Research Articles Base: Financial Ratio

Sample Business Research Strategy Study on the use of Special Purpose Entities as Enron’s Financial Tool in the market

Abstract   The report intends to provide information and possible indications on the courses of actions that Enron took. As indicated, for a regular company specific accounting elements that Enron possessed may reflect negatively on the price of its shares in the Market. However, the reputation of Enron overshadowed these factors. The financial engineering inherent in the financial structure of Enron paved a path that will inevitably lead the company to ruins. The use of special purpose entities (SPEs) were among the company’s foremost financial tool in the market. Seen as a stable and law-abiding company prior to the collapse, Enron did comply with the necessary disclosure measures. The accounting firm tasked to monitor the financial disclosure in Enron was Arthur Andersen. In the context of capital market research, the efficiency of the markets is taken into consideration. Another issue that has affected the capital market research is reflected by the financial reporting of the companies, specifically the internal control of the organization. The structure of the board has considerably been instrumental in the provision of information and asymmetry of information in the market. In the case of Enron, information asymmetry indeed existed. As indicated in the earlier parts of the report, the employment of SPEs and other financial engineering is part of the grand plan of Enron to present a stable position in the market.        TOC \o “1-3″ \h \z \u I.      Introduction.. PAGEREF _Toc148435848 \h 3 II.     Shares in the Enron Setting.. PAGEREF _Toc148435849 \h 4 A.     Non-adjustment on the Share Price of Enron.. PAGEREF _Toc148435850 \h 4 1.      Complex financial structure. PAGEREF _Toc148435851 \h 4 2.      Off-balance sheet entities. PAGEREF _Toc148435852 \h 6 3.      Lack of disclosure. PAGEREF _Toc148435853 \h 7 4.      Lack of credibility of Andersen’s certification. PAGEREF _Toc148435854 \h 8 B.     Enron and the Market Behavior. PAGEREF _Toc148435855 \h 9 III.        Board Structure of Enron.. PAGEREF _Toc148435856 \h 10 A.     Importance of Information Asymmetry of an Organization.. PAGEREF _Toc148435857 \h 11 B.     Information Asymmetry in Enron.. PAGEREF _Toc148435858 \h 13 IV.        Executive Option Grants.. PAGEREF _Toc148435859 \h 14 A.     Efficiency Perspective. PAGEREF _Toc148435860 \h 14 B.     Opportunistic perspective. PAGEREF _Toc148435861 \h 14 V.     Imperfectly fashioned incentives and the lack of self-restraint: Containment and Resolution   PAGEREF _Toc148435862 \h 14 VI.        Conclusion.. PAGEREF _Toc148435863 \h 14 VII.       References.. PAGEREF _Toc148435864 \h 15     I.       Introduction   The environment of corporate governance has never been the same after the fall of corporate giant Enron in the early parts of the new millennium. Fundamental factors that essentially constitute corporate and organizational operations have been affected significantly on this occurrence. This study intends to provide an analysis on the on the circumstances surrounding the fall of Enron. The discussions on this research is going to be made with reference to theories of accounting and other elements of corporate governance that inevitably involved in the fate of Enron. The report intends to provide information and possible indications on the courses of actions that Enron took. This will provide a representation on how the experiences of Enron and possible outcomes from such actions could be averted in the future. Similarly, this study intends to establish the effectiveness of the existing standards to which corporate governance and accounting are founded. Discussions on the shares, board structure, executive option grants and the general perspectives on the situation on Enron are going to constitute the bulk of the paper. Past and existing literature regarding the situation on Enron and those related to accounting theories will be employed to support the claims that these discussions provide. At the end of the paper, a conclusion will be formulated based on the discussions and arguments made in this paper.            II.    Shares in the Enron Setting   The facts presented in the background of Enron indicate that there are specific situations where the company had taken steps that may have significantly affected the price of its shares. As indicated, for a regular company specific accounting elements that Enron possessed may reflect negatively on the price of its shares in the Market. However, the reputation of Enron overshadowed these factors. This part of the study will take into consideration the reason for the non-adjustment of the share price of Enron and the consequent effects on the market behavior after the fall of the company.     A.   Non-adjustment on the Share Price of Enron   Despite the changes and rather complicated situation in which Enron have taken prior to its collapse, the share price that it had in the market have not been adjusted to suit the weakening position of the company. The following discussions will take into consideration the reason why this may have taken place.     1.     Complex financial structure   The financial engineering inherent in the financial structure of Enron paved a path that will inevitably lead the company to ruins. The structure of Enron is peppered with all sorts of financial arrangement that turned out to devour itself when the company got stuck in a corner. The use of special purpose entities (SPEs) were among the company’s foremost financial tool in the market. Enron have worked with several SPEs before it claimed for bankruptcy in 2001. (Fusaro and Miller, 2002, 34) The engineering involved in the financial structures of the company, through the use of these SPEs in some ways circumvented some common disclosure principles that were necessary. One specific detail in this context is the booking of revenues of Enron before actually selling the products as manifested in their purchase of Blockbuster.   To put is simply, the use of SPEs were the easy way for Enron to maintain the share price of the company. (Fox, 2003, 63) The demands in which traditional and legitimate means to normalize the growth of the shares in the market so as to create capital for the company and to sustain its favorable position in the market may have been overshadowed by the appeal of the SPEs to the corporate managers. To illustrate, reducing the cost of capital may affect specific operations of the company like the expenditures that involved the perks that these corporate managers may have been currently enjoying. In engineering the financial structure of the company like collaborating or creating an SPE, all the top level management requires is the commitment of their circle on the management of earnings acquired or otherwise. This means that the company must, in some way, have the top level employees (board of directors and senior management) to work together such that the approval of such complicated financial structures as that of Enron would be approved.           2.     Off-balance sheet entities   As it is discussed above, the use of SPEs creates an opportunity for the corporation to create financial transactions and its consequent effects without having to worry of it being reflected to the balance sheet and other financial statements of the organization. One reason why companies use SPEs is to securitize the loans they acquire from other entities. (Benston and Hartgraves, 2002, 245) In this manner, the SPEs borrowing of the funds from other entities would not reflect on the balance sheet of the sponsoring entity. Nonetheless, an entry pertaining to the costs of the employment of the SPE would only be present in the financial statements, not the debt and payables acquired through these SPEs. Thus, these entities are able to hide the debt of companies such as Enron. This means that though Enron may in fact took the appropriate measures prescribed by pertinent accounting standards, its use of SPEs has allowed them to circumvent disclosure of the debt. This indicates that the company appears to still maintain its financial position in the market given the fact that investors and other interested buyers of their shares are unaware of the huge amounts of debts they have incurred through the SPEs.     Another thing that these SPEs did for Enron is to allow the said company to hide its poor-performing assets. (Benston and Hartgraves, 2002, 245 Any bad investment may be shifted on the hands of these SPEs to paint an appealing picture of the sponsor company to the general market. In the case of Enron, the transfer of poor-performing equity investments given to a broadband services provider in these SPEs allowed the said company to turn a deaf ear when these investments were subjected to decline caused by sudden changes in the market.     3.     Lack of disclosure   The background of the company indicated that there were lapses in the monitoring of the board of directors. Corporate disclosure is an important instrument of accountability for directors to the shareholders of the organization. According to the work of Baums (2002, 6) the use of corporate disclosure takes on a facilitating function for particular members of the organization: investors, creditors, regulatory agencies, and the general public. The problem on the part of Enron is that they painted this façade of a well-conforming corporation to the stakeholders and the public in general. Only the top level management was aware of the actions taken by the company in employing entities such as SPEs and the like. Theoretically, the board of directors of an organization is employed by the shareholders to take into consideration specific elements of the operations of the organization. (Andjelkovic, Boyle, McNoe, 2002, 1) This means that the shareholders of the organizations have instilled their trust to these individuals to steer their company towards a better position in the industry.  In the case of Enron, the management provided this picture of stability that the shareholders’ initiative to look into the affairs of the company even the financial position has been mitigated. Suspicion on the apparent lack of disclosure has not been seen with malice.   In addition to that, Baums (2002, 11) noted the importance of materiality of the information disclosed. The problem in the case of Enron is that the top management and the board of directors are the ones who decide what to disclose to the public. Seen as a stable and law-abiding company prior to the collapse, Enron did comply with the necessary disclosure measures. However, they failed to provide total disclosure to their shareholders. The use of SPEs helped present a positive image for the company with very negligible doubt that it was doing some underhanded actions to keep their head above water.      4.     Lack of credibility of Andersen’s certification   The accounting firm tasked to monitor the financial disclosure in Enron was Arthur Andersen. According to the facts presented, the credibility of the said accounting firm was compromised due to the inadequate level of control as well as the undermining of the independence of the firm’s function in the company. Apparently, the accounting firm, aside from its conventional commission on helping and assisting the firms like Enron with their finances, it also provided the company with consulting services. The cross-selling of the consulting services placed a greater power on the part of the client in the Enron-Andersen relationship. This undermines the credibility of the accounting firm for the reason that the outcomes of their independence from the client. Andersen, with the offering of the additional services, may present some level of favor towards its client to continue availing the consulting services that the accounting firm offers. The problem in this matter is the fact that the client now holds some sort of leverage to its accounting partner. They possess the capacity to terminate the consulting services of the accounting firm thus posing a loss on the part of Andersen. (Fox, 2003, 158) To some extent, the provision of consulting services from the accounting firm places them in a level similar to a management position in the organizational structure of Enron. Having such a position in the organization could not help but instill in the accountants and auditors of Andersen to appear to have biases in favor of Enron making their certifications dubious.     B.   Enron and the Market Behavior   In the event that strapping corporations such as Enron comes to its knees and eventually met its demise, there are certain aspects of capital market research are left hanging for question. Needless to say this area has been greatly affected by the conducts carried out by Enron. In the context of capital market research, the efficiency of the markets is taken into consideration. The playing field in which Enron operated rested on the supposition that a strong and stable market is capable of maintaining itself provided that proper and appropriate information is provided. In the case of Enron, they have provided information that appeared to be unbiased. In the end, this information was eventually found out to be misleading. There goes the issue on whether the appropriate or what appears to be correct information is enough to predict the actual financial position of a company. In this context, changes on the criteria of what is considered “correct” information may be taken into account. Enron presented that one could make information public and in the same time withholding the data which could reflect a bad image for the financial position of the company.   Another issue that has affected the capital market research is reflected by the financial reporting of the companies, specifically the internal control of the organization. The changes made by the American government to the legislation pertaining to the market provided a considerable discrepancy with the rest of the world. The changes indicated the Chief Executive Officer (CEO) and Chief Financial Officer’s (CFO) obligation to certify the financial statements of the company. A substantial change in this matter is manifested in the requirement of “fairness” as opposed to mere compliance to the accounting principles of the financial statements. A further issue to be resolved in connection to this is the effectiveness of the existing accounting principles used all over the world.      III.   Board Structure of Enron   In the area of corporate governance, the structure of the board has always been considered as among the important indicators of how an organization will fare in the market. A study of Daily and Dalton (1993, 65) indicated that those that compose and make up the directors have a significant effect on the performance of the organization. Moreover, a study of Certo, Daily and Dalton (2001, 33) indicated that the composition of the board also indicate the possible value of the company, especially in instances of IPO. The structure of the board has a significant effect on the overall performance of the corporation. This is especially true in the context of Enron. The structure of the board has considerably been instrumental in the provision of information and asymmetry of information in the market. The discussions below are going to discuss market concepts like information asymmetry in the market and how it affected the conditions surrounding the case of Enron.     A.   Importance of Information Asymmetry of an Organization   Information asymmetry is a concept in economics that signifies a level of lopsidedness in the available information. Specifically, the information that parties involved in a transaction holds considerable power when time of bargaining comes. On a conventional note, the seller frequently has more information about the product than the buyer. Nevertheless, one could not discount the possibility that the buyer could have the necessary amount of information that could be considered higher than the buyer. This characteristic of the information present in the transaction are often used as tools in instances where breaches arise in the agreement.   There are several models of information asymmetry that are present in the existing literature. These models are classified into adverse selection models and moral hazard models. In the former, one party is ignorant of important information as the agreement is taking place. The latter on the other hand depicts an uninformed party that doesn’t have the information about the performance of the transaction and doesn’t have the means to react in instances of breach.   In the context of the stock market, the regulatory bodies provide standards and principles of disclosure such that the playing field is considerably fair, meaning that the information provided by the sellers may sufficiently be used by the buyers to deduce the value of buying a share or a stock. In the context of adverse selection, the individuals who are aware of an encouraging price will commence with the trade if they believe that there is an above-average probability that the odds are in their favor. (Zelinsky, 2004, 114) In the same manner, if they tend to see an irregularity or some indication that the price of the stock is not worth trading, acquisition of a trading advantage is in order.   In the context of moral hazard, it contributes to market failure because of the actions taken by one of the parties in the transaction. (Beddoes, 1999, 16) This is a concept provided to the increased risk of possibly dishonest behavior. In this context, the party who caused the predicament could have the possibly of not suffering the entire penalty or negative consequences provided by the action. In some cases, they actually gain from these actions.          B.    Information Asymmetry in Enron   In the case of Enron, information asymmetry indeed existed. From the structure of the financial backbone of the company, the balance sheet and even to the accounting firms that handled their finances. They played the stock market with such deceit that they mislead investors in buying their stocks. As indicated in the earlier parts of the report, the employment of SPEs and other financial engineering is part of the grand plan of Enron to present a stable position in the market. This reflects the adverse selection models indicated above. Enron have indeed presented the information required of them by the accounting principles and required disclosures as stated by the stock market, however, they did withheld certain information about their SPEs.   In addition, the actions taken by Enron were deliberately dishonest to gain the favor of the shareholders and possible investors. As seen in this manner, the actions done by Enron suffice to equate both adverse selection models and moral hazard models. With the two models manifesting in the actions of Enron, market failure is bound to be their fate as seen in their collapse in 2001.   IV.Executive Option Grants   The use of stocks as an incentive to managers has been one of the innovations on corporate compensations in the recent years. However, the case of Enron generally indicated that the use of these grants as incentives has been considerably been damaging to the corporation. The following segments will be discussing the said issue using both efficiency and opportunistic perspectives of the positive accounting theory.     A.   Efficiency Perspective   In the case of Enron, the use of stock option as an incentive intended to solve the apparent principal-agent dilemma in the corporation. (Hake, 2005, 595) Specifically, the intention was to make the executives of the firm work doubly hard to maximize the value of the investors of the company considering that they are in fact shareholders themselves. It made the decisions made by the top level employees become radically analyzed in such a way that it should border from risk neutral to risk averse behavior.   The problem in the case of Enron is that the stock option offered was outrageously high considering that the company was “apparently” at the top of its game. The executives become leaned towards fraud and became risk-preferring. The company inevitably became a hedge fund. The executives were making decisions as they were gambling despite the rather uncertain nature of the ventures. The sole intention at this point is profit. Given the state of the executive options offered by Enron, a single small increase in the shares of the company will make these executives richer by several percentages. At this point, the human condition known as greed has taken over.        B.   Opportunistic perspective   The provision of the said stock option plans were to be considered in the long term perspective. (Hake, 2005, 595) The growth of the corporation is the basic goal of the provision of stock options. However the case of Enron indicated a sense of short term profit on the part of the executives. This triggered the inevitable spiraling of the company.   An illustration of this long term growth is manifested in the fact that using stock option as an alternative compensation for the executives, it could therefore be used as a tool to improve the financial image of the company. Reductions in the costs and remuneration of these top level management personnel will be reflected in the financial statements of the firm. (Griner, 1996, 134) In the case of Enron, it acquired reductions on taxable income. (Hake, 2005, 600)   V.   Imperfectly fashioned incentives and the lack of self-restraint: Containment and Resolution   Superficially, the reasons and attitudes following the decisions and occasions pointing towards Enron’s collapse seem uncomplicated. With it is individual and shared insatiability born in an environment of corporate conceit. Barely anybody sought to consider the corporation with skepticism. So, for a moment, almost not anyone did. Several continued purchasing shares. For the time being, the corporation made a lot of risk-preferring arrangements, a number of of which were external of the company’s usual asset risk control procedure. The corporation’s lack of transparency in exposure its financial concerns, subsequently by financial restatements revealing billions of misplaced liabilities and shortfalls, egged on its fall.   Consistent with conventional economic analysis, regulation of Enron was redundant for the reason that Enron, similar to other rational actors, would of its own accord act sincerely so as to lessen long-term costs of collecting capital, and its officers would not spoil their budding careers by partaking in financial fraud. Flawed operating choices could trigger a number of Enron’s problems. But it seems that a major part of the culpability for the collapse may possibly be as a result of the ethical atmosphere in the organization, which permitted a chain of ethical mistakes to take place. The accounting and security scam that brought about the Enron scandal originates itself in ethics. Its top-level personnel seem to fail to show any ethical concerns. Notwithstanding Enron’s commitment to ethics and obvious consideration to obedience controls, its perceptible ethical actions seem to have failed its decreed ethical objectives. It is in this manner that this study claims that matters of ethics are matters in which could only be controlled and not solved. Once unethical actions are done, little could be done to rectify it. Thus, containment and could only be done. Credit:ivythesis.typepad.com

Sample Business Research Strategy Study on the use of Special Purpose Entities as Enron’s Financial Tool in the market

Abstract The report intends to provide information and possible indications on the courses of actions that Enron took. As indicated, ...

International Finance

International Finance Assignment   Introduction Every business endeavor or venture is constantly faced with financial management problems to which the owner or manager should be able to attend to in order to take the business to success. Key financial decisions normally confronts the managers in issues and problems that concerns financial investments they usually provide answer to the problems regarding the assets on which the company of firm needs to put money and how a chosen investment should be financed. All the plans of the company will be put to waste if the organization has no effective system of financial control that will monitor the investment that it ventures on. If outputs are expected, there should be immediate application of the advantages that the organization gained. This will provide the black and white transparency which the company can study to serve as guide in the future investment as well as the management plans and strategies that it will employ. As the nature of financial management becomes more and more complex in this information and efficient communication era of international business, finance managers face a wide array of challenges, opportunities and options to enhance the investing and financing activities of the organization as well as to minimize the inherent risks and circumstances of the financial decisions that will be made. The challenge now for the financial mangers is to explore the options and take advantage of the opportunities while taking caution in managing the risks. Financial management was defined by  (1999) as the determination, acquisition, allocation and utilization of financial resources with the aim of achieving a particular goal. It consist of analyzing the financial situations, making financial decisions, setting financial objectives, formulating financial plans and providing a system of effective financial control to ensure the progress of the plans towards the attainment of the company aims and objectives. All these are supervised by the financial manager or treasurer in the process of financial management. “Experiences differ and common usage lack precision” (1988) with regard to risk. Risk involves both hazards and opportunities to people who undertake the risk. People evaluate results based on their evaluation of the situation based as guided by criteria of gains and losses. Furthermore, risk involves trade-offs in which there are some groups who may experience losses in exchange to others goals to profit. The trade-off influences the perception of people about the risk. Oftentimes, the risk issue revolves not on the scientific facts about the risks but the conflict of values and the acceptability of the risk of different groups with conflicting interests. Foreign exchange risk is commonly defined as the additional variability experienced by a multinational corporation in its worldwide consolidated earnings that results from unexpected currency fluctuations.  It is generally understood that this considerable earnings variability can be eliminated partially or fully at a cost the cost of Foreign Exchange Risk (1981). As a consequence of the increasing economic interdependence in the world, international financial markets have become one of the most important external factors for companies. Especially for import-and export-oriented enterprises, foreign exchange, inflation and interest rates as well as their volatility are crucial for success.               Kudelski Group Company Profile For more than 50 years, the Kudelski Group has been the leading technology pioneer in terms of security applications requiring access control and rights management in terms of information exchange in digital television, broadband Internet, and video on demand among others, as well as the control and physical access to sites and events. Company development and growth is highly dependent on technological innovations in providing convenient, high quality and inexpensive access to the services and features of the products they offer through continuous commitment and competence to research Kudelski Group was founded in 1951 in Cheseux-sur-Lausanne where its headquarters are located along with the organizations subsidiaries in USA, Germany, Austria, UK, France, Brazil, Spain, china, Singapore, Italy, the Netherlands, and Sweden employing 40-60% of the total 1,200 personnel abroad.  The company’s stock is listed on the Swiss Market Index since 1986 as well as on the Morgan Stanley Capital Index whose principal stockholders are the members of the Kudelski family with 34% of the capital and 64%voting rights. The major markets of the company are located in USA and in Germany that avail Conditional Access to Systems (CAS) and the Physical Access products while its suppliers are located in Asia and Europe ( 2003).  More than 80% of the company’s revenues and 40-60% of the expenditures are exposed to foreign currency exchange risks which are denominated in different currencies in Europe, North America, Asian, Australia, and Africa as well as in Latin America. The crisis in the Digital TV market in Europe and the unpredicted depreciation of the US dollar resulted to negative impacts to the company in 2002 until the 2nd quarter of 2003 mainly because the company’s business in US and Asia generally use the US dollar currency. In response to these US dollar revenue problems, the Group decided to intensify instead its presence in the European market, thus reducing the dependency on the US dollar at the same time minimized the costs incurred in this particular currency. However, Kudelski did not opt to transfer its costs incurred from major European suppliers since they expected the likelihood of US dollar appreciation. As such, the company has been successful in initiating this financial restructuring strategy without the need to utilize external hedging methods which are expensive (2003). This paper presents the case of Kudelski Group in its objective to incorporate the risks confronting the company into the organizations corporate strategy so as to maneuver the business into attaining its set goals and standards as a member of the international industry in the midst of its foreign exchange risk exposures. The exposure risks being faced by Kudelski Group were enumerated and analyzed to provide a comprehensive understanding of the economic considerations of the company. Recommendations of the company’s exposure and how it will hedge such exposure were likewise presented.    Kudelski Group Exchange Rate Exposures In order to minimize the foreign exchange risks, one has to know what the risks are.  According to (1998) there are different types of risks that have to be distinguished depending on the type of exposure. These include risks in the transaction, economic and translation exposures of the company. Transaction exposure risks originates when cash flows have to be changed into another currency. These risks are easy to identify since they have an immediate influence on profitability and liquidity, thus the management usually devotes a lot of attention to the inherent risks of this particular exchange rate exposure (1998).  Meanwhile, economic exposure risks include all the changes in market share, profit margins, etc. that are caused by exchange rate fluctuations. Often these risks are not visible at first but the consequences are very severe because this exposure measures the change in the present value of the firm resulting from any change in its future cash flows due to unpredicted changes in the foreign exchange rates (1998).  Lastly, translation exposure risks arise when putting together the company’s financial concerns in the balance sheet in the form of profit and loss statement in which all assets and liabilities of the firm which are denominated in foreign currencies of the company have to be translated. Independent of the different methods, the result of the translation will differ from year to year according to changes in the exchange rates ( 1998). Since Kudelski Group is actively operating its business in the international market arena, the organization is normally affected with fluctuations of the currency exchanges, particularly those that were not predicted by the management. As such, the company is exposed to all the enumerated and defined foreign exchange risks. However, the company does not manage all these foreign exposure risks due to defined management policies as well as differing company prioritization. The most significant factor that influences and dictates the company’s hedging considerations is the risk aversion discretion of the Kudelski family being the biggest company stockholder, particularly that of Andre Kudelski who holds 7% of the shares as the founder and the current Chairman of the Board, President and the Chief Executive Officer of the firm. Other factors such as industry success factors like trade volumes, geographical markets, market power, and treasurer’s opinion among others dictates the hedging considerations of multinational business organizations ( 2003).    In the case of Kudelski Group, minute details of the resources of company are monitored for possible lucrative financial endeavors since the company is sensitive with ventures that will promote growth and development of the organization as an international business enterprise. According to the case study conducted by  (2003) which focused on the foreign exchange risk management practices of two medium-sized and non-financial Swiss companies, Kudelski Group prefers short-term (90 days or less) and practices limited foreign exchange risk hedging in order to protect margins. The company hedges 80% of its foreign revenues as influenced by the direct interest of the founder and President of the company. Moreover, the Group manages its transaction and translation foreign exchange exposure risks through a mixed centralized and non-centralized treasury operations in which measured subsidiary exposures are collected for the overall company exchange rate exposure report and conceptualization of management policies. The company considers transaction exposure risks as the most important which is measured every month while translation exposure risks are only measured sometimes. Economic exposure risks are ignored by the firm (2003).   Kudelski Groups’ Theoretical and Practical Exposure Risk Management Considerations The general concept of exchange rate exposure refers to the degree to which the value of a firm or an industry is affected by exchange rate changes.  