The economic downturn Essay Example for Free

The economic downturn Essay A. Analysis The economic downturn across the United States caused a decrease in funding to performing arts. Thus a proposal to merge the Utah Symphony and Utah Opera companies was made. There have been very few mergers of this type in history. In 1963 the Madison Symphony Orchestra and Madison Opera merged. Also, in 1985, the Chattanooga Opera and Chattanooga Symphony combined. These entities remained combined for a period of time, but ultimately disbanded due to ideologies and methodologies that differed. The Utah Symphony and Utah Opera merger discussion began in December 2001. The cultures of both entities are very different and divergent. This leads to a process to unite the two companies that is a challenging process. A1. Bill Bailey Mr. Bailey’s position is to survive the economic downturn and reduced funding currently affecting the performing arts. He holds the position of board chairman for the Utah Opera Organization. Maslow’s hierarchy of need can help Mr. Bailey influence the behavior of those involved in both organizations by appealing to their interests. Human beings have biological and psychological needs. Biological needs are those needed to survive such as food and sleep. Psychological needs are those that provide positive reinforcement to that individual, such as, success and love. Maslow’s hierarchy of need address the physiological, safety, love, esteem and self-actualization needed to influence human behavior on a basic level (Tay Deiner, 2011). Physiological needs address the desire to find human comfort and reasonable conditions. Safety needs, in regards to work, lead an individual to seek opportunities that provide job security, reasonable compensation, and work conditions that are safe. The love need leads individuals to seek out co-workers to bond with and provide positive daily interactions. The esteem need provides individuals with positive reinforcement and seek job challenges and promotions to help provide this reinforcement. Finally, the self-actualization need provides the individual  the opportunity to participate in decision-making processes and more challenging tasks that may arise. Leaders to motivate individuals can utilize a basic level of Maslow’s hierarchy. The Utah Opera and Utah Symphony both want to continue performing. The economic downturn has affected both entities and Mr. Bailey could appeal to the employees through use of Maslow’s hierarchy. The safety need can be met through continued job security, compensation, and work conditions should a merger go through. The love need or social need could be appealed upon through the use of the same leaders after the merger progresses. The performers would also have the same peers as before and would expand this peer group. The artistic expression and excellence could be preserved through employment of the same artistic leaders post-merger. This would also help with the self-actualization need, since positive reinforcement would be generated for the members of the musical companies. They would have been involved in the decision-making process and the ideals of keeping leaders that had previously been employed by the entities. This would help the musicians remain autonomy and actively seek challenges out to continue with motivation in the self-actualization arena. A2. Scott Parker Mr. Parker is the board chairman of the Utah Symphony. His position is to also survive the economic downturn affecting the performing arts. Mr. Parker must find supporters that are influential and willing to support the merger with the Utah Opera. Mr. Parker has one influential patron who is not willing to lend support for the merger. Mrs. Abravenal does not want the Utah Symphony to lose the prestige that it has found, especially since her husband, Maurice, was maestro of the Utah Symphony for 32 years. Mr. Parker can utilize Alderfer’s ERG Theory for motivation. The ERG Theory steps do not rely on each other to work. The ERG Theory consists of 3 distinct parts: existence, relatedness, and growth (Steel Konig, 2006). The existence needs are the desire for physiological well-being. The relatedness needs are the desire to develop relationships with others is meaningful. The growth needs are the desire to reach an individual’s full potential. The ERG Theory need for exis tence and the desire for physiological well being is the main motivator under this theory. A merger  would help the symphony maintain in existence, since they are financially unstable at this time. Mrs. Abravenal can be educated that support from opera supporters will help keep resources available that are not currently available when the entities are separated. The ERG Theory for relatedness need will be a second motivator under this theory. The human desire for meaningful relationships will provide positive reinforcement to those involved. The supporters of both companies do not want to see them fail and disappear. The passion of the supporters can be utilized and capitalized upon to create a relationship between the two companies. Finally, the ERG Theory for growth needs can provide positive reinforcement for both companies during the merger proposal. The companies are failing separately, but together they could flourish. Resources would be combined and supporters for both would be involved in the growth processes. Mrs. Abravenal could continue her husband’s vision and help keep the symphony alive and flourishing. A3. Power The future CEO of the combine entities is Anne Ewers. She has both positional power and personal power. She has formal positional power and has the authority to get things accomplished. Ms. Ewers has a legitimate leader role and expects her orders to be complied with. Positive legitimate power involves influencing others to effectively work better whereas negative legitimate power influences others to follow directions due to intimidation or fear of consequences. Ms. Ewers also has referent power. Referent power is the charisma an individual has from his or her own personality (Krietner Kinichki, 2010). Effective leaders have charisma that include positional and referent powers. Effectively using the powers together would allow Ms. Ewers to inspire through her own personality and lead by authority. A3a. Positional Power Ms. Ewers has a proven record in strengthening finances within an organization. She has been a proven and successful leader for many years within the industry. The following examples are characteristics important in positional power: * Centrality – Ms. Ewers would need to establish communication roles between the symphony and the opera. The central role would be important in the chain of command, since she would control the flow  of information to both entities. * Flexibility – Ms. Ewers would need to be able to adapt to frequently to the work environment. She must be ready to be diverse and produce unique ideas regarding the merger. * Visibility – Ms. Ewers must minimize the negative press surrounding the merger. She must capitalize on positive news regarding the merger and be available to communicate the information to the interested parties. Ms. Ewers must be open and available to those who have a vested interest in the company’s merger. * Relevance – Ms. Ewers must be able to provide accurate information that is relevant to the company’s needs. She must be able to communicate with staff to procure the required information from both companies and prioritize the goal and tasks for both. This should also include integration of the goals and tasks of the merger as well. A3b. Personal Power Ms. Ewers will need to use her referent power to influence those involved in the merger. She will need to gain support from Mr. Lockhart to help influence the merger. Ms. Ewers has a proven record of reducing financial obligation of organizations. She can work with Mr. Lockhart, who has the support of the symphony, to help everyone see the benefits of the merger. Ms. Ewers and Mr. Lockhart can be co-leaders during the merger process. This would help decrease the opposition from the musicians currently seen. A4. Organizational Performance The musicians for the