StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

A Journal opinion article - Essay Example

Cite this document
Summary
Name Instructor Class Date WSJ Op Ed article Secret Buybacks Are Unfair to Shareholders John Levin’s article entitled “Secret Buybacks Are Unfair to Shareholders” (2013) revealed an age old corporate trick of increasing the value of stocks. I called buybacks an age old trick of increasing the value of stocks because companies are able really able to increase the value of their stocks in the stock market even if it did not improve any of its economic performance (for example increased sales, lowered cost, improved processes that leads to efficiency etch)…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.1% of users find it useful
A Journal opinion article
Read Text Preview

Extract of sample "A Journal opinion article"

Download file to see previous pages

Levin acknowledged in the article that the practice of buybacks or companies buying its own stocks is unhealthy and proposed that the general public should be notified beforehand for greater transparency. But as it is, buybacks are still practiced and if one thinks that this helps America’s economic recovery, it does not. The pracitce of corporate America of buying back its stocks will not help to recover but in fact will threaten its economy. It seems that we have not learned our lesson after all as we are again back at manipulating balance sheets to have a perception of value.

Corporate America is again practicing the same principle of financial manipulation that precipitated the mortgage criss that brought us the “Financial Crisis” that took America to recover and this recovery is even questionable today. Buying stocks back is just a convenient way of unloading those excessive cash in the guise of avoiding dilution and increasing stock value. To finally recover from the crisis that we are in, values in terms of productivity has to be created. Coupled with healthy spending that will translate to a robust domestic consumption which will have a ripple effect of encouraging more production.

In other words, for us to recover, plants has to be erected, new technology has to be developed, companies has to hire employees or engage in any economic activity that will create “real value” and not just buyback stocks to increase it value. Buying back stocks does not do this although it will convey the perception that a company is performing well. To explain this further, it will serve us well to cite an example to better understand how stock buybacks create a perceive performance without creating any real value.

Let us assume a company buys back a million shares at $ 5 per share with a $10,000,000 cash. Profit is at $1,000,000. Observe how return on assets, return on shares and price earning ratio improve without any increase in profit. Before Buyback After Buying Back Cash $ 10,000,000 $ 5,000,000 Assets 30,000,000 20,000,000 Profit 1,000,000 1,000,000 Outstanding shares 10,000,000 9,000,000 Return on Assets 3.33 % 5.00 % Return per share $ 10 $ 11.11 The above illustrates how a company increases its perceived value without an increased productivity.

It just unload the cash of $10,000,000 by buying back a million shares at $10 per share. The cash diminished to $20,000,000 ($30,000,000 cash minus $10,000,000 buyback) increasing the return on assets to 5 % (1,000,000/20,000,000). Above all, the price-earnings ratio (P/E), the ratio which is often used as a measure of value of the company also increased without creating any “real value” (lower ratio is better). Where before the P/E ratio is 50 ($5/$10), it decreases to 45 ($5/$11.11) by simply unloading its cash by buying back its stocks.

This is what Levin is discussing in the article “Secret Buybacks Are Unfair to Shareholders“. Companies are creating perceived value with the increase in return on assets, improved price earning ratio and higher return on share without creating anything. Companies only intend to give higher dividends to its stockholders which

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“A Journal opinion article Essay Example | Topics and Well Written Essays - 750 words - 4”, n.d.)
A Journal opinion article Essay Example | Topics and Well Written Essays - 750 words - 4. Retrieved from https://studentshare.org/macro-microeconomics/1498990-a-journal-opinion-article
(A Journal Opinion Article Essay Example | Topics and Well Written Essays - 750 Words - 4)
A Journal Opinion Article Essay Example | Topics and Well Written Essays - 750 Words - 4. https://studentshare.org/macro-microeconomics/1498990-a-journal-opinion-article.
“A Journal Opinion Article Essay Example | Topics and Well Written Essays - 750 Words - 4”, n.d. https://studentshare.org/macro-microeconomics/1498990-a-journal-opinion-article.
  • Cited: 0 times