Exchange rate changes can affect an individual investor who owns a portfolio consisting of securities in different currencies; a multinational company with subsidiaries and braches in foreign locations; an exporter and importer who concentrates on international trade and even a firm that has no direct international activities.  Furthermore, exchange rate changes, through their impact on the costs of inputs, outputs, and substitute goods play a significant role in determining the competitive position of domestic companies with no direct international operations relative to foreign firms ( 2002). Often it is argued that billing in the domestic currency does not involve exchange rate risks. However, this is only partially true because although there is no transaction risk because foreign currency need not be changed, there are still existing market risks (1990). In this light, foreign exchange rates affect every walk of life, not just financial markets although exchange rate movement can be significant for companies engaged in international trade, exposed to revenues and costs in foreign currency, or competing with foreign firms. For Kudeleski Group to emerge successful, the management is sensitive to practical and theoretical issues that the business organization address as influenced by its economic situation in the industry and environment in the structure and management policies of the firm. Taking into account these considerations are deemed helpful in minimizing the exposure risks that the Group faces in its international business operations and transactions. In line with the financial theory, any change in an exchange rate should affect the value of a firm or an industry (1978).  Exposure risk of Kudelski Group is extensive since its business endeavors deal with international business operations as evident in the company’s several subsidiaries all over the world. As such, rate changes in the different currency denominations that fuel the company’s international market activities render the group to possibilities of increased or lowered value of the organization.  However, modern principles of the theory of finance suggest prima facie that the management of corporate foreign exchange exposure may neither be an important nor a legitimate concern. It has been argued, in the tradition of the  Theorem, that the firm cannot improve shareholder value by financial manipulations: specifically, investors themselves can hedge corporate exchange exposure by taking out forward contracts in accordance with their ownership in a firm (1978). Several studies have presented their arguments regarding the relevance of practicing foreign exchange risk exposure management.  (1958) claimed that corporate financing policy is irrelevant, particularly hedging policies withy no transaction costs and taxes since investors can readily change their risky holdings. This was supported by Logue and Sweeney (1977) stating that translation exposures has only accounting benefits and that the currencies’ instantaneous adjustments to inflation leaves no effect on the true economic value of the firm. But  (2003) claimed otherwise by providing explanation on the importance of hedging practices among multinational companies due to business considerations of companies which include taxes, financial distress, manager’s risk aversion, agency costs, investment policy, transaction costs, and signaling managerial skill.  In the case of Kudelski Group transaction exposure risks are hedged by company primarily to protect margins and are considered as the most relevant foreign exchange risk management approach. This is contrary to theoretical claims of financial literatures which claimed that economic exposures (which the Group ignores) should be given primary consideration which affect the current obligations of the firm as well as the company’s future economic value (2001). Although, management claims often does not give translation exposure risks the necessary attention because it is argued that these changes are just book changes and not real changes despite its significant influence to the equity basis and the profit and loss statement concerns of the company (1995), Kudelski’s use of translation exposure risk management is generated by the interest of the Chief executive Officer of the Group as the most influential management entity and at the same time the biggest shareholder of the organization.    Kudelski Group’s Hedging Tools and Techniques Many companies view foreign exchange risk as an important risk, however they differ in organizing and managing (2001; 1998; 1981). According to (1998) one explanation of the crisis in foreign exchange markets is that a large proportion of foreign borrowing by corporate and banks was unhedged because of prevailing expectations of stable exchange rates. When these expectations were disappointed, they scramble to repay these foreign currency loans created a massive market imbalance and a collapse of the foreign exchanges. The foreign exchange risk really creates a big impact to multinational companies due to the impact of a lot variable that really affect the company performance most importantly when guidelines and policy risks are not sensitive or predictive enough. Transaction exposure is the most important foreign exchange risk to the Group measuring it each month for monitoring and control purposes that will best guide the decision-making activities of the company hedging until the maturity of the exposure. Translation exposure is likewise monitored from time to time hedging longer than the maturity of the exposure while economic risk exposure is not all measured. Unlike the number of companies that decide on their hedging strategies according to their own perception of future changes in the exchange rates, Kudelski is generally not concerned with predicting such exposure variables and does not use any forecasting model to guide the financial assets and liabilities of the firm ( 2003).     A central unit that manages the Group’s hedging practices exists although the company’s foreign exchange risk management policy is not centralized utilizing derivatives to monitor and control transaction exposure in the form of options and swaps along with forwards and cash flow matching. Natural hedging techniques are used by the organization in managing transaction exposure primarily because the approach is simple and lacks transaction costs. On the other hand, futures and asset liability management are never used due to accounting problems and complex features. Forward foreign exchange contracts with 3 to 6 months maturity, currency swaps with 3 months maximum maturity, and zero cost option strategies (also with 3 to 6 months maturity) are the hedging tools used to protect foreign currency positions of the company and its subsidiaries. Moreover, income and cost exposure in US dollar and Euro are hedged by the Group using derivatives while options are utilized for predictable changes of currencies ( 2003).                Furthermore, Kudelski Group also uses year-end exchange rates in translating assets, liabilities, and other financial statement dominated in foreign currencies while the average rate of exchange for the year are utilized for the revenues and costs in foreign currencies. Transactions in foreign currencies are converted at the rate of exchange prevailing at the transaction dates while receivables and payables translated at year-end rates ( 2003).   Recommendations In general, exchange rates are volatile and open short or long currency positions can lead to sizeable losses. Capital thus needs to be held to cover such possibilities.  As such any individual or company engaged in overseas business should be aware of the risks of currency fluctuations. Based on the presented case of Kudelski group, the company should employ sensitive means to measure its foreign exchange risk exposure, particularly it economic risk exposure. Evidently, the company does not utilize economic exposure foreign exchange risk management tools thereby neglecting the relevance and accountability of the firm’s future value as well as its obligations to business partners and associates In this competitive and aggressive international business setting, companies should be well aware of all the variables that could enhance organizational success and growth in order to maximize the full potential of the company.  Hedging the economic exposure of the organization will regularly affirm the overall value of the company. Sustaining such hedge will result to more secure assets of the firm in order to attract more transaction from where the company can maximize and take advantage of profits as well as opportunities. As such, economic exposure risk considerations should not be set aside since its careful analysis can provide the Group with essential strategic financial options. The complexity and seemingly irrelevant benefits of managing economic exposure should be overcome by the company’s treasury to explore extensively the financial capabilities and limitations of the firm. This calls for a careful review and restructuring of the company’s governing foreign exchange exposure risk management policies. Since the company ventures on foreign transactions, stability of the currencies that they deal with should be effectively predicted through efficient monitoring of changes in the currency exchange rates of the clients whose financial accounts are not in the same denomination as that of the firm. This could be realized by considering the uses and advantages of forecast models to better understand, efficiently handle and accurately predict the changes in the foreign currency exchange market.  Moreover, the Group as a business organization should effectively gather and digest a large volume of information, including spot and forward exchange rates, currency conversion and funds transfer fees and government regulations regarding allowable transactions and currency controls in order to effectively and securely manage foreign exchange risks. The management should also be continuously aware of the subsidiaries’ balance sheet exposures, as well as cash flows and expected cash transactions to employ decisions that will most benefit the organization. The continuous use of natural hedging and as well as efforts to limit external hedging approaches should be observed in the firm particularly when less expensive alternatives can be implemented to manage the foreign exchange exposure of the company. Since the use of forwards is the most economical internal hedging instrument, Kudelski can take advantage of its simple feature. On the other hand, the use of options should be regulated since it entails large transaction cost that the company will shoulder.      Credit:ivythesis.typepad.com

International Finance

International Finance Assignment Introduction Every business endeavor or venture is constantly faced with financial management proble...

International Finance – Foreign Exchange Risk Exposure Paper

International Finance Assignment   Introduction Every business endeavor or venture is constantly faced with financial management problems to which the owner or manager should be able to attend to in order to take the business to success. Key financial decisions normally confronts the managers in issues and problems that concerns financial investments they usually provide answer to the problems regarding the assets on which the company of firm needs to put money and how a chosen investment should be financed. All the plans of the company will be put to waste if the organisation has no effective system of financial control that will monitor the investment that it ventures on. If outputs are expected, there should be immediate application of the advantages that the organisation gained. This will provide the black and white transparency which the company can study to serve as guide in the future investment as well as the management plans and strategies that it will employ. As the nature of financial management becomes more and more complex in this information and efficient communication era of international business, finance managers face a wide array of challenges, opportunities and options to enhance the investing and financing activities of the organisation as well as to minimise the inherent risks and circumstances of the financial decisions that will be made. The challenge now for the financial mangers is to explore the options and take advantage of the opportunities while taking caution in managing the risks. Financial management was defined by (1999) as the determination, acquisition, allocation and utilisation of financial resources with the aim of achieving a particular goal. It consist of analysing the financial situations, making financial decisions, setting financial objectives, formulating financial plans and providing a system of effective financial control to ensure the progress of the plans towards the attainment of the company aims and objectives. All these are supervised by the financial manager or treasurer in the process of financial management. “Experiences differ and common usage lack precision” (1988) with regard to risk. Risk involves both hazards and opportunities to people who undertake the risk. People evaluate results based on their evaluation of the situation based as guided by criteria of gains and losses. Furthermore, risk involves trade-offs in which there are some groups who may experience losses in exchange to others goals to profit. The trade-off influences the perception of people about the risk. Oftentimes, the risk issue revolves not on the scientific facts about the risks but the conflict of values and the acceptability of the risk of different groups with conflicting interests. Foreign exchange risk is commonly defined as the additional variability experienced by a multinational corporation in its worldwide consolidated earnings that results from unexpected currency fluctuations.  It is generally understood that this considerable earnings variability can be eliminated partially or fully at a cost the cost of Foreign Exchange Risk (1981). As a consequence of the increasing economic interdependence in the world, international financial markets have become one of the most important external factors for companies. Especially for import-and export-oriented enterprises, foreign exchange, inflation and interest rates as well as their volatility are crucial for success.                    Group Company Profile For more than 50 years, the     Group has been the leading technology pioneer in terms of security applications requiring access control and rights management in terms of information exchange in digital television, broadband Internet, and video on demand among others, as well as the control and physical access to sites and events. Company development and growth is highly dependent on technological innovations in providing convenient, high quality and inexpensive access to the services and features of the products they offer through continuous commitment and competence to research ().   Group was founded in 1951 in     where its headquarters are located along with the organisations subsidiaries in USA, Germany, Austria, UK, France, Brazil, Spain, china, Singapore, Italy, the Netherlands, and Sweden employing 40-60% of the total 1,200 personnel abroad.  The company’s stock is listed on the  since 1986 as well as on the         whose principal stockholders are the members of the family with 34% of the capital and 64%voting rights. The major markets of the company are located in USA and in Germany that avail Conditional Access to Systems (CAS) and the Physical Access products while its suppliers are located in Asia and Europe (, 2003).  More than 80% of the company’s revenues and 40-60% of the expenditures are exposed to foreign currency exchange risks which are denominated in different currencies in Europe, North America, Asian, Australia, and Africa as well as in Latin America. The crisis in the Digital TV market in Europe and the unpredicted depreciation of the US dollar resulted to negative impacts to the company in 2002 until the 2nd quarter of 2003 mainly because the company’s business in US and Asia generally use the US dollar currency. In response to these US dollar revenue problems, the Group decided to intensify instead its presence in the European market, thus reducing the dependency on the US dollar at the same time minimised the costs incurred in this particular currency. However,   did not opt to transfer its costs incurred from major European suppliers since they expected the likelihood of US dollar appreciation. As such, the company has been successful in initiating this financial restructuring strategy without the need to utilise external hedging methods which are expensive (, 2003). This paper presents the case of  Group in its objective to incorporate the risks confronting the company into the organisations corporate strategy so as to maneuver the business into attaining its set goals and standards as a member of the international industry in the midst of its foreign exchange risk exposures. The exposure risks being faced by    Group were enumerated and analysed to provide a comprehensive understanding of the economic considerations of the company. Recommendations of the company’s exposure and how it will hedge such exposure were likewise presented.    Group Exchange Rate Exposures In order to minimise the foreign exchange risks, one has to know what the risks are.  According to (1998) there are different types of risks that have to be distinguished depending on the type of exposure. These include risks in the transaction, economic and translation exposures of the company. Transaction exposure risks originates when cash flows have to be changed into another currency. These risks are easy to identify since they have an immediate influence on profitability and liquidity, thus the management usually devotes a lot of attention to the inherent risks of this particular exchange rate exposure (, 1998).  Meanwhile, economic exposure risks include all the changes in market share, profit margins, etc. that are caused by exchange rate fluctuations. Often these risks are not visible at first but the consequences are very severe because this exposure measures the change in the present value of the firm resulting from any change in its future cash flows due to unpredicted changes in the foreign exchange rates (, 1998).  Lastly, translation exposure risks arise when putting together the company’s financial concerns in the balance sheet in the form of profit and loss statement in which all assets and liabilities of the firm which are denominated in foreign currencies of the company have to be translated. Independent of the different methods, the result of the translation will differ from year to year according to changes in the exchange rates (1998). Since   Group is actively operating its business in the international market arena, the organisation is normally affected with fluctuations of the currency exchanges, particularly those that were not predicted by the management. As such, the company is exposed to all the enumerated and defined foreign exchange risks. However, the company does not manage all these foreign exposure risks due to defined management policies as well as differing company prioritization. The most significant factor that influences and dictates the company’s hedging considerations is the risk aversion discretion of the family being the biggest company stockholder, particularly that of Andre    who holds 7% of the shares as the founder and the current Chairman of the Board, President and the Chief Executive Officer of the firm. Other factors such as industry success factors like trade volumes, geographical markets, market power, and treasurer’s opinion among others dictates the hedging considerations of multinational business organisations (, 2003).    In the case of   Group, minute details of the resources of company are monitored for possible lucrative financial endeavors since the company is sensitive with ventures that will promote growth and development of the organisation as an international business enterprise. According to the case study conducted by (2003) which focused on the foreign exchange risk management practices of two medium-sized and non-financial Swiss companies,   Group prefers short-term (90 days or less) and practices limited foreign exchange risk hedging in order to protect margins. The company hedges 80% of its foreign revenues as influenced by the direct interest of the founder and President of the company. Moreover, the Group manages its transaction and translation foreign exchange exposure risks through a mixed centralised and non-centralised treasury operations in which measured subsidiary exposures are collected for the overall company exchange rate exposure report and conceptualisation of management policies. The company considers transaction exposure risks as the most important which is measured every month while translation exposure risks are only measured sometimes. Economic exposure risks are ignored by the firm (, 2003).        Groups’ Theoretical and Practical Exposure Risk Management Considerations The general concept of exchange rate exposure refers to the degree to which the value of a firm or an industry is affected by exchange rate changes.  Exchange rate changes can affect an individual investor who owns a portfolio consisting of securities in different currencies; a multinational company with subsidiaries and braches in foreign locations; an exporter and importer who concentrates on international trade and even a firm that has no direct international activities.  Furthermore, exchange rate changes, through their impact on the costs of inputs, outputs, and substitute goods play a significant role in determining the competitive position of domestic companies with no direct international operations relative to foreign firms (, 2002). Often it is argued that billing in the domestic currency does not involve exchange rate risks. However, this is only partially true because although there is no transaction risk because foreign currency need not be changed, there are still existing market risks (, 1990). In this light, foreign exchange rates affect every walk of life, not just financial markets although exchange rate movement can be significant for companies engaged in international trade, exposed to revenues and costs in foreign currency, or competing with foreign firms. For    Group to emerge successful, the management is sensitive to practical and theoretical issues that the business organisation address as influenced by its economic situation in the industry and environment in the structure and management policies of the firm. Taking into account these considerations are deemed helpful in minimising the exposure risks that the Group faces in its international business operations and transactions. In line with the financial theory, any change in an exchange rate should affect the value of a firm or an industry (1978).  Exposure risk of   Group is extensive since its business endeavors deal with international business operations as evident in the company’s several subsidiaries all over the world. As such, rate changes in the different currency denominations that fuel the company’s international market activities render the group to possibilities of increased or lowered value of the organisation.  However, modern principles of the theory of finance suggest prima facie that the management of corporate foreign exchange exposure may neither be an important nor a legitimate concern. It has been argued, in the tradition of the ,    that the firm cannot improve shareholder value by financial manipulations: specifically, investors themselves can hedge corporate exchange exposure by taking out forward contracts in accordance with their ownership in a firm (, 1978). Several studies have presented their arguments regarding the relevance of practicing foreign exchange risk exposure management. (1958) claimed that corporate financing policy is irrelevant, particularly hedging policies withy no transaction costs and taxes since investors can readily change their risky holdings. This was supported by (1977) stating that translation exposures has only accounting benefits and that the currencies’ instantaneous adjustments to inflation leaves no effect on the true economic value of the firm. But (2003) claimed otherwise by providing explanation on the importance of hedging practices among multinational companies due to business considerations of companies which include taxes, financial distress, manager’s risk aversion, agency costs, investment policy, transaction costs, and signaling managerial skill.  In the case of    Group transaction exposure risks are hedged by company primarily to protect margins and are considered as the most relevant foreign exchange risk management approach. This is contrary to theoretical claims of financial literatures which claimed that economic exposures (which the Group ignores) should be given primary consideration which affect the current obligations of the firm as well as the company’s future economic value (2001). Although, management claims often does not give translation exposure risks the necessary attention because it is argued that these changes are just book changes and not real changes despite its significant influence to the equity basis and the profit and loss statement concerns of the company, 1995),    use of translation exposure risk management is generated by the interest of the Chief executive Officer of the Group as the most influential management entity and at the same time the biggest shareholder of the organisation.        Group’s Hedging Tools and Techniques Many companies view foreign exchange risk as an important risk, however they differ in organizing and managing (, 2001;, 1998; 1981). According to (1998) one explanation of the crisis in foreign exchange markets is that a large proportion of foreign borrowing by corporate and banks was unhedged because of prevailing expectations of stable exchange rates. When these expectations were disappointed, they scramble to repay these foreign currency loans created a massive market imbalance and a collapse of the foreign exchanges. The foreign exchange risk really creates a big impact to multinational companies due to the impact of a lot variable that really affect the company performance most importantly when guidelines and policy risks are not sensitive or predictive enough. Transaction exposure is the most important foreign exchange risk to the Group measuring it each month for monitoring and control purposes that will best guide the decision-making activities of the company hedging until the maturity of the exposure. Translation exposure is likewise monitored from time to time hedging longer than the maturity of the exposure while economic risk exposure is not all measured. Unlike the number of companies that decide on their hedging strategies according to their own perception of future changes in the exchange rates,      is generally not concerned with predicting such exposure variables and does not use any forecasting model to guide the financial assets and liabilities of the firm (, 2003).     A central unit that manages the Group’s hedging practices exists although the company’s foreign exchange risk management policy is not centralised utilising derivatives to monitor and control transaction exposure in the form of options and swaps along with forwards and cash flow matching. Natural hedging techniques are used by the organisation in managing transaction exposure primarily because the approach is simple and lacks transaction costs. On the other hand, futures and asset liability management are never used due to accounting problems and complex features. Forward foreign exchange contracts with 3 to 6 months maturity, currency swaps with 3 months maximum maturity, and zero cost option strategies (also with 3 to 6 months maturity) are the hedging tools used to protect foreign currency positions of the company and its subsidiaries. Moreover, income and cost exposure in US dollar and Euro are hedged by the Group using derivatives while options are utilised for predictable changes of currencies (, 2003).                Furthermore,     Group also uses year-end exchange rates in translating assets, liabilities, and other financial statement dominated in foreign currencies while the average rate of exchange for the year are utilised for the revenues and costs in foreign currencies. Transactions in foreign currencies are converted at the rate of exchange prevailing at the transaction dates while receivables and payables translated at year-end rates (, 2003).   Recommendations In general, exchange rates are volatile and open short or long currency positions can lead to sizeable losses. Capital thus needs to be held to cover such possibilities.  As such any individual or company engaged in overseas business should be aware of the risks of currency fluctuations. Based on the presented case of    group, the company should employ sensitive means to measure its foreign exchange risk exposure, particularly it economic risk exposure. Evidently, the company does not utilise economic exposure foreign exchange risk management tools thereby neglecting the relevance and accountability of the firm’s future value as well as its obligations to business partners and associates In this competitive and aggressive international business setting, companies should be well aware of all the variables that could enhance organisational success and growth in order to maximise the full potential of the company.  Hedging the economic exposure of the organisation will regularly affirm the overall value of the company. Sustaining such hedge will result to more secure assets of the firm in order to attract more transaction from where the company can maximize and take advantage of profits as well as opportunities. As such, economic exposure risk considerations should not be set aside since its careful analysis can provide the Group with essential strategic financial options. The complexity and seemingly irrelevant benefits of managing economic exposure should be overcome by the company’s treasury to explore extensively the financial capabilities and limitations of the firm. This calls for a careful review and restructuring of the company’s governing foreign exchange exposure risk management policies. Since the company ventures on foreign transactions, stability of the currencies that they deal with should be effectively predicted through efficient monitoring of changes in the currency exchange rates of the clients whose financial accounts are not in the same denomination as that of the firm. This could be realized by considering the uses and advantages of forecast models to better understand, efficiently handle and accurately predict the changes in the foreign currency exchange market.  Moreover, the Group as a business organisation should effectively gather and digest a large volume of information, including spot and forward exchange rates, currency conversion and funds transfer fees and government regulations regarding allowable transactions and currency controls in order to effectively and securely manage foreign exchange risks. The management should also be continuously aware of the subsidiaries’ balance sheet exposures, as well as cash flows and expected cash transactions to employ decisions that will most benefit the organisation. The continuous use of natural hedging and as well as efforts to limit external hedging approaches should be observed in the firm particularly when less expensive alternatives can be implemented to manage the foreign exchange exposure of the company. Since the use of forwards is the most economical internal hedging instrument,    can take advantage of its simple feature. On the other hand, the use of options should be regulated since it entails large transaction cost that the company will shoulder.      References:   Credit:ivythesis.typepad.com