symphony and orchestra have contracts that were hard fought for. A merger would challenge these agreements and the musicians are concerned they would lose their livelihood and artistic autonomy. Thus, a merger is not viewed positively. The symphony and orchestra both have different cultures. They are both run differently and have different expectations. It is clear they cannot be organized into one entity for simplicity. However, this causes potential issues. For instance, if donations were placed in a singular account for both organizations this could cause resentment among the musicians. Also, the musicians may not like answering to one governing board. This could lead to feeling unappreciated and resentment. However, should there be two governing boards, both sides would be represented equally and the musicians would feel  less resentment and more musical autonomy. The biggest challenge would be among pay for the musicians. The musicians for both entities must be paid competitively and fairly. Options for non-salaried positions may be a viable idea. The organizations must be committed to remain impartial and fair during the merger to reduce any animosity. A4a. Recommendations Christine Osborne is the chairwoman for the musicians and has presented their guiding principles to Ms. Ewers. The musician support is important to the organization during the merger. The musicians are dependent upon Ms. Ewers and Mr. Lockhart to become the future leaders within the new organization. Ms. Ewers is an authority in the industry and is the future CEO. Ms. Ewers has a proven record of reducing financial liability within organizations in the industry. She has the power to combine the organizations and utilize a singular vision for excellence in financial and artistic realms. She can use the guiding principles set forth by the musicians to demonstrate her desire to see the organization succeed. Ms. Ewers must first use her referent power to influence the leaders of the Utah Symphony and Utah Opera. She will be the future CEO of the newly formed organization and must demonstrate her vision for the future. This will hopefully provide sufficient motivation to gather support from both entities. Her referent power and vision must continue to provide a passion to the individual management team within the new organization. Ms. Ewer’s passion should extend to all involved and continue within the organization. This passion created within the organization can help develop self-actualization and esteem within all involved. Next, Ms. Ewer will need to focus on the financial stability of the new organization. The economic downturn has decreased the funding to the performing arts. Ms. Ewer will need to address the decreased funding and find additional funding through different avenues. Ms. Ewer is experienced in fund-raising and will be able to promote the organization via this avenue. Also, performer salaries will need to be revised. The musicians have a current agreement in place, but with the merger this would need to be renegotiated. A challenge Ms. Ewer will face is a decrease in salary for the musicians, but she may be able to effectively place emphasis on the new organization and the musicians desire to see it continue, instead of the old organization failing all together.  Finally, Ms. Ewer must put together a management team that will be empowered during the merger. This team must be trustworthy and desire to see the new organization succeed. Ms. Ewer must empower this team to remain pro-active during the merger and to promote the interest of the new organization. A5. Influence Tactics Leaders to promote new ideas often use rational persuasion. Rational persuasion relies on knowledge, reason and facts to encourage someone to follow or endorse an idea (Krietner Kinichki, 2010). Consultation influence is another tactic which allows individuals involved to participate in the decision making process. This gives everyone involved empowerment within the process. Ms. Ewer can utilize consultation influence to involve the musicians in the decision making process and provide empowerment throughout the merger. The decision making process can be enhanced through rationale persuasion. Ms. Ewer can provide background information on both entities and the precarious financial position both faces. This will provide necessary information to rationalize why a merger would be beneficial to both entities. The information provided can be including Ms. Ewer’s vision for the future of the new organization. Ms. Ewer would provide the information necessary to make an informed decision and empower them throughout the merger process. Conclusion The merger between Utah Symphony and Utah Opera requires key individuals be in place that have the knowledge and skills to make it successful. The two boards will need to be pro-active and back leaders Ms. Ewers and Mr. Lockhart. The task will be far from easy, but if prioritized and a determination and passion are unified then the task will be much easier to attain. References Kreitner, R., Kinicke, A. (2010). Organizational Behavior. 9th Ed., McGraw-Hill Irwin, New York, NY. Steel, P. Konig,C. (2006). Integrating theories of motivation. Academy of Management Review 31: 889–91 Tay, L. Diener, E. (2011). Needs and subjective well-being around the world. Journal of Personality and Social Psychology, 101(2), 354–365.

Dividend Discount Model and Price Earning Model

Dividend Discount Model and Price Earning Model Financial theory holds that the value of a share of stock is equal to the sum of the discounted future expected dividends. The Dividend Discount (DD) requires two inputs, firstly a forecast of future dividends and secondly, a rate at which these dividends will be discounted to their present value. The appropriate discount rate that will be used is the rate of return available on risk-free investments plus a risk premium. The Capital Asset Pricing Model is one of the most widely used models for calculating discount rates. Once the discount rate estimated, all future dividends must be discounted to their present value. Although near term dividends may be estimated with some confidence, to make the DD model operational an assumption regarding long term dividends is necessary. Two common assumptions regarding dividend growth and their associated valuation models are: (i) Earnings growth as well as dividend growth will be constant with the Gordon Model, and (ii) Multiple stages of growth can be approximated. Therefore, it is obvious that the forecasts and the assumptions necessary for operating DD models induce the emergence of significant errors into this theoretically correct approach. Common Stock Valuation Concepts The value of a common stock can be defined as the present value of the future dividend stream in perpetuity. This concept is consistent with the assumption that the corporation will indeed have a perpetual life, in accordance with its charter. If the value of a stock is equivalent to the value for a perpetual annuity with a constant level of payments, the general formula is as follows: Value per share of stock = Where = Expected dividend per share = Cost of equity The formula shown above for stock valuation treats the firm together with its stock as if they will exist forever. There are two basic inputs to the model. First is the expected dividends and secondly the cost on equity. To obtain the expected dividends, we make assumptions about expected future growth rates in earnings and payout ratios. The required rate of return on a stock is determined by its riskiness, measured differently in different models, the market beta in the CAPM, and the factor betas in the arbitrage and multi-factor models. The model is flexible enough to allow for time-varying discount rates, where the time variation is caused by expected changes in interest rates or risk across time. Zero growth model In this model it is assumed that the same amount of dividend will be paid for all the time periods up until infinity. The formula is given as follows after it has been simplified by using the formula sum to infinity of geometric progression: Where V = value, D = dividends per share k = percentage discount rate However, this model is quite restrictive as it is unreasonable to assume that the same amount of dividend will be paid by a stock for an indefinite time period. The model may be useful for determining the value of preferred stock which usually yields a fixed amount of dividend. Constant (Gordon) growth model The major drawback of the zero growth model is that it is assumed that a firm will pay the same dividend throughout its lifetime. However, in the real world most companies are expected to grow over time and consequently make more profits leading to more dividends being paid. This model assumes that there is a constant growth rate for the corporation being analysed and it is most suitable for valuation of stable and mature companies. This model was created by Myron Gordon, and thus it was named as the Gordon Model. The formula for constant growth model is derived from the zero growth model. If the dividends are assumed to grow at a certain constant rate, the formula becomes: Where g = annual constant percentage growth in dividends per share D = next years dividends. The Gordon growth model is a simple and powerful approach to valuing equity. In order for the model to work the following assumptions must be held: Dividends will grow at a constant rate and it will continue for an infinite period. The required rate of return is greater than the steady growth rate. The required rate of return is constant until infinity. It is also important to note that the model has some limitations. The Gordon growth model is a simple and convenient way of valuing stocks but it is extremely sensitive to the inputs for the growth rate. Used incorrectly, it can yield misleading or even absurd results, since, as the growth rate converges on the discount rate, the value goes to infinity. As the growth rate approaches the cost of equity, the value per share approaches infinity. If the growth rate exceeds the cost of equity, the value per share becomes negative. Multistage Dividend Discount Model The assumption of the Gordon Growth Model that there is a stable dividend growth rate from now on to the indefinite future is not realistic for many or even most companies. The studies of Sharpe, Alexander and Bailey (1999) state that the growth fall into three stages namely the growth phase, transition phase and the mature phase. Two-stage Dividend Discount Model The two-stage growth model allows for two stages of growth an initial phase where the growth rate is not a stable growth rate and a subsequent steady state where the growth rate is stable and is expected to remain so for the long term. While, in most cases, the growth rate during the initial phase is higher than the stable growth rate, the model can be adapted to value companies that are expected to post low or even negative growth rates for a few years and then revert back to stable growth. The model is based upon two stages of growth, an extraordinary growth phase that lasts n years and a stable growth phase that lasts forever afterwards. Value of the Stock = PV of Dividends during extraordinary phase + PV of terminal price Where DPSt = Expected dividends per share in year t ke = Cost of Equity (hg: High Growth period; st: Stable growth period) Pn = Price (terminal value) at the end of year n g = Extraordinary growth rate for the first n years gn = Steady state growth rate forever after year n There are three problems with the two-stage dividend discount model. The first two would apply to any two-stage model and the third is specific to the dividend discount model. The first practical problem is in defining the length of the extraordinary growth period. Since the growth rate is expected to decline to a stable level after this period, the value of an investment will increase as this period is made longer. The second problem with this model lies in the assumption that the growth rate is high during the initial period and is transformed overnight to a lower stable rate at the end of the period. While these sudden transformations in growth can happen, it is much more realistic to assume that the shift from high growth to stable growth happens gradually over time. The focus on dividends in this model can lead to skewed estimates of value for firms that are not paying out what they can afford in dividends. In particular, we will under estimate the value of firms that accumulate cash and pay out too little in dividends. The H Model for valuing Growth Fuller and Hsia (1984) presented the H model is a two-stage model for growth, but unlike the classical two-stage model, the growth rate in the initial growth phase is not constant but declines linearly over time to reach the stable growth rate in steady stage. The model is based upon the assumption that the earnings growth rate starts at a high initial rate and declines linearly over the extraordinary growth period (which is assumed to last 2H periods) to a stable growth rate. It also assumes that the dividend payout and cost of equity are constant over time and are not affected by the shifting growth rates. However, the limitations of this model is that it avoids the problems associated with the growth rate dropping precipitously from the high growth to the stable growth phase, but it does so at a cost. First, the growth rate is expected to strictly decline linearly. Therefore small deviations from this assumption do not affect the value significantly, but large deviations can cause problems. Another important point is that the assumption that the payout ratio is constant through both phases of growth exposes the analyst to an inconsistency i.e. as growth rates decline the payout ratio usually increases. Three-stage Dividend Discount Model The three-stage dividend discount model combines the features of the two-stage model and the H-model. It allows for an initial period of high growth, a transitional period where growth declines and a final stable growth phase. It is the most general of the models because it does not impose any restrictions on the payout ratio. This model assumes an initial period of stable high growth, a second period of declining growth and a third period of stable low growth that lasts forever. This model removes many of the constraints imposed by other versions of the dividend discount model. In return, however, it requires a much larger number of inputs for instance year specific payout ratios, growth rates and betas. For firms where there is substantial noise in the estimation process, the errors in these inputs can overwhelm any benefits that accrue from the additional flexibility in the model. Estimating k and g Companies with unpredictable or recurring earnings pattern, or rapidly thriving companies, require a more complex dividend capitalisation model framework that can accommodate dissimilar dividend growth patterns. In practice, applications may require elaborate variations of the dividend capitalisation model, nevertheless this simplified form provides a convenient means of analysing the determinants of stock value. To begin with, the value of the stock should be greater, the greater the earning power and capacity of the corporation to pay out current dividends, D. Correspondingly, the higher the growth rate of the dividends, g, the greater the value of the corporations stock. Finally, the greater the risk of the corporation (the higher the discount rate, k) the lower will be the value of the stock. The discount rate is alternatively referred to as a required return. It is composed of two elements-a risk-free return and a risk premium. The risk-free return is, in turn, generally considered to consist of a real return component and an inflation premium. The real return is the basic investment compensation that investors demand for forgoing current consumption or, alternatively, the compensation for saving. Investors also require a premium to compensate for inflation; this premium will be high when the inflation rate is expected to be high and low when the inflation rate is expected to be low. Because the real return and the inflation premium comprise a basic return demanded by all investors, the risk-free return is a component of all securities. The risk premium is made up of the following elements-interest rate risk, purchasing power risk, business risk and financial risk. The risk premium might be considered to be a function of the stocks systematic risk (beta), which is determ ined by these four fundamental risk factors. As securities differ in their exposure to these risk elements, the premium or return that investors require to compensate for risk will differ across securities. The constant dividend growth model reveals that the following three factors affect stock prices, ceteris paribus: 1) the higher the dividend, the higher the stock price; 2) the higher the dividend growth rate, the higher the stock price; 3) the lower the required rate of return r, the higher the stock price. Empirical Studies on the DDM Issues of dividend policy range from its puzzle by Black (1976) to its irrelevance by Miller and Modigliani (1961), to its relevance by DeAngelo et al. (1996). Other issues include theories on dividend payment, such as stakeholders theory, pecking order theory, agency cost, signalling theory, bird-in-hand fallacy and clientele effect. The information asymmetry between managers and shareholders, along with the separation of ownership and control, formed the base for another explanation of why dividend policy has been so popular. Dividend irrelevance theory Miller and Modigliani (1961) proposed that dividend policy is irrelevant to the shareholder and that stockholder wealth is unchanged when all aspects of investment policy are fixed and any increase in the current payout is financed by fairly priced stock sales. The main assumption is that there is 100 per cent payout by management in every period. Other assumptions are: that there exist perfect capital markets; that is, no taxes or transactional cost, the market price cannot be influenced by a single buyer or seller, and free and costless access to information about the market; that investors are rational and that they value securities based on the value of discounted future cash flow to investors; that managers act as the best agents of shareholders; and that there is certainty about the investment policy of the firm, with full knowledge of future cash flows. Bird-in-hand theory Al-Malkawi (2007) asserts that in a world of uncertainty and information asymmetry, dividends are valued differently from retained earnings (capital gains): A bird in hand (dividend) is worth more than two in the bush (capital gains). Owing to the uncertainty of future cash flow, investors will often tend to prefer dividends to retained earnings. Though this argument has been widely criticised and has not received strong empirical support, it has been supported by Gordon and Shapiro (1956), Lintner (1962) and Walter (1963). The main assumptions are: that investors have imperfect information about the profitability of a firm; that cash dividends are taxed at a higher rate than when capital gain is realized on the sale of a share; and that dividends function as a signal of expected cash flows. Signalling hypothesis Though Miller and Modigliani (1961) assumed that investors and management have perfect knowledge about a firm, this has been countered by many researchers, as management who look after the firm tend to have more precise and timely information about the firm than outside investors. This, therefore, creates a gap between managers and investors; to bridge this gap, management use dividends as a tool to convey private information to shareholders (Al-Malkawi, 2007). Petit (1972) observed that the amount of dividends paid seems to carry great information about the prospects of a firm; this can be evidenced by the movement of share price. An increase in dividends may be interpreted as good news and brighter prospects, and vice versa. But Lintner (1956) observed that management are reluctant to reduce dividends even when there is a need to do so, and only increase dividends when it is believed that earnings have permanently increased. Clientele effects of dividends theories. Investors tend to prefer stocks of companies that satisfy a particular need. This is because investors face different tax treatments for dividends and capital gains and also face some transaction costs when they trade securities. Miller and Modigliani (1961) argued that for these costs to be minimised, investors tend towards firms that would give them those desired benefits. Likewise, firms would attract different clientele based on their dividend policies. Though they argued that even though clientele effect may change a firms dividend policy, one clientele is as good as another, therefore dividend policy remains irrelevant. Al-Malkawi (2007) affirms that firms in their growth stage, which tend to pay lower dividends, would attract clientele that desire capital appreciation, while firms in their maturity stage, which pay higher dividends, attract clientele that require immediate income in the form of dividends. Al-Malkawi (2007) grouped the clientele effect into two groups, those th at are driven by tax effects and those driven by transaction cost. He argued that investors in higher tax brackets would prefer firms that pay little or no dividends, to get reward in the form of share price appreciation, and vice versa. Transaction cost-induced clientele, on the other hand, arises when small investors depend on dividend payments for their needs; this clientele prefers companies who satisfy this need because they cannot afford the high transaction cost of selling securities. Dividends form the hard core of stock values. As Justice Holmes remarked, the commercial value of property consists in the expectation of income from it. (In Galveston, H. S. A. Ry. Co. v. Texas, 210 U. S. 217, 226.) Black (1976) observed, The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just dont fit together Williams applied Fishers work on stock valuation and developed the famous dividend discount model (DDM) (Fewings, 1979, p. 12). Williams defines the investment value of stock as the present worth of all the dividends to be paid upon it (Williams, 1956, p. 55). He further makes it clear that the investment value of a common stock is the present worth of its net dividend to perpetuity (Williams, 1956, p. 63). Amid this theoretical research, the academic world was divided and a fierce debate erupted concerning the irrelevance of dividend policy in the determination of the valuation of firms or their stocks. The inconsequence of dividend policy in the stock valuation contemplates the equivalence of the valuation using earning approach and the valuation using discounted dividend approach. Fishers inter-temporal investment and consumption model predicted that earnings which are reinvested at the going rate of capital instead of being released for consumption neither adds nor subtracts from the value of the overall stream of benefits (Fewings, 1979, p. 17). Thus, according to Fisher, dividend policy is irrelevant in the valuation of stocks. One must remember that Fishers theory is applicable under perfect capital markets with certain futures. At the same time, Graham and Dodd (1934) developed their valuation methodologies based on the assumption that the firms main objective is to pay dividends to shareholders. Empirical evidence in the market suggested a positive correlation between stock prices and dividend payout (Harkavy, 1953), suggesting the relevance of dividends in the valuation of stocks. Gordon and Shapiro (1956), Walter (1956) and Solomon (1963) supported this hypothesis. In accordance with the relevance of the dividend policy on the valuation of stocks, Gordon extended Williams model of stock valuation to include retained earnings. He further developed the model to include continuous equity financing. These dividend dependent models are called the bird-in-the-hand models by authors like Frankfurter et al. (2003), as they are based on the assumption that there are two opportunity rates one for the firm and the other for the investor. The firm should retain 100 per cent of its earnings if the opportunity rate of a firm is greater than the opportunity rate of the investor. The seminal paper of Miller and Modigliani (1961) argued the irrelevance of dividend policy and