...the financial performance of FedEx Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance of the overnight express package industry. • This case is intended for use in an introductory discussion of corporate value creation and its sources. It requires no numerical computations; rather, the tasks are to interpret the results and to reflect upon their implications. The contrasting record of the two firms affords a platform to: • Assess economic profit analysis (also known as Economic Value Added) and, more generally, the measurement of financial performance and health. The case provides a complete historical economic profit analysis for both firms, and permits comparison with other classic approaches to historical performance analysis. This comparison affords the opportunity to discuss the attributes of healthy and successful companies, and to explore the strengths and weaknesses of economic profit. Key learning points about economic profit include its dependence on the conventions of generally accepted accounting principles (GAAP) and its ignorance of strategic option value. • Evaluate the financial implications of rigorous competition and corporate transformation. Questions 1. What are the enabling and inhibiting factors facing the two firms as they pursue their goals? Do you think that either firm can attain a sustainable competitive advantage in this business? 2. Why did FedEx’s stock price outstrip...
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...EQUITY DIVERSIFIED MUTUAL FUNDS V/s DIRECT EQUITY: A comparative study Submitted in Partial Fulfillment for the Degree of Bachelor of Business Studies By Akshat Jain (Roll No. – 08/BBS/7160 Batch: 2008-2011 ) To DEEN DAYAL UPADHYAYA COLLEGE University of Delhi Shivaji Marg, Karampura New Delhi-110015 | | | ACKNOWLEDGEMENT Encouragement motivates a person towards one’s aim while guidance helps one to achieve it. Both encouragement and guidance take one towards success in one’s works. It would be difficult and almost impossible to achieve excellence without the blessings of God above and of elders. I convey my heartfelt affection and accord my deep sense of gratitude to Dr. Deepa Kamra, Faculty Guide for inspiring guidance, constructive criticism, unlimited interest and innovative ideas throughout the pursue of this manuscript. Akshat Jain DECLARATION I Akshat Jain have completed the Summer Training Project titled “EQUITY DIVERSIFIED MUTUAL FUNDS V/S DIRECT EQUITY” under the guidance of Dr. Deepa Kamra in the partial fulfillment of the requirement for the award of degree of Bachelor of Business Studies from Deen Dayal Upadhyaya College, Delhi University. This is an original piece of work & I have neither copied and nor submitted it earlier elsewhere. Akshat Jain Certificate from Internal Guide ...
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...new management approaches for improving organizational performance: total quality management, flat organizations, empowerment, continuous improvement, reengineering, kaizen, team building, and so on. Many have succeeded – but quite a few have failed. Often the cause of failure was performance targets that were unclear or not properly aligned with the ultimate goal of creating value. Value-based management (VBM) tackles this problem head on. It provides a precise and unambiguous metric – value – upon which an entire organization can be built. The thinking behind VBM is simple. The value of a company is determined by its discounted future cash flows. Value is created only when companies invest capital at returns that exceed the cost of that capital. VBM extends these concepts by focusing on how companies use them to make both major strategic and everyday operating decisions. Properly executed, it is an approach to Management that aligns a company’s overall aspirations, analytical techniques, and management processes to focus management decision making on the key drivers of value. It’s very different from 1960s-style planning systems. It is not a staff-driven exercise. It focuses on better decision making at all levels in an organization. It recognizes that top-down command-and-control structures cannot work well, especially in large multi-business corporations. Instead, it calls on managers to use value-based performance metrics for making better decisions. It entails managing...
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...to various sources of risk, it allows investors to hedge particular sources of risk more efficiently. 2. Securitization requires access to a large number of potential investors. To attract these investors, the capital market needs: 1. a safe system of business laws and low probability of confiscatory taxation/regulation; 2. a well-developed investment banking industry; 3. a well-developed system of brokerage and financial transactions, and; 4. well-developed media, particularly financial reporting. These characteristics are found in (indeed make for) a well-developed financial market. 3. Securitization leads to disintermediation; that is, securitization provides a means for market participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from their own portfolios. As securitization progresses, financial intermediaries must increase other activities such as providing short-term liquidity to consumers and small business, and financial services. 4. Financial assets make it easy for large firms to raise the capital needed to finance their investments in real assets. If Ford, for example, could not issue stocks or bonds to the general public, it would have a far more difficult time raising capital. Contraction of the supply of financial assets would make financing more...
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...CERTIFICATE EXAMINATION IN INVESTMENT-LINKED LIFE INSURANCE PREFACE This course contains the study materials for the Certificate Examination in InvestmentLinked Life Insurance. The book may look ominously thick but please bear in mind that the market out there, both, the product producers and clients market has undergone tremendous changes in the last 15 years. The sudden deluge of information found here as compared to the earlier version is to provide a slightly higher level of understanding amongst agents, so that they can be better prepared when facing a client. The objective of this course is to provide basic fundamental knowledge of how investment-linked life insurance works and how to market it to the public. This course also introduces the agent to the world of Investment-Li n k e d L i f e Insurance sales and it is also hoped that the agents will not stop with this course but empower themselves with higher qualifications in the coming future. The Chapters in this course are designed in such a way, that a new person will get a clear picture of what Investment-Linked Life Insurance is all about and also sets a template for them to follow to a higher level in the future. It is hoped that the agents will utilise this course effectively and carry out their sales activities with stronger conviction and heightened confidence. CERTIFICATE EXAMINATION IN INVESTMENT-LINKED LIFE INSURANCE CEILLI CERTIFICATE EXAMINATION IN INVESTMENT-LINKED LIFE INSURANCE 1st Edition 1998...
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...1. Consider Dunlap’s statement on page 3 of the case: “Stakeholders! Every time I hear the word, I ask how much did they pay for their stake? There is only one constituency I am concerned about and that is the shareholder primacy? Do you agree or disagree with Dunlap’s view of shareholder primacy? Explain Generally most reasonable people in a market driven economy would agree that companies are in business to generate economic profitability. Also many people would agree that companies and organizations have certain social responsibilities to the communities in which they make their profit. I believe that profitability and social responsibility can and should be combined in an ideal world. Dunlap’s perspective clearly advocates the point of view the shareholder and he prides himself as being the “shareholder’s savior”. Dunlap’s believes profitability over responsibility and sees stakeholders as merely tools for its owners, the shareholder. He believes the organizational accomplishments are measured by share price, dividends and economic profit not by goodwill or how many friends are made. Stakeholders such as suppliers, government, creditors and employees are the means to maximizing shareholders wealth. I think the rise to prominence of stakeholders has allowed firms to realize that there are people and infrastructure beyond the company which are necessary to it and who must have their interests protected. Dunlap is convinced that society and the stakeholders are best served...
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...1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets? The institutions and their roles are as below: * Venture capitalists: VC’s provide capital to high potential, high risk companies in their early stages of development. In return they seek to provide very high rate of return to their investors for the associated risk. VC’s screen for good business ideas and management teams from the bad ones. They then work closely with these management teams, monitoring and guiding them, so that the business idea is transformed into a well-managed fully functional company that can stand on its own. These companies then enter the public capital markets through an IPO providing an exit option to the VC. * Investment bank underwriters: Underwriters administer the public issuance and distribution of securities of an issuing entity. They work closely with the issuing entity and provide advisory service, price offering of the security, underwrite the shares and introduce the issuing entity to investors via road shows. * Sell-side analysts: They follow a list of companies, all usually in the same sector, and provide regular research reports to the investment bank or brokerage houses clients. These analysts provide buy or sell recommendation on stocks after studying the trends of the industry, reviewing the financial statements of the company and interacting with the management of the company...
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...Chapter 01 Investments: Background and Issues 1. Equity is a lower priority claim and represents an ownership share in a corporation, whereas debt has a higher priority claim, but does not have an ownership interest. Debt also pays a specified cash flow over a specific period and the claim will eventually expire. Equity has an indefinite life. 2. A derivative asset provides a payoff that depends on the values of a primary asset. The primary asset has a claim on the real assets of a firm, whereas a derivative asset does not. 3. Asset allocation is the allocation of an investment portfolio across broad asset classes. Security selection is the choice of specific securities within each asset class. 4. Agency problems are conflicts of interest between managers and stockholders. They are addressed through the corporate governance process via audits, compensation structures and board elections. 5. Real assets are assets used to produce goods and services. Financial assets are claims on real assets or the income generated by them. 6. Investment bankers are firms specializing in the sale of new securities to the public, typically by underwriting the issue. Commercial banking processes the financial transactions of businesses such as checks, wire transfers and savings account management. 7. a. The factory is a real asset that is created. The loan is a financial asset that is created by the transaction. b. When...
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...FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS By Evanti Firstadea (105020307121003) Rosyida Mardyana (105020307121011) University of Brawijaya Economics and Business Faculty Accounting Major FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS INTRODUCTION The primary objective of for-profit organizations is to maximize shareholder (or owner) value, or firm value for short. Thus, the results-control ideal would be to reward each individual employee for doing what s/he does to increase firm value. However, because direct measurements of the individuals’ contributions to value creation are rarely possible, firms have to look for measurement and control alternatives. A commonly cited management axiom is: what you measure is what you get. This axiom works in practice because performance measures are linked to any of a number of incentives that employees value. Employees respond to these incentives. The measures, then, play valuable motivational, or decision influencing, roles. But what performance measure (or measures) should be used? At managerial levels of organizations, both at the corporate and entity levels, job responsibilities are both broad and varied. In common jargon, managers are said to be multitasking. Reflecting that task variety, the list of measures used in practice to motivate and evaluate managers’ performances is long. However, these measures can be classified into three broad categories. Two of these categories include summary, single-number,...
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...Is stock option backdating ethically defensible? Background Stock options are widely used to supplement the amount of non-performance-based cash compensation for executives and CEOs. Furthermore, Bishara & Schipani state that stock options, “have long been touted as a way to align the interests of the executive with the shareholder…”(2008, p. 13) and thus provide, “greater incentives for executives to improve firm performance.” (Raiborn et al. 2007, p.1) However, due to the transactional nature of options that they can be cashed in there exists motivation for executives or firms to manipulate the price so as to receive the greatest gain. Prior to 2002, a company was not required to, “report the issuance of stock options until after the close of the fiscal year.” (Raiborn et al. 2007 p.3 ) As such many firms decided to retroactively increase the value of their share options, particularly executives options. However, by 2002, the time the control measure, Section 403 of the Sarbanes-Oxley act, was passed, 1 out of every 5 companies were suspected to still utilise the practice. Widespread backdating caused a media stir in 2006, with prominent companies such as Comverse and UnitedHealth being indicted. This caused a ripple through the business community as other organisation came under investigation. In 2006, 173 companies were purported to have retroactively altered the stock options of prominent members of their organisations. Retroactively dating options is defined as...
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...Averages Committee. — Components are added and deleted on an as-needed basis. For the sake of continuity, such changes are rare, and typically occur following corporate acquisitions or other significant changes in a component company's core business. When one component is replaced, all of them are reviewed. — While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the index is also a consideration in the selection process. — The index is price weighted. — The Dow Jones Industrial AverageTM was first calculated on May 26, 1896. Descriptive Statistics Market Capitalization (Billions) ComponentCurrency Number | Float-Full Adjusted Mean Median Largest Smallest | USD 30 | 5,016.6 4,769.7 159.0 137.8 412.4 34.2 | Data calculated as of end of October, 2014. Mean, median, largest component and smallest component values are based on float-adjusted market capitalization. Performance Total Return (%) Annualized Total Return (%) Currency | 1-Month 3-Month YTD 2013 | 1-Year 3-Year 5-Year 10-Year | USD | 2.16 5.59 ...
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...Define variable pay and identify three elements of successful pay-for-performance plans. Discuss three types of individual incentives. Explain three ways that sales employees are typically compensated. Identify key concerns that must be addressed when designing group/team variable pay plans. Discuss why profit sharing and employee stock ownership are common organizational incentive plans. Identify the components of executive compensation and discuss criticisms of executive compensation levels. Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 11–2 Variable Pay: Incentives for Performance • Variable Pay Compensation linked to individual, group/team, and/or organizational performance. • Basic assumptions: Some jobs contribute more to organizational success than others. Some people perform better and are more productive than others. Employees who perform better should receive more compensation. Some of employees’ total compensation should be tied directly to performance. Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 11–3 Developing Successful Pay-for-Performance Plans • Reasons for Adopting Pay or Incentive Plans: Link more directly strategic business goals and employee performance. Enhance organizational results and reward employees financially for their contributions. Reward employees to recognize different levels of employee performance. Achieve HR objectives, such as increasing retention, reducing turnover...
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...disk drive operating assets due to unfavorable public market investor preferences. Furthermore, the value of the Veritas share price has caused the Veritas stake to far outweigh the value of Seagate’s stand-alone market capitalization. Since Seagate does not own at least 80% of the voting stock in Veritas, distributing the wealth intrinsic in that stake to Seagate shareholders would prove difficult due to the hefty corporate tax rate of 34% that would erode its full-value. From a sum of the parts perspective, it seems that since the Veritas shares held by Seagate appreciated by more than 200%, while Seagate’s shares only increased by 25%, the market assigned relatively no value to Seagate’s market leading position in the disk drive business. This lack of market recognition for the true value of Seagate’s assets forced management to seek action. The management believed that the value of Seagate should be attributed to the value of its operating assets. Since the market was attributing such a high value to its Veritas stake, the market made it appear that Seagate was an investment holding company, rather than being in the disk drives business. There also seemed to be a “value-gap” in the sense that the Veritas stake is attached to business risk in the software sector while the core operating assets of Seagate have business risk in the disk drives segment of the hardware manufacturing sector. Since the value of Seagate’s stock seemed to come completely from Veritas, it could no longer...
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...INTERNATIONAL SECURITIES EXCHANGE, LLC 60 Broad Street New York, New York 10004 NASDAQ OMX BX, INC. 101 Arch Street Boston, Massachusetts 02110 NASDAQ OMX PHLX, INC. 1900 Market Street Philadelphia, Pennsylvania 19103 NASDAQ STOCK MARKET, LLC One Liberty Plaza 165 Broadway New York, New York 10006 NYSE AMEX LLC 11 Wall Street New York, New York 10005 NYSE ARCA, INC. 100 South Wacker Drive Chicago, Illinois 60606 1994 American Stock Exchange, LLC, Chicago Board Options Exchange, Incorporated, New York Stock Exchange, Inc., NYSE Arca, Inc. and Philadelphia Stock Exchange, Inc. CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS TABLE OF CONTENTS Page CHAPTER I—INTRODUCTION . . . . . . . . . . . . . . 1 CHAPTER II—OPTIONS NOMENCLATURE . . . . . . 5 CHAPTER III—OPTIONS ON EQUITY SECURITIES 18 Features of Stock Options . . . . . . . . . . . . . . . . . 18 CHAPTER IV—INDEX OPTIONS . . . . . . . . . . . . . 23 About Indexes . . . . . . . . . . . . . . . . . . . . . . . . 23 Features of Index Options . . . . . . . . . . . . . . . . . 26 CHAPTER V—DEBT OPTIONS . . . . . . . . . . . . . . 29 Rates, Yields and Prices of Debt Securities . . . . . . . 29 Treasury Securities . . . . . . . . . . . . . . . . . . . . . . 31 Yield-Based Options . . . . . . . . . . . . . . . . . . . . . 32 CHAPTER VI—FOREIGN CURRENCY OPTIONS . . 35 Market for Foreign Currencies . . . . . . . . . . . . . . . 36 Special Characteristics of Foreign Currency Options . 37 ......... ......... ......... ......... CHAPTER VII—FLEXIBLY...
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... FIN 550 Week 1-11 Discussion Questions Solved Week 1 DQ 1 "Investment Performance" Please respond to the following: • From the e-Activity, predict the performance of the DOW for the next two years. Provide support for your prediction. • Given your predictions, recommend whether or not a risk-adverse person should invest in the DOW index fund. Explain your rationale. Week 1 DQ 2 "Investment Decisions" Please respond to the following: • Analyze the factors that influence investment decisions at different stages in an investor’s life cycle, and make a recommendation at which stage the average investor should consider financial investments. Provide support for your recommendation. • Assess how cultural differences in foreign countries impact investor asset allocations. Week 2 DQ 1 "Globalization" Please respond to the following: • From the e-Activity, analyze how national exchanges around the world are linked and suggest which exchange most significantly impacts the U.S. markets. Explain your rationale. • Assess the factor(s) contributing to the global consolidation of stock, bonds, and derivative exchange. Predict the impact to these exchanges in the future. Week 2 DQ 2 "Efficient Markets" Please respond to the following: • Analyze the most significant driver in an efficient market and whether or not you would characterize the U.S. markets as efficient. Provide support for your position. • Discuss how behavioral finance...
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