Finance Essays Financial Management

Finance Essays pecuniary ManagementRole of financial solicitude in Wolfson Microelectronics plc.TASK 1Financial perplexity is related to the acquisition, financing and management of assets with a coming(prenominal) goal and planning.Efficient financial management requires the laying down an objective or goal, because judgement whether a financial decision has been rightly interpreted or not must be in light of some(prenominal) standard. The most important goal of a securely in financial context is to maximize the value (wealth) of firm and of the assigns holders wealth.Maximizing the wealth of apportion holders (owners) of the firm is judged by the effect of sh atomic number 18 cost which is the result of business decisions.Thus we define role of financial management into three areas enthronementsInvestment decisions for an investor are based on historical monetary values and security analysis of financial assets such as stocks and bonds. However from follows point of billet coronation is all about finding out new possible ways to manage the business mainly in area of production, statistical distribution and grocerying.Further more, company also fills which portfolio of the assorted types of financial assets to hold. A greens example could be common stocks, preferred stocks, bonds and debentures etc.With regard of Wolfson Microelectronics, it do investments in Research and Development of crownwork equipment and soft wares to $10.6 m all in 2004. Furthermore, company has intentions to significant contributions to research in the afterlife. As a result value of fixed assets rose to $ 29,680k in the class 2004.Wolfson expose two main ideas behind putting capital expenditure (long-term investments)to metre the market requirementdecrease production cost by unvarying research and designWolfson clearly showed its intention not to distribute well-kept kale among its shareholders due to the need of capital expenditure in future projects . The future electronics market belongs to consumers digital portable stuff. Wolfsons management is planning to contribute in this huge market share just about the world, making it sure they keep alive with the high demanding consumer market in the future, though they are newly born public listed company in the London ancestry exchange.1. Refer Balance sheet figures (Pg. 53) of Wolfson Microelectronics plc. one-year traverse and Accounts 2004 2) FinancingThis is the second major issue of the firm as the management inevitably to ascertainHow much bills could be available by floating stocks in the market? Based on both factors, a company forms its capital structure. This is also referenced as finance alloy.How much money they could borrow to run their business with getting in trouble of getting default or excess borrowings.Wolfson raised investment money to meet their requirements by issuing stocks (an increase of $ 9105 k) and increase debt by $ 8273 k. In other words, it fina nced its projects by issuing stocks and bonds to its stakeholders.Wolfson plc. also mentioned financing of $1204 K as negative-in stream stream as compare to $39,364 K in course 2003 in the form of share capital issues and bank term loan. (3.)3) Dividend form _or_ system of governmentIn addition to two important decisions, dividend policy must be viewed as an integral part of the firms financing decision. The dividend manufactureout proportion determines the amount of earnings that can be retained in the firm.Dividend payout balance = Annual Cash dividends Annual earningsWolfson paid equity dividends of $ 407 K in year 2003 but no dividends were paid in year 2004, but on non-dividend equity, company did not pay dividends to its shareholders. So the dividend payout symmetry is Zero for year 2004.As described earlier, it has been clearly mentioned in the yearbook report to retain all future earnings for investment in development and expansion of business and the management does not expect to pay dividend at least for some years in future. (2.) However, this is not an load-bearing(a) sign for shareholders of Wolfson because stock investors often judge performance of the company stocks by their growth which is possible by declaration of dividends.2.Refer consolidated cash flow statement (Pg.54) of Wolfson Microelectronics plc. Annual Report and Accounts 2004 3. Notes to Cash flow statement (Pg. 72) of Wolfson Microelectronics plc. Annual Report and Accounts 2004 If we combine the effects of the financing, investment with dividend policy, the relation could be in a shape of three schools of thoughtSome argue that Dividend policy is ir pertinent because for a company investment and debt decisions are not relevant by the amount of dividend payments. This is also due to the fact when we say that capital markets are perfect and complete and all information is available regarding market conditions and its constituents (companies).Some say that High dividends in crease Stock value. They provide the spring that dividends are more certain than capital gains (price growth of the securities), so a firm which is paying slight drive homes but sticks with the dividends is more attractive for the share holders.Thirdly, low dividends increase stock value because some argue that dividends real hurt the investors in shape of taxes, so less dividend income manner less tax deduction for the shareholder.TASK 2Is Wolfson successful to satisfy needs of Shareholders? Certainly not according to the annual report 2004. As we controvert earlier, stock investors are not impressed at all sagacious the fact company is not paying dividends, but one has to consider that Wolfson is a new public listed company in London Stock Exchange which has a great impact of its concourse directors holdings.If we look at the current price trend of Wolfson Micro Electronics plc. (source uk.finance.yahoo.com), we find that there is skillful improvement in market price as i t is trading above 200p per share from Sept, 2005 to date. The volume of the stock traders is also increased from July onwards, although in remarkable days there are sudden fall in price and volume which is bit worrying for shareholders.Chart 2.1But the wakeless scenery is Wolfson stock is performing above average as compare to FTSE index. If we decide the chart 2.2, creating good price increase from beginning of this year.Chart 2.2 permits talk about the expectation of shareholder and growth lay of stock price in absence of dividends (as in the case of Wolfson). As shown in chart 2.3, if there is a decline in dividends, as a result the expectation take aim will also be decreasing and so as the price of the stock. A rise in the dividend growth consequently put the expectation of the investors at increasing level as well as the growth in stock price occur.Chart 2.3Would it be better if Remuneration package for a managing director is based on Shareholders wealth?The concept o f shareholders wealth arises from the theory that a company should only work solely for the win of these people and has responsibilities to its owners. That could be an effective style in management and it sounds very(prenominal) good for the investors. Following points should be observed in this regardIf company is giving dividends to its share holders from the reserves allocated in the company retained earnings then there is a secure feeling for stockholders that they will not lose all of their money if company goes bankrupt.Management if decides to use dividends for increasing future value of the firm by utilizing them in capital expenditures, then this also makes sense for a firm like Wolfson that is involved in digital technology. We know that innovations and inventions are constantly taking place in this industry which means high proportion of firms money is spent on RD of new products.We have to bear in sagacity that distribution of dividends also require transaction cost for a firm to pay in the shareholders account plus dividend income is taxable for shareholders.Knowing these facts, if were a Director of Wolfson I would not decide in companys meetings not to distribute dividends to our shareholders at all for number of years. Rather than I would continue to give shareholders at least some amount of returns in form of dividends. Why I should go for the decision, this is because of following reasonsDirectors and top management are bound by fiduciary duties to act in the good interest of shareholders.Value of my firm will increase if shareholders have more trust in our performance. If we allocate a portion of profit towards them that means that as Directors of Wolfson, we give respect to our shareholders even in tough result of our business cycle (we know our company is new to the stock market but has opportunities to capture its share in the market).Moreover, total shareholder return of Wolfson would be lower than its competitors in the market beca use when stock investor compares the performance of different companies for his investment, it would be inevitable that share price appreciation and dividends paid are not in a row in our company. The reference group of companies (having similar business) in same sector would also pose affright for us when a shareholder takes investment decision.