the equivalence of the valuation of stocks using four approaches, namely the discounted cash flow (DCF) approach, the current earnings plus future investment opportunities approach, the discounted dividend approach and the stream of earnings approach. This equivalence was proven under assumptions of perfect capital markets, rational behaviour and perfect certainty. In addition, Miller and Modigliani (1961) point out that the dividend policy may be relevant when a revision in the dividend policy points to some information that the investors do not know. This information content of dividends argument led to the development of dividend signaling models. The irrelevance of dividends is not resolved. Academics are still divided into two, if not more, schools of thought on the subject. Price Earnings Ratio A firms profitability, risk, quality of management, and many other factors are reflected in its stock and security prices. Hence, market value ratios indicate the markets assessment of the value of the firms securities. The price/earnings (P/E) ratio is simply the market price of the firms common stock divided by its annual earnings per share. Sometimes called the earnings multiple, the P/E ratio shows how much investors are willing to pay for each dollar of the firms earnings per share. Earnings per share comes from the income statement, so it is sensitive to the many factors that affect the construction of an income statement, from the choice of GAAP to management decisions regarding the use of debt to finance assets. The price/earnings ratio is stated as: Stock prices are determined from the actions of informed buyers and sellers in an impersonal market. Stock prices reflect much of the known information about a company and are fairly good indicators of a companys true value. Although earnings per share cannot reflect the value of patents or assets, the quality of the firms management, or its risk, stock prices can and do reflect all of these factors. Comparing a firms P/E to that of the stock market as a whole, or with the firms competitors, indicates the markets perception of the true value of the company. While the P/E ratio measures the markets valuation of the firm relative to the income statement value for per-share earnings, the price-to-book value ratio measures the markets valuation relative to balance sheet equity. The book value of equity is simply the difference between the book values of assets and liabilities appearing on the balance sheet. The price-to-book-value ratio is the market price per share divided by the book v alue of equity per share. A higher ratio suggests that investors are more optimistic about the market value of a firms assets, its intangible assets, and the ability of its managers. The price-to-book value ratio is stated as: Market value indicators reflect the markets perception of the true worth of a firms future prospects. As such, market perceptions of a firms value are important to the financial analyst. However, the market may not be perfect; investors may become overly optimistic or pessimistic about a firm. The fact that a firm presently has a higher P/E or price-to-book-value ratio than its competition does not automatically imply that the firm is better managed or really deserves its higher valuation. Some firms may have low market value ratios because they truly deserve them; other firms may suffer from extreme and undeserved pessimism on the part of the market. High market value ratios can be similarly deceptive. The analyst must determine whether a firm deserves its market value ratios or not. Empirical Studies on the P/E model Ball and Brown (1968) are amongst the first pioneers who provided evidence that accounting earnings are potentially useful to investors for the valuation of equity. Furthermore, Beaver, Clarke and Wright (1979) also concluded that earnings act as a major determinant for equity valuation. Despite many researchers were inspired by the work of Ball and Brown prior study on price earnings ratio may trace back to 1934 when Graham and Dame considered that the major factors affecting price earnings ratio are factors coming from investors and companies. Internal scholars pay more attention to price earnings ratio status and qualitative or quantitative studies using cross sectional data model or time serials model are made in detail when stock market is established. As an important index measuring stock investment value and reflecting stock market development status, price earnings ratio is not only useful for department of banking custody to make sound regulation measures but helpful for inv estors to distinguish stock investing risk and select advisable invest strategy. Shroff (1995) cites that earnings of firms with high P/E ratio and high return on equity exhibit higher explanatory powers for stock returns. According to Barth et al. (1998) income statement plays fundamental role for equity valuation. Burgstahler Dichev (1997) found that book value and earnings being interrelated, act as component of equity value. Therefore it implies that the value of the firm can be expressed as a function of both earnings and book value of equity. Consequently, the higher is the earnings to book value ratio, the more relevant earnings will be as a determinant of equity value. While a lower earnings to book value ratio will imply book value being more important determinants of equity value. According to the work of Jan Ou (1995) firms which are reporting net losses, their earnings explain very little of equity price, but on the other hand book value of equity is an important determinant of stock price. Penman (1998) finds that book value provides greater relevance than earnings in equity valuation for firms with an extreme earnings to book ratio. Collins et al. (1997) further report that the value-relevance of earnings and book value of equity moves inversely to each other. Ou and Penman (1989) note that P/E ratios are good predictors of future earnings while changes in share price are poor predictors of future earnings. Ou Sepe (2002) find that the larger the spread between analysts forecasts of a firms future earnings and reported current earnings, the less value-relevant current earnings and the more the market relies on book value for equity valuation. Researches undertaken by Nicholson (1960), McWilliams (1966), Latane et al. (1969), Dowen and Bauman (1986), Keim (1990), and Fama and French (1992) provide evidence that stock returns are linked to P/E ratios. Penman (1996) notes that the P/E ratio acts not as a predictor of share price or returns but of future earnings levels. Allen et al. (1998) conclude similarly as their results indicate that firms with high E/P stocks have relatively low earnings growth while companies with low E/P shares experience high earnings growth. Furthermore, Fuller et al. (1992) conclude that low P/E ratio stocks generate low future earnings growth while high P/E ratio shares result in high earnings growth. Another line of research (e.g., Beaver, 1989; Mande, 1994) provides strong evidence that earnings aids investors in evaluating a firms dividend paying ability. As Larcker (1989) notes, share price is determined in the market through capitalisation (i.e., discounting) of the future cash flows or dividends expected to accrue to stockholders. Since earnings provide an information signal about future cash flows, stock price is affected by expectations concerning earnings. Because P/E ratios act as predictors of future earnings, these ratios are also linked to share price or returns. Moreover Nelson and Kim (1993) and Campbell and Shiller (1988) have documented that dividend yield predicts stock returns with some success, as it capture expectations about dividend growth as well as expected returns. While Lamont (1998) argues that the P/E ratio has independent predictive power for excess returns in addition to the dividend price ratio. Ang and Bekaert (2003) detect a strong role for the P/E ratio as a predictive instrument for future dividend growth. Since the P/E ratio is a function of expected growth in earnings, obviously expected growth in earnings are eminent in the valuation of a stock. Limitations of P/E