CHECK THESE SAMPLES OF A Journal opinion article

Providing Sex Education for Their Children by Joy L

The paper “Providing Sex Education for Their Children by Joy L” revolves around the discussion of the article.... hellip; The paper critically analyzes the article and the arguments the repercussions that how it will affect the mindset of a child at an early age on the discussion of sex.... The article discusses how parents can play their role in providing awareness to their children about sex education and how they can prevent them from any sexual or physical harm....
2 Pages (500 words) Article

Trace the pathway of blood through the heart

Some studies suggest that tiny particles move BIOL 121: Reading Report 27 November of article: Passage of Inhaled Particles into the Blood Circulation in Humans s): A.... NemeryName of Journal: CirculationDate, Volume and Page Numbers: 2002; 105:411-414 Main ideaThe article tries to establish the speed at which inhaled pollutant particles reach of various parts of the body through the circulatory system.... eflectionI selected this article because it is relevant to studying the pathway of blood through the body....
1 Pages (250 words) Article

The Concept Of Market Segmentation Marketing

hellip; ith many managers facing a constant challenge in interpreting data that concerns market segments, the article seeks to offer graphical analysis of the available data to make it an easier task that for managers to grasp the core concepts of marketing segmentation (Dolnicar & Ethics of Research Ethics in Research Overview of the article The article discusses the use of graphical data in understanding the trends in market segmentation.... With many managers facing a constant challenge in interpreting data that concerns market segments, the article seeks to offer graphical analysis of the available data to make it an easier task that for managers to grasp the core concepts of marketing segmentation (Dolnicar & Leisch, 2014)....
1 Pages (250 words) Article

Public budgeting

The article, “winning the Battle but Losing the War: The Psychology of Debt Management” by Moty Amar, Dan Ariely, Shahar… Cryder, and Scott I.... These Psychology of Debt Management article Review Collage Affiliation: Winning the Battle but losing the War: Psychology of Debt ManagementPeople normally come up with views and opinions whenever an issue becomes disturbing (Deagelo, 2009).... The article, “winning the Battle but Losing the War: The Psychology of Debt Management” by Moty Amar, Dan Ariely, Shahar Ayal, Cynthia E....
2 Pages (500 words) Article

English as the Official Language of the United States

This article provides an easy to understand explanation of the bill.... The article also gives an overview of the scope of the said bill.... When it comes to reliability, the article can be considered reliable because it gives facts about the development of the said bill.... Moreover, the article comes from a reputable publishing company in the United States.... Just like the other article on the English language, it stated that there are already 27 states using English as their official language and this includes Virginia....
7 Pages (1750 words) Article

Eight Reasons Why Doctors Fear the Elderly, Chronic Illness, and Death by Jonathan Lieff

nbsp;… The article above underwent publishing in 1982, at which point J.... nbsp; In this paper, there will be a summary of the article, as well as comments regarding various selected aspects, identification of various changes, which are relevant and have occurred since the publishing of the article.... The author described research findings made at the time the article was published, which were indicative of well-documented and widespread prejudice, as well as avoidance (Lieff, 1982)....
8 Pages (2000 words) Article

Failing to Build Effective Team and Teamwork

… The paper "Failing To Build Effective Team And Teamwork" is an exceptional example of an article review on human resources.... In their article about leadership and innovation, Camelia & Silviu discuss some of the success factors for companies, particularly in the IT & C industry.... The paper "Failing To Build Effective Team And Teamwork" is an exceptional example of an article review on human resources.... n their article about leadership and innovation, Camelia & Silviu discuss some of the success factors for companies, particularly in the IT & C industry....
1 Pages (250 words) Article

Gab Docking Proteins in Cardiovascular Disease, Cancer, and Inflammation by Nakaoka and Komuro

… The paper "Gab Docking Proteins in Cardiovascular Disease, Cancer, and Inflammation" is a worthy example of an article review on health sciences&medicine.... Nakaoka and Komuro, in this article, were determined to provide an overview of the structure, regulation, and effector functions of the Gab docking proteins with the primary focus on their relationships with cancer, inflammation and cardiovascular disease.... The paper "Gab Docking Proteins in Cardiovascular Disease, Cancer, and Inflammation" is a worthy example of an article review on health sciences&medicine....
1 Pages (250 words) Article
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us