Finance- Sophie Wilson

Big companies can find themselves with large amounts of cash sat on their balance sheets. Especially post- financial crisis, when companies were keeping as much money as possible on their balance sheets as a safety net in the uncertain times. But this money cannot stay sat there forever, it needs to go somewhere, so where is the best place to put this excess cash? Are mergers and acquisitions in the interest of the shareholder and do they maximise/ generate shareholder wealth? One person that doesn’t think M&A’s are in the best interest of his company is Warren Buffett. He prefers to plough Berkshire Hathaway’s cash back into its own shares, rather than ‘over-priced M&A’s’. Berkshire Hathaway rarely participates in M&A’s, its last one being in 2016, as Warren Buffett thinks that attractive deals are hard to come by. I can see that this must be working for the company, as putting the money back into their own shares is doing well; they have added billions to their equi...

The 2010 film Company Men, shows us the effects of the financial crisis on some high-up, corporate managers/ directors. It demonstrates just how real the results of the financial crisis were and the big cuts that had to be made- as it shows these managers being made redundant. The company in the film, GTX, is a ship building company and they are having to close shipyards down, fire a lot of staff and are losing big accounts such as Royal Caribbean; all due to the financial crisis. One line near the beginning of the film is “we work for the stockholders now”. I think it’s interesting that the company knows the shareholders are in control of them; they need to keep the shareholders happy, especially during in this volatile time or their share price will drop, and they’ll be in even more trouble than they already are. The problem is, shareholders and company executives often have conflicted interests. Company executives are often more interested in what they are getting for ...

Are dividends irrelevant ? It’s hard to believe so after AA’s shares dropped by almost 30 percent following the news of dividend slashes and lower expected profits; due to investing in new technology. AA want to invest in technology which would essentially help them to spot breakdowns before they happen through vehicle monitoring systems. Seems like a good idea… however, to be able to invest in this new technology, AA are having to upset some shareholders by cutting dividends. There are conflicting views on this kind of situation, about which direction AA should go in. Modigliani and Miller on one hand would be all for investing in the new project; they believe if there are any projects that would generate a company a positive NPV they should do it and that dividends should only be issued if there is left over money from the projects. I agree with aspects of this theory: companies should look to the future and think about making themselves more money in the long run, however,...

A debate that has been going on for quite some time- since 1958 to be exact. Before Modigliani and Miller’s initial theory 60 years ago, there had been no real theory about capital structure. Should companies use debt finance or equity to raise cash? Netflix has recently realised that their cash needs for the current year need to reach $3-$4 billion. To raise this they have planned to tap debt markets over equity saying that high-yield bonds are cheaper than selling shares. Is this correct and is there theory to support this? Netflix cannot afford to make mistakes after a pretty big miss on subscriber growth predictions for the second-quarter; with only 5 million people joining in contrast to the forecast 6 million. The high-yield bonds- that are cheaper than selling shares- that Netflix are referring to are also known as Junk Bonds. Junk bonds have a credit rating of BB or lower by Standard & Poor’s, one of the credit reference agencies (also includes Moody’s and F...

It was said that there are only three certain things in life: death, taxes and BP dividends. This was said of course before BP’s disaster in April of 2010- the Deep Water Horizon oil spill off the Gulf of Mexico. An oil spill which took around 100 days to stop. The biggest oil spill in US history that harmed/ killed thousands of animals. How sure are you of your BP dividends now? BP have equity capital, they have ordinary shares and ordinary shareholders. At this time this was an advantage for them because share issues do not have to be repaid; BP had no obligation to pay out dividends to the people invested in their company. It was said that one of the reasons for the oil spill was that BP were paying too much attention to only their shareholders and not concentrating enough on all other stakeholders; e.g. stakeholders involved with the safety of their oil rigs. With this in mind I can see how painful it must have been for BP to make a decision that would upset shareholders:...