The P/E is a fairly simple tool for assessing company value. But it has been argued that  the P/E ratio is not always reliable. There are plenty of reasons to be wary of P/E based stock valuations. The P/E ratio is supposed to enumerate how many years worth of current earnings a company will need to produce in order to arrive at its current market share value. Naturally, investors want to be able to buy more earnings for every dollar they pay, so the lower the P/E ratio, the less expensive the stock. The calculation of the ratio sounds simple enough, but here are some of the dangers associated with taking P/E ratios at face value. The first part of the P/E equation, price, is straightforward. The market price is easily available from the stock exchange market. On the other hand, coming up with an appropriate earnings number can be tricky. You have to make a lot of decisions how to define earnings. Earnings are not always clear cut. Earnings can be affected by unusual gains or losses which sometimes obscure the true nature of the earnings metric. Whats more, reported earnings can be manipulated by company management to meet earnings expectations, while creative accounting choices, shifting depreciation policies or adding or subtracting non-recurring gains and expenses, can make bottom line earnings numbers bigger and, in turn, P/E ratios, smaller and the stock appear less expensive. Investors need to be wary of how companies arrive at their reported EPS numbers. Appropriate adjust ments often have to be done in order to obtain a more accurate measure of earnings than what is reported on the balance sheet. Then there is the matter of whether to use trailing earnings or forward earnings figures. Located right in the companys latest published income statement, historic earnings are easy to find. Unfortunately, they are not much use for investors, since they say very little about what earnings are in store for the year and years ahead. Its the companys future earnings that investors are interested in most since as they reflect a stocks future prospects. The biggest limitation of the P/E ratio is that it tells investors next to nothing about the companys EPS growth prospects. If the company is growing quickly, you will be comfortable buying it even it had a high P/E ratio, knowing that growth in EPS will bring the P/E back down to a lower level. If it is not growing quickly, you might shop around for a stock with a lower P/E ratio. It is often difficult to tell if a high P/E multiple is the result of expected growth or if the stock is simply overvalued. A P/E ratio, even one calculated using a forward earnings estimate, does not always tell whether or not the P/E is appropriate to the companys forecasted growth rate. Finally, theres the tricky issue of a companys debt load. The P/E ratio does nothing to factor in the amount of debt that a company carries on its balance sheet. Debt levels have an impact on financial performance and valuation, yet the P/E does not allow investors to make comparisons between debt-free firms and those bogged down with outstanding loans and liabilities.

How Do Dixons And Tandy Add Value To The Products They Sell? :: essays research papers

How Do Dixons and Tandy Add Value To The Products They Sell? How do Dixons and Tandy add value to the products that they sell, and, in doing so, what benefits are passed on to the consumer? Do high street consumer electronics stores offer better value for money than their mail-order counterparts? The raw price figures show that, obviously, the high street stores cost more than the mail-order stores, but are the benefits that the high street stores bring worth the extra price? I took the prices of five types of products, a large stereo, a portable system, a small television, a video recorder, and a computer. The large stereo was an AIWA NSX-V710, the portable system was a Sanyo MCD 278, the small televisions that I chose were not available in both stores, and so I had to choose similar models. The models I chose were the Matsui 14" Remote from Tandy and the Nokia 14" Remote from Dixons. The models were both available from the mail-order supplier, at the same price. The video recorder that I chose to use was an AKAI VSG745, and was in fact available from both stores. The computer was the most difficult part of the system to match, as the Dixons systems came with some added bonuses such as extra multimedia software and Internet capability. I therefore reduced the price of the Dixons machine to account for these differences, by deducting the price that it would cost to upgrade on the Tandy machine. So, to give the Tandy computer Internet capability would cost  £150, so that was deducted, and the multimedia software would have cost  £50, so that was deducted. The computer specification I aimed to have as a common platform was an Intel Pentium 120MHz machine, with 8MB RAM, a 14" monitor, at least a 1 GB Hard Disk and MPC level 2 capability (i.e. be able to use CD-ROM Multimedia titles). The mail order supplier I chose to match these specifications with was Computer Trading, as they offered a system which was a close match to the Tandy and Dixons ones, while having a low price. The common factor with all the products is that they are all more expensive than their mail-order price counterparts. This means that the high street stores 'add value'. Adding value is taking one or more parts or products, combining, changing or adding to them, in such a way that the perceived value of the product is increased by more than the cost of the change. For example you might expect to pay  £150 more than the cost of the

Baja Taco :: essays research papers

â€Å"Baja Fresh & Taco Bell† In today’s increasingly competitive marketplace businesses must be very creative in their marketing strategies in order to attract as much business possible. Companies spend a tremendous amount of their budget on advertising, soliciting, marketing and selling their products and / or services. Businesses that aren’t creative don’t appear to succeed as much as those that produce good marketing campaigns. Fast food restaurants are one of the most recognized businesses. It appears that at just about every major intersection you’ll find some sort of fast food establishment. Which one do you select? Why did you select it? Is their food good? Was it because you found their marketing approach â€Å"funny†? Are your funds limited? There are multitudes of reasons why consumers solicit a particular business. I analyzed two fast food restaurants; one is an established major fast food provider, Taco Bell, the other restaurant is also a fast food provider, however, relatively new in the industry, Baja Fresh. Taco Bell has literally become a household product throughout much America. The marketing campaign Taco Bell initiate states that half of the American population sees a Taco Bell commercial at least once a week. Their most recent marketing slogan is a talking Chihuahua that speaks Spanish. One of his more well known punch lines is â€Å"Yo quiero Taco Bell!† Taco Bell restaurants serve Mexican fast food. They are the largest Mexican fast food restaurant chain in America. Taco Bell does not consider itself to be fast food, they consider themselves to be quick-serve Mexican style restaurants. Taco Bell focuses a great amount of their marketing strategies towards the younger age group. They are usually marketing their products around â€Å"blockbuster† movies or popular action figures, and will usually offer some sort of marketing token with many of their meals. The food at Taco Bell is priced relatively inexpensive; however, the quality is typical of a fast food restaurant; you get what you pay for. Taco Bell is constantly producing new food items in order to attract more customers. Competition is strong and dynamic in most markets. So it is essential for a firm to keep developing new products-as well as modifying its current products-to meet changing customers needs and competitors’ actions (Perreault, 281). Taco Bell continually is experimenting with new food product lines. Taco Bell is a part of the Tricon Global Restaurants Group; one of the largest restaurant chains in the world.

Transcendence in Marilynne Robinson’s Housekeeping Essay -- Robinson H

Transcendence in Marilynne Robinson’s Housekeeping William H. Burke suggests that transience in Marilynne Robinson’s Housekeeping is a type of pilgrimage, and that â€Å"the rigors and self-denials of the transient life are necessary spiritual conditioning for the valued crossing from the experience of a world of loss and fragmentation to the perception of a world that is whole and complete† (717). The world of reality in Housekeeping is one â€Å"fragmented, isolated, and arbitrary as glimpses one has at night through lighted windows† (Robinson 50). Many of the characters that precede Ruth in the narrative rebel against something in this world that is not right. Edmund Foster, her grandfather, escapes by train to the Midwest and his house is â€Å"no more a human stronghold than a grave† (3). His daughters, Molly, Sylvie, and Helen, all abandon their home and their mother; Helen, in fact, makes the greatest â€Å"leap† away from the world into death when she cannot effectively deal with the expecta tions placed on her to â€Å"set up housekeeping in Seattle† with husband and children (14). Ruth takes up a transient life with her mentor and aunt, Sylvie, to escape from history and the past into a new life, a new awareness. Crucial to this spiritual awakening is the abandonment and the isolation of the self. Transience is Ruth’s escape from the impermanent illusory world, a world that rejects one of the tenets of transience, that â€Å"the perimeters of our wanderings are nowhere† , in favor of fixity and stasis (218). She acknowledges the world’s illusory nature when she admits that she has â€Å"never distinguished readily between thinking and dreaming†, and that â€Å"Everything that falls upon the eye is apparition, a sheet dropped over the world’s true workings... ...orld (219). Works Cited Burke, William H. â€Å"Border Crossinsgs in Marilynne Robinson’s Housekeeping.† Modern Fiction Studies. 37 (Winter 1991): 716-724. Mallon, Anne-Marie. â€Å"Sojourning Women: Homelessness and Transcendence in Housekeepking.† Critique 30 (Winter 1989): 95-105. Miller, Heather. Grace Through Isolation in Herland, Housekeeping, and Ellen Foster. Masters Thesis. University of Southern Mississippi, Hattiesburg. December 1991. Ross, Dianne Lillian. The Circle in the Waters: Unity and Visions of Regeneration and Immortality in Housekeeping, To the Lighthouse, and Surfacing. Masters Thesis. UVA May 1986 Schuler, Carol. Crossing the Boundaries with M/Other: Beyond Dualism into the Dream of a World made Whole in Marilynne Robinson’s Housekeeping. Masters Thesis. California State University, Stanislaus. May 1994.

Principles of Anatomy and Physiology Essay

A tissue is an assemblage of similar cells and cell products performing a specific activity and are located in different organs of the body. Tissues form the building blocks of an organism. They are composed of individual cells which consequently are composed of several organelles. There are four types of tissues in animals and they include the epithelial, muscular, nervous and connective tissue. The images of the various tissue types as viewed under a light microscope have been attached below. The Epithelial tissue covers the body surface and is also the lining for most internal cavities. The skin is an example of an organ made up of this tissue. They are either columnar, squamous or cuboidal in shape. The major functions of epithelial tissue are protection, absorption, filtration and secretion. This tissue is found in the kidney. The connective tissue is responsible for connecting various organs in our body. It is the most widely spread in the body. Examples include fat tissue, blood tissue, and dense fibrous tissue amongst others. The muscle tissue is responsible for muscular movement and coordination. There are three types and they include smooth, skeletal and cardiac muscle tissue. Smooth and cardiac muscle are involuntary meaning they do not require direct commands from the brain. Skeletal muscle on the other hand is under voluntary control and this means that it needs to be commanded on what to do. The nerve tissue is composed of cells that receive and conduct impulses to and from all parts of the body. It’s composed of organelles whose major task is to allow passage and receiving of information. Task 3. There are two classification of cells; prokaryotes and eukaryotes. By classifying under kingdoms, the prokaryote kingdom refers to bacteria while eukaryotes include animals, plants, fungi and protoctista. Eukaryotes are organisms whose cells are in-bound by membranes and a cytoskeleton. They have a ‘true’ nucleus that contains their DNA. The organelles in prokaryotes are not membrane bound. Most happen to be unicellular though some are multicellular. Prokaryotic cells are much older and diverse than eukaryotic cells as they’re believed to have been there for millions of years. The organelles found in both cells perform specific functions and influence the overall task of the tissue. The table below mentions certain organelles, their function and whether they are found in prokaryotes or eukaryotes. Organelle Function Cell Found Golgi Body Transports proteins from the Rough Endoplasmic Reticulum to the cell membrane for export. Eukaryotes. Lysosome Contain digestive enzymes that break down unwanted chemicals toxins or even the entire cell. Eukaryotes. Cell Wall Separates the content of the cell from the outside environment and thus controlling the exit and entry of materials. Offers rigidity to the cell. Mostly found in Prokaryotes. Nucleus Contains DNA that carries the genes of the cell. It’s not membrane bound in prokaryotes or a nucleoid. Both prokaryotes and eukaryotes. Ribosomes Responsible for protein synthesis. In Eukaryotes, they’re larger (80S) while in Prokaryotes, they are smaller (70S) type. Both prokaryotes and eukaryotes. Endoplasmic Reticulum Form a transport highway within the cell allowing movement of molecules. Plays an important role in protein synthesis. Composed of RER and (Smooth endoplasmic reticulum) SER. Eukaryotes. Cytoskeleton Protein fibers extending through cells to offer support, transport and motility. Allows for cytoplasmic streaming. Eukaryotes. Mitochondria Allows for aerobic respiration. Provision of energy through the breakdown of glucose. Eukaryotes. Flagella Responsible for propelling and movement activities. It’s complex in eukaryotes and consists of two protein building blocks. Both prokaryotes and Eukaryotes. Task 4.Different cell components in a tissue influences the function of that tissue. As each has a specific role which it undertakes, the synchrony of these activities enable a tissue to perform the overall specialized task that it is supposed to handle. The number of various cell components will depend on the general function of the tissue. Cell differentiation is the process whereby a less specialized cell becomes more specialized. Differentiation occurs continually in a multicellular organism. It is important as it enables adult cells to give rise to daughter cells which in turn become specialized to perform a certain function. Each type of cell that develops creates tissue-specific proteins only available in that cell type. Cells need to have different structures as they perform different functions. During differentiation, the shape and structure of the cell changes. As stated earlier, the number of certain cell components/organelles in a tissue influences the overall role of the tissue. Take for example mitochondrion; structures that convert food energy into a form that can easily be used by cells. Through respiration, energy is released from glucose and is used for various body processes. Tissues that require large amounts of energy will always have a high number of mitochondrion. An example is the muscle tissue. The energy requirements of voluntary and involuntary muscles is high. This thus creates an energy deficit that is compensated by an increase in the number of mitochondrion in these tissues. Task 5.The muscle tissue is