The Positive Relationship Between Profitability And Leverage Finance Essay - Free Essay Example

Sample details Pages: 3 Words: 952 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Compare and contrast essay Did you like this example? The prediction of information asymmetry hypothesis by Myers and Majluf (1984) is approved by the negative sign whereas the predictions of bankruptcy theory and free-cash flow hypothesis by Jensen (1984) are not substantiated. It is thus proved that pecking order theory dominates trade-off theory. Frydenberg(2001b) describes retained earnings as the most important source of financing. Don’t waste time! Our writers will create an original "The Positive Relationship Between Profitability And Leverage Finance Essay" essay for you Create order Good profitability thus reduces the need for external debt. So result is conformity with our findings. Hence, the trade-off theory suggests a positive relationship between profitability and leverage because high profitability promotes the use of debt and provides an incentive to firms toavail the benefit of tax shields on interest payments. The pecking order theory postulatesthat firms prefer to use internally generated funds when available and choose debt overequity when external financing is required. Thus, this theory suggests a negativerelationship between profitability (a source of internal funds) and leverage. Severalempirical studies have also reported a negative relationship between profitability andleverage (Toy et al., 1974; Titman and Wessels, 1988; Rajan and Zingales, 1995; Wald,1999; