a competitor undercuts your company 's pricing structure for products or services by offering them at a lower cost, it can present a serious challenge to sales, particularly because many firms are still operating at narrower margins in the wake of the economic