comprised of cells whose purpose is contraction. They contract upon receiving a stimulus by a chemical released at a nerve end known as a neuromuscular junction. All cells contain actin or myosin proteins in their filaments. There are three types of muscle tissue; cardiac, smooth and skeletal and each have their distinct characteristics. In skeletal and cardiac muscles, these filaments contain desmin resulting into refractile bands called cross-striations. Smooth muscle cells however are not highly ordered and thus are not striated. The different types of cells can be distinguished by their appearance as viewed under a microscope. This task will aim at differentiating between smooth muscles and cardiac muscle. The major difference is in the structure, function and location. Skeletal muscle tissue are attached to bones and is responsible for general body movements. They are cylindrical in shape and have voluntary control of activities. They have regularly spaced traverse bands and thus striated. The cells are syncytial; they are multinucleated since myoblasts fuse to make the adult muscle cell. The muscle cell is long and threadlike. The nuclei is rectangular in shape and is located in the periphery of the cell beneath the cell membrane. All muscle tissue is organized into bundles due to wrappings of individual muscle fibers, group muscle fibers and multiple muscle fibers to form a large muscle mass. On the other hand, the cardiac muscle tissue is found in the heart and is under involuntary control; contraction is not consciously controlled. Cardiac fibers form long chain of cells which branch and intertwine resulting into ‘wringing.’ Cells are cylindrical in shape with a central oval nucleus. The nuclei is rectangular in shape. Though cross striations are visible, they are not as prominent as those of skeletal muscle. The cardiac muscles are branched and are joined together by intercalated disks. Striations run across the cells at right angles. Reference Gerard, J. T. & Sandra, R., G. 2000. Principles of Anatomy and Physiology. New York: John Wiley & Sons, Inc. Alberts B, Johnson A, Lewis J. et al. 2002. Molecular Biology of the Cell. (4th Ed.). Garland. Source document

School as the primary promoter

Developmental assets are the basic life skills and attribute that are critical building blocks for young people’s successful growth and development. They are classified broadly into two: external assets and internal assets. Each further classified into subclasses;External; support, boundaries empowerment and expectationsInternal; constructive use of time, commitment to learning, positive values, social competencies and positive identityThere are modalities in building the above assets and this was divided into 6 ways by the search institute;Everyone can build assets. Building assets requires consistent messages across a community. All adults, youth and children play a role.All young people need assets. While it is crucial to pay attention to those who have the least (economically), nearly all young people need more assets than they have.A relationship is the key. Strong relationships between adults and young people, young people and their peers, and teenagers and children are central to asset building.Asset building is an ongoing process. Building assets starts when a child is born and continues through high school and beyond.Consistent messages are important. Young people need to receive consistent messages about what's important and what's expected from their families, schools, communities, the media and other sources.Intentional redundancy is important. Assets must be continually reinforced across the years and in all areas of a young person's life. (By search institute)The assets that designate school as the primary promoter of are; · Achievement motivation; this is basically done by arousing the child psychology to act toward a desired goal. The motivation is usually achieved by understanding the child and appealing to the mental faculty of the child. These help children to achieve the following;Increase rate of high school completion, more students enrollment in college, student becomes more efficient, have greater expectation of success and achi eve better grades in school, the children have positive perception of their teachers, this also helps the children in knowing how to manage stress and anxiety. The child will also be able to communicate effectively.   All the above can only be achieve if proper technique is used. We should be able to focus on the child developing mind and self esteem which is very important in the child development. · School engagement; a developmental asset that focus mainly on the child’s involvement in the school activities. When a child participate in the school activities both extra-curricular and curricular activities, the child develops a good working relationship with his or her colleague and also with the teachers and it will help the child to develop and achieve the following; the child will want to attend school regularly, he will spend more time on his homework, it will also help the child in learning and use of â€Å"deep† study technique, there’s also greater f eeling of support at school which will affect the child’s ego positively, there’s also less involvement in drug use and less adolescent child bearing. · Homework; helps to achieve higher test scores, greater homework completion and accuracy, improved scientific literacy and fewer conduct problems and less marijuana use. Home work has the same objectives as that of school in general. It s helps by increasing the child's knowlegde and improve the capacity and skills it also help to reinforce what the child has learnt and also help in preparing them for the upcoming complex task.Risk factors that would benefit from strengthening of the assetsØ   Achievement motivation. This developmental asset is very important in building a child’s self esteem. Most human who have inferiority complex tend to lack adequate motivation from childhood. They simply don’t believe in themselves and this will surely affect their productivity.Ø   School engagement. This cant be underestimate when it comes to child’s development because it strongly influence the academic performance of the child and how he or she relates with outsiders. The school can provide activities such as sports, story telling through writing, visual autobiographies, using resources in the community to teach them and teachers can identify their successes which is utmost in boosting their moralsØ   Home-work. The third developmental assets who designate the school as the primary promoter of the child’s development are home works. Home strongly influence the way child learn   by reinforcing what he has learnt before and preventing the child from getting involve in some other activities that could have a negative impact on his life.Developmental assets and my personal philosophyDevelopmental assets are vital keys or tools in child’s development; I strongly believe that it enables parent and child care-givers and teachers to bring out the best in the ch ild so he or she can really make maximum use of his or her potentials.My experience and philosophyWhen I was young my involvement in school activities greatly influenced my life positively. I learnt how write my own stories such as my experience with riding a bicycle. With such experience, I have been able to develop my writing skills.The home works I did then was somehow stressful, because I always want to go and play but I got used to it and know I reinforce all my   classroom works by simply going over it again at home and this gave an edge in all my results.The motivation and teachings I was exposed to earlier in my life, I can manage stress and anxiety easily. So my philosophy in life about education is that â€Å"catch them young† when all is fresh and when all the neural connections are being form to achieve life success.ReferencesSearch institute. (1999). Pass it On! Ready-ta-Use Handouts for Asset Builders. Developmental assets. Retrieved July 10, 2008. From www.se arch-institute.org