Question

Investment analysts at a leading investment bank reported in October 2002 that the revenues of Reuters had slumped in the third quarter of its financial year, that recovery was still some way off and that the company would be reporting poor third quarter results in the following week. The company had already launched a restructuring plan, involving a large cut in the workforce to restore profit margins on sales of its information terminals.

(Reported New York Times, November 2002)

Required:

Discuss and explain how do you think the analysts' report might affect the relationship between the company and its investors?

Answer 1

Question: The effect of Analyst report between the company and its investor

Solution:

Facts of the case: A report Issued by Investment bank on October 2002 that the revenues of Reuters had slumped in the third quarter of its financial year, that recovery was still some way off and that the company would be reporting poor third quarter results in the following week. The company had already launched a restructuring plan, involving a large cut in the workforce to restore profit margins on sales of its information terminals.

General view that affect Investors:

Investor will compare the margins against industry standards and their other available investment opportunities. Higher margins generally lead to a better return for investors.

If you have low margins, you'll need to demonstrate a plan for improving them. For early-stage businesses, demonstrating how economies of scale will reduce costs as you grow. This information may get the Investor to get convinced for their investments.

General view that affect company:

The investors may redeem /sold their investments and the net worth of the company will get reduced, this will impact in declined in the share price of the company .Here, the company launched a plan of restructuring of profit to large cut in the workforce to restore / improve the margins over the long-term. Hence the company has to attain the set goals to attain the plan to retain the growth of the company in future.

Conclusion:

The Company may disclose such information in a report about the restricting plan to restore the profit, where the investor may get to know the factual of the company to decide their investment opportunities, due to this disclosure the company may not get impact on the value of the shares.