Fundamentals of Finance - Case Study Example

Contents MIKOH (MIK Axis Capital (AXIS) 3 AGL Energy (AGK) 3 Centro Properties Group (CNP) 4 Characteristics of Securities 5 Preferences Shares 6 Convertible Notes 6 Rights Issue 7 Bankruptcy 7 Investment Choice 7 References 8 MIKOH (MIK) Common Stock The world’s most prestigious brand in developing, custom solution provision as well as holding the title of the patent innovator in the authentication and tamper detection technologies can no doubted be given to MIKOH (founded 1993). It provides complete solutions to protect the assets of governments and commercial organizations. This can be done through their extensive network of collaborators who are loyal and help custom-deliver solutions for clients. The company covers its clients’ tangible/intangible assets from the drawing board, to the last step of sale or utilization of those assets. Its state of the art technology is capable of detecting frauds, counterfeiting, theft, and management of goods as well as protection from potential threats to national security. This means that the clients can be protected against any potential security leaks, preventing inaccuracy of information as well as keep a track that the information is only viewed by the intended party. Since the company deals in the cutting edge technology as well as having high-profile or sensitive business clients, the company has to prove it’s credibly in order to test its ideas in the market as well as keep a strong and ever expanding portfolio. This would indeed require a team which would have impeccable integrity as well as people who have the drive to achieve nothing less than excellence. The stakeholders (everyone from the financiers, business partners, clients) are indeed vital for the company and it strives to create an atmosphere of mutual trust, respect and understanding of each other. MIKOH holds the strong belief that the experience of the client is very important and it is they who define the company’s identity in the real world. The professionals of the company derive their wisdom from the stakeholders experience as well as their own expertise to give a recipe of success for both the company and client. The company boasts its emphasis on enthusiasm and honesty which combine to make a strong and healthy bond with the clients which leaves no place for miscommunication, personal agendas or egos. That’s why MIKOH has proven to be a company of choice to various organizations as the company is driven by maintaining their drive to remain sincere to its clients. Axis Capital (AXIS) Preference Shares AXIS Capital delivers specialty insurance as well as treaty reinsurance to the global market with its team of over 700 people in its subsidiaries in various countries like Switzerland, UK, US, Australia, Singapore etc. The company is originally a Bermuda-based which was made public in 2003 to allow more amenable financial options. It is made up of AXIS Insurance, AXIS Re & AXIS Global Accident & Health. Its original goal dealt with the need to address the quality issues associated with the fields it was operating in – the global insurance and reinsurance marketplace. Its continued success in the said markets due to its strong focus on the organic growth increased its popularity which by 2004 had flourished from Bermuda, across Europe as well as the US. AXIS Capital believes in organizing a world class company which specializes in the insurance and reinsurance business by emphasizing on quality, long term orientation and profitability. The key to their success tactics lies in their belief of offering wide-ranging expertise and strong relationships in the market while continuously innovating. This vision as increased paid out as the company as of June 30, 2010, held total assets of around $16.6 billion with shareholders’ equity of $5.5 billion and with a total capitalization of $6.5 billion. AGL Energy (AGK) Convertible Notes Boasting a large customer base of over 6 million customers, AGL Energy can be safely regarded as the largest Australian gas and electricity selling with a massive 1700MW electricity generation portfolio. It deals in the distribution of gas and electricity. The company has an outlook of the future growth and has invested in ecological energy sources like wind farms (Wattle Point Wind Farm) and hydroelectric power stations (like AGL Hydro’s 11 generating schemes). The company has its focus on supply and retail of electricity and gas. The company portfolio consists of Gas-fired peaking plant (Somerton), Torrens Island Power Station (TIPS)32.5% stake in coal-fired Loy Yang Power Station (Victoria) as well as various small biomass, landfill and cogeneration projects. Centro Properties Group (CNP) Rights Shares Centro Group is usually termed as Centro in the business circles. Centro is a company based in Australia and is involved in the real estate business. The group mostly deals in retail property and also provides management services to property owners. The shares of Centro are traded on the Australian Stock exchange. However the company has many different shopping centers in countries such as USA, Australia and New Zealand. Centro is a household name in the retail business and is the second largest retailer in Australia. The property management Services division handles the leasing and development for Centro. The funds management activities are also handled by this branch. The funds of Centro are diverse and manage both listed and non-listed funds. Centro was established almost thirty five years ago. Initially it was named Jennings Properties Limited and traded on AXS under this name. The company however was renamed to Centro in the nineties. The company went further