Thursday, May 31, 2012

King Cash

A basic tenet of Finance is that cash is king, especially in difficult economic environments. A recent survey sponsored by CFO shows how working capital management has changed in mid-sized companies since the recent recession began. A couple of interesting findings: Companies surveyed feel that their working capital positions have improved over the past three years (page 7), receivables and inventory management are key working capital priorities going forward (page 8), and larger firms are forcing smaller companies to accept longer receivables periods (pages 10 and 11).

Wednesday, May 30, 2012

IPO Flops

Just because a company undergoes an IPO doesn't mean that is is a good investment. Here are 10 recent IPOs that flopped after going public, including a couple of bankruptcies only a few of years after the IPO.

Monday, May 21, 2012

JPMorgan Nixes Stock Repurchases

In the text, we argue that stock repurchases are a close substitute for cash dividends. However, an important caveat is that this is true when a stock repurchase is made, not when it is announced. JPMorgan announced today that it is suspending its stock repurchase plan, which was expected to be $13 billion through 2013. While stock repurchases have increased, so has the cancellation of previously announced stock repurchase plans.

U.S Corporate Tax Rate Increases

A report by accounting firm PricewaterhouseCoopers found that the average effective three-year corporate tax rate for U.S. based corporations rose to 26.3 percent, up 0.7 percent from the previous year. The effective tax rate is the tax rate after expenses and tax offsets.

Sunday, May 20, 2012

The IPO Guy and Facebook

On May 17, 2012, Facebook sold its shares in the IPO market for $38 each and the shares began trading on the NASDAQ the next day at a price of $42.05, a relatively modest price increase of about 11 percent. Unfortunately for shareholders, the stock price dropped to $38.23 by the end of the day. All in all, the Facebook IPO was relatively mild by IPO standards. Because of the pricing of the stock prior to the IPO, we would have expected a bigger first-day "pop" in the stock price. For an explanation of the partial adjustment effect and more on Facebook, you can watch this interview with world-renowned IPO expert Professor Jay R. Ritter.

Thursday, May 17, 2012

Advice for Managing a New Project

So your company has accepted a new project and you are put in charge of seeing the project through to completion. What are the some of the challenges and pitfalls in your way? A recent article in CFO discusses some of these practical matters.

Wednesday, May 16, 2012

Evaluating the PE Ratio

As we noted, the evaluation of any ratio must be undertaken with great care. For example, did you know that if we look at two companies that are exactly the same except for the amount of debt, the company with higher debt will have a lower PE ratio? A recent article in McKinsey Quarterly outlines the reason this occurs, but more importantly points out that that a management goal of increasing the PE ratio does not generally result in shareholder wealth creation.

Monday, May 7, 2012

Did Their Mother Make Them?

As a child, most people dreaded being told they needed a haircut. Of course, for these companies, a haircut is more painful. In IPO parlance, a hair cut occurs when the offering price, or offering price range, is lowered.