The companies have to lose something when getting the fund as well as the other advantages comes from going public. There are several disadvantages that the companies may suffer. First, being publicly listed in a stock market is not being done in an easy and simple way. For a company to trade its stock in stock market, following the requirements of Securities Exchange Act 1934 as well as other regulations monitored by Securities Exchange Commission (SEC) is compulsory. Primary requirements of Securities Exchange Act 1934 include disclosure of periodic financial report which consists of the revenue, cash flow and assets of a company. Financial disclosure is to protect the investors from being swindled by the company. However, this might threaten the company as the information that disclosed can be benefit to the competitors. Competitors can use the information to gain more profit or plan for a takeover. Furthermore, this can be a bias for new companies as they might do not have complete financial report the required by the statute. Thus, trading in stock market can be more difficult than being privately held. All of information should be discover to the public and shouldn’t remain any secret.
Besides the disadvantages of disclosure, trading in a stock market publicly might cost higher than being privately held for a company. Due to the requirement of Securities Exchange Act 1934 as well as Sarbanes-Oxley Act 2002 (SOX), a company that want to trade in a stock market basically has to spend a lot on financial reporting documents, audit fees, investor relation departments and accounting oversight committees. Moreover, SOX requires listing company to have independent audit committee to avoid fraud like what happened in Enron. These le...
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...estors and clients will become unconfident to company’s financial position which then causes company to face with more losses. Being a listed company, the owner and manager will have to change their decision making trend from benefiting the company to benefiting the investors.
Works Cited
http://www.qwoter.com/college/Trading-Basics/why_do_companies_issue_stock.html
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074401437&type=RESOURCES
http://www.zeromillion.com/financial-services/stocks-trading-advantages-and-disadvantages-by-tim-wreford.html
http://www.onlineforextrading.com/learn-trading/forex-vs-stocks
http://www.sec.gov/about/laws.shtml#secexact1934
http://www.enotes.com/major-acts-congress/securities-exchange-act
http://www.economist.com/node/3984019?story_id=3984019
http://ezinearticles.com/?An-Overview-Of-Sarbanes-Oxley-Act&id=855861
Also, it means that the company has to keep less working capital for its current assets and can manage its cash flow more efficiently.
I recommend a strong buy on Cisco’s stock with a target price of $32.50, a 50% upside from its current price. Cisco has a solid competitive advantage, because there are not many strong competitors in the market. The other firms show a higher P/E ratio than Cisco because they have a lower market share. The company shows a constant growth. Cisco markets its products globally with the highest market shares than its competitors. The main risks for Cisco are worsening of economic conditions or exchange rates. The company has a good growth in sales, which will lead higher profits. The company also gives out an annualized dividend to its shareholders every year.
Impact of decision: They may upset the shareholders so their reputations, credibility, and jobs are on the line.
The Securities and Exchange Commission requires that publicly owned businesses provide annual reports, which are available to the public. Many different people use annual reports, to make informed business decisions. Management from the company uses the information to determine a number of items. Some of these items are the profitability of the company, the inventory turnover rate, and the accounts receivables rate. Creditors use the annual report to determine how well a company can satisfy its current liabilities, as well as, how the company is doing in the aspect of long tem survival. Another group of people who use the annual reports furnished by companies are the investors, who can purchase shares of stock from the publicly company. Annual reports are very important to these people, because they are an over all picture to help them determine the over all stability and reliability of the company’s financial outlook. These annual reports are important because they do not only contain the financial statements of the company, but there is a management ‘s note to discuss reasons for any unexpected numbers, and an auditor’s report, from an independent accounting firm, who either agrees or disagrees with the financial numbers. Market reporter Matt Krant said, “Ignoring these reports is akin to driving down the freeway blindfolded.”
But since the latter part of the 1960’s, stricter enforcement of insider trading practices has been put into place because of financial scandals. The first to be discussed is a concrete definition of “insider trading” as it is discussed in this essay. According to the “European Communities 1989 Insider Dealing Directive”, insider trading is the dealing on the basis of materials, unpublished, price-sensitive information possessed as a result of one’s employment. (Insider Trading)” Ivan Boesky pleaded guilty to the biggest insider-trading scheme discovered by the United States Securities and Exchange Commission (SEC). He made $200 million by profiting from stock-price volatility in corporate mergers.
If they company thinks that the earning will fall, stocks will decrease; deterring from investors losing money these types of
Schofield (2014) researches the difference between public and private company financial reporting. For instance, a private company has fewer consumers reviewing their financial statements, whereas public companies could have multiple consumers reviewing financial statements. In addition, private companies typically have less specialized accounting personnel, whereas public companies will have several. Lastly, Schofield (2014), reviewed the number of amendments proposed and finalized to help benefit private companies financial reporting.
This is a publicly traded company in the US that has been ding quite well in the recent years. The company’s 10k filing for the year 2014. From this statement, the risks facing the company will be identified classified and suggestions made on how best to mitigate them in the subsequent areas. There are various areas that the risks can arise based on the company’s 10k filling (Mertz, 1999).
Things don’t always work as they should on Wall Street. However, financial markets send signals about the future of the economy. Markets can move in advance of what is known to the general public. In a broad view, markets seemingly anticipate political events. In other times, the markets will anticipate economic events long before the investing public understands what’s going on in the general economy. The market is also good at discounting a transformational event. When the market more than anticipates all future revenues and all the future profits that would accrue to the new phenomena, a bubble or mania develops. The most interesting part of the mania is the repetitive nature of the phenomenon
Mergers and acquisitions immediately impact organizations with changes in ownership, in ideology, and eventually, in practice. There are multiple reasons, motives, economic forces and institutional factors that can, taken together or in isolation, influence corporate decisions to engage in mergers or acquisitions. The financial risks of merging with or acquiring an organization in another country and how those risks can be mitigated are important issues for corporations to conduct research on. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions.
Managers are encouraged to act more in the interest of shareholders and the amount of leverage in the capital structure affects firm profitability (Ebaid, 2009).
Financial distress is often expressed as the force that drives most of the corporate decisions. However, many researches argue that there is weak comprehension of the duties of and connections between corporate illiquidity and insolvency; the most important two causes of financial distress.
For an organisation to rise fund, they usually tend to look at the stock market and capital market to do it so. This is two markets are usually seemed similar by the investors as they both contributes to the development of an economy. But there are significant difference between them. The capital market is a market that consist of stock market as well as the bond market. As a result, the capital market provides a long-standing finance using the debt capital and the equity capital. Capital markets divided into two sectors known as primary markets and secondary markets. The primary market is where securities are issued for the first time whereas the secondary market is where securities that have been already issued are traded among investors (Difference...
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
The rapid development of media and technology in the world market today has helped companies to sell their products and get in touch with their customers more easily (Rayburn, 2012). However the success of a company depends on many factors, not that only whether it has brilliant advertisement or marketing campaigns. The main aim of a company is to create shareholder’s value which according to Bender and Ward (2008), companies have to manage both well in a trading environment and financial environment in order to do that. Hence, the financial strategy can be seen as one of the most important factors in contributing to the business’s success especially to a large company such as Unilever as it is all about strategic decisions related to raising and manage the funds in the most appropriate manner.