Question

1. In the current economic environment, if you were the CEO of a tech firm, would you issue a cash dividend? Discuss and provide a recent example of an actual firm.
2. Discuss the most important aspect of working cpital management in terms of creating value for a firm.
3. Why are Public Offerings so voliatile? Provide real-world examples.

Answer 1

1. In the current economic environment, if you were the CEO of a tech firm, would you issue a cash dividend? Discuss and provide a recent example of an actual firm.

Answer-

Yes, I will issue a cash dividend even in the current economic situation. It is the best offering for the investors and a more concrete and immediate form of gratification.

The real example can be given of Apple.

Apple is now paying out more cash in the form of dividends to its shareholders than any other major publicly traded company in the U.S.

That’s one thing investors can be glad about after the tech giant posted disappointing results for its second quarter. Shares dropped roughly 1% when Apple revealed that revenue for its flagship product, the iPhone, had risen a meager 1% to $33.2 billion—which CEO Tim Cook attributed to consumers holding out for the iPhone that’s rumored to release later this year.

A handful of quarters and dimes may not sound impressive at first, but from a big picture perspective, Apple will be sending its investors $13.2 billion annually—nearly 30% of its earnings over the last four quarters, and nearly enough to match Twitter’s total value by market cap: $14.1 billion. It also means that over the next year, Apple will be paying more back in dividends than any other publicly traded company, beating out oil giant Exxon Mobil for the position.

Before Apple announced earnings, Exxon was king of that hill, paying about $12.8 billion over the next year in dividends after hiking its payout for the 35th year in a row.

The cash flow doesn’t stop there for Apple shareholders. The tech company has also returned an additional $151 billion to shareholders since its fiscal year 2013 in the form of share buybacks—a move that has reduced share count and boosted earnings per share by about 21% in the past four years.

And once again, Apple announced that it would increase its share buyback program, saying it would return $210 billion through March 2019. That implies that on average, Apple will buy back some $31.4 billion worth in shares over the next year.

Famously, Apple’s late CEO Steve Jobs shied away from share buybacks and dividends, with Jobs saying he preferred to hold onto his burgeoning pile of cash for the sake of “security and flexibility.” It was only after Tim Cook took over the company as CEO in 2011—and after investors such as Carl Icahn called for much a “bigger and immediate” buyback program in 2013—that Apple’s dividend and buyback programs ballooned to the current sizes.

Share buybacks are considered best for a company when its shares are undervalued.

Discuss the most important aspect of working cpital management in terms of creating value for a firm. Why are Public Offerings so voliatile? Provide real-world examples.

Answer-

Proper management of working capital is essential to a company’s fundamental financial health and operational success as a business. A hallmark of good business management is the ability to utilize working capital management to maintain a solid balance between growth, profitability and liquidity.

A business uses working capital in its daily operations; working capital is the difference between a business's current assets and current liabilities or debts. Working capital serves as a metric for how efficiently a company is operating and how financially stable it is in the short-term. The working capital ratio, which divides current assets by current liabilities, indicates whether a company has adequate cash flow to cover short-term debts and expenses

Working capital is a daily necessity for businesses, as they require a regular amount of cash to make routine payments, cover unexpected costs, and purchase basic materials used in the production of goods.

Working capital is a prevalent metric for the efficiency, liquidity and overall health of a company. It is a reflection of the results of various company activities, including revenue collection, debt management, inventory management and payments to suppliers. This is because it includes inventory, accounts payable and receivable, cash, portions of debt due within the period of a year and other short-term accounts.

When a company does not have enough working capital to cover its obligations, financial insolvency can result and lead to legal troubles, liquidation of assets and potential bankruptcy. Thus, it is vital to all businesses to have adequate management of working capital.

Working capital management is essentially an accounting strategy with a focus on the maintenance of a sufficient balance between a company’s current assets and liabilities. An effective working capital management system helps businesses not only cover their financial obligations but also boost their earnings and creating a great value for a firm.

Managing working capital means managing inventories, cash, accounts payable and accounts receivable. An efficient working capital management system often uses key performance ratios, such as the working capital ratio, the inventory turnover ratio and the collection ratio, to help identify areas that require focus in order to maintain liquidity and profitability.

The public offerings are often volatile in the primary market because demand is often hard to predict when a security is first issued. That's why a lot of IPOs are set at low prices.

The real world examples can be stated as under.

Burger King

Few companies experience more than one IPO, Burger King has had two — the first in 2006, and the second in 2012, only to be taken private again two years later after it merged with Tom Hortons in a deal worth $18 billion. 3G Capital, which took Burger King Private in 2010, constructed the second IPO along with Pershing Square Capital lead by Bill Ackman, and was also involved with the H.J Heinz acquisition.

Dell Computers

The most famous delisting in recent times was of Dell Computers, whose buyout was completed in October 2013. The company’s CEO, Michael Dell, and Silver Lake Partners took the company private for $24.4 billion. Dell is among the world leaders for manufacturing PC, mobile, tablets and other hardware accessories.