restricting in 1997. The name was changed once again to Centro Property Trust. Characteristics of Securities The corporations are in constant need of more funds. There are a number of different methods which can be used to raise funds for corporations. The governing bodies of the financial markets however have put up restrictions. The aim of these restrictions is to ensure that the financial markets function in a smooth and efficient manner. This efficiency would ensure that there are equal opportunities for all investors and therefore all investors would find it less risky to invest. This is the essence of an efficient market, which gives equal opportunities to all investors. To ensure that all investors have a level playing field different restrictions and regulations have also been imposed on disclosure of information. There are different tools that can be used by corporations to raise funds from the primary market. The funds can only be raised from the primary market through tools which are liquid. To be liquid a financial investment must have a strong secondary market as well. The organizations such as Australian Stock exchange provide this secondary market to investors. The following are some financial instruments used by corporations to raise funds: Common Stock (common shares) This is without doubt the most widely used method of obtaining or raising funds. This security is actually an evidence of ownership in a firm. The ownership of the total outstanding common stock is considered as hundred percent in terms of company ownership. The common stock contributed towards the equity capital shown in a company’s balance sheet. The entire sum of the value of common stock is actually the worth of organizations in terms of equity. The common stock holders are paid a period share from the income of the company. This amount is called dividend. The amount of dividend declared is usually not fixed. Many companies do not pay a dividend at all. The increases in value of common stock in the secondary market however compensate the stock holders of the nonpayment. Preferences Shares The preferred stock is increasingly becoming popular in companies worldwide. This is actually a hybrid security which shows the character of a bond and a stock at the same time. The preferred stocks are issued in order to prevent dilution of a company’s ownership. This is because when common shares are issued the existing ownership is automatically diluted, as the percentage ownership reduces. Therefore in order to reduce any potential threat of hostile takeovers, companies’ issues Preferred stocks to raise funds. The dividend on these securities is fixed unlike common stock. However the company is not obligated to pay a dividend on these stocks. This feature differentiates them from bonds. The company is only obligated to pay a dividend on preferred stock if it intends to pay a dividend on common stock. Convertible Notes Convertible notes are issued by companies aiming to reduce their financing cost. This is because convertible notes have a very low cost in terms of interest rates. These are also hybrid securities much similar to notes. However the payment of interest on Notes is compulsory as compared to Preference Shares. The convertible notes can be converted to common shares after a few years (period designated in bond features). Rights Issue The issuance of new common shares reduces the percentage representation of the existing common stock holders. The decision to issue new commons stock is however usually taken in AGM (Annual General Meeting). Most shareholders discourage the issuance of new common stock. This is the very reason that companies issue Rights. These rights give the existing stock holders options to purchase the common stock of their own company. The prices set are below the prices offered to the market. Bankruptcy The companies can file for bankruptcy when they cannot meet their financial obligations. Recently horrid examples of Bankruptcy have surfaced in American Financial markets. The organizations are either forced in Bankruptcy or the management declares it themselves. The most badly affected investors are the share holders in case of bankruptcy. However due to existence of limited liability they are not required to pay the debtors. However they lose all their money as it has to be used to pay debt. The affect on Rights holders is the same as shareholders. The second most affected are the Preferred share holders. Their claim is more than common stock but less than bond holders. Therefore the least affected are the bond holders. Investment Choice The investment decisions are always a tradeoff between risk and return. Therefore the investor in all investment choices analyzes his own risk appetite. Some investors are risk averse which means that they do not like taking on extra risk. The international financial markets are in a very bad state. This global economic crisis has had the most impact on the financial markets. Therefore it is currently safe to say that there is a high risk associated with financial investments. As has been explained in the discussion above that in case of a bankruptcy the most affected would be Rights and common stock. Therefore as an investor I would not invest in those securities. The best choice in this risky environment would be convertible notes. This is because they would not expose me to lower risk and if the market improves would give me the option to invest in common stock. References Eun, C. Resnick, B. (2004). International Financial Management. Singapore. McGraw-Hill Madura, J. (2007). International Financial Management. New York. Daves, P. Brigham, E. (2005). Intermediate Financial Management. McGraw-Hill. Read More