International Finance – Foreign Exchange Risk Exposure Paper

International Finance Assignment Introduction Every business endeavor or venture is constantly faced with financial management proble...

HEXWORTHY FINANCIAL RATIO: ESSAY INSTRUCTIONS

You are a financial analyst working for a stockbroking firm. You are required to write a report on the overall performance and prospects of a listed company. Extracts of the companyâ€™s 2005 Annual Report are attached. Your report should deal with the companyâ€™s overall performance in 2006 but should concentrate on the following: profitability working capital utilisation liquidity gearing and capital structure stock market indicators The report should not exceed 1,500 words (excluding appendices) and I mean that. You are to attach a disc or CD to the hard copy of your project. Give the number of words in the text at the foot of page 1. Severe penalties will result from excessive length. Ratios and their calculation should appear in the appendix. You should use a spreadsheet for the computation of ratios and the production of tables of results and charts. The mark awarded will depend upon the quality of analysis and the presentation of your report not merely the calculation of ratios. You are reminded that this report must be entirely your own work. The Universityâ€™s regulations on plagiarism must be read by you and followed. Your report must: be wordprocessed, be double-spaced, state the wordcount and the name of your tutor at the foot of page 1 be stapled at the top left corner to a WBS form CA1 be submitted at the Marylebone Road Assessment Office by Monday 27 November 2006 not be submitted in any kind of folder, binder or anything else include a bibliography attach the file(s) on a disc or CD keep a copy of the coursework files on a disc in your own possession Deadline: Your report must be posted in at the            no later than Monday 27 November 2006. Please ensure you attach to your report, by staple, a completed form CA1 detailing your own name and that of your Accounting seminar tutor and your University Registration Number. These details, together with the wordcount must appear on the reportâ€™s title page. You are to attach a disc or CD with your name and the file name(s) written on the front label. Hexworthy plc Annual report and financial statements (extract) 2006 Background Information Hexworthy is a long established company in the general retailing sector. They obtained a listing on the London Stock Exchange in April 2005. Statement of Directorâ€™s Responsibilities Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year, and of the profit or loss for that period. In preparing those financial statements, the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; â€¢ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the accounting provisions of the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent and detect fraud and other irregularities. Corporate governance Sound governance is central to achieving the Directorsâ€™ prime objective of maximising shareholder value. Principally, it comprises the processes by which the Group is directed and managed, risks are identified and controlled and effective accountability is assured. Combined Co Credit:ivythesis.typepad.com

HEXWORTHY FINANCIAL RATIO: ESSAY INSTRUCTIONS

You are a financial analyst working for a stockbroking firm. You are required to write a report on the overall performance and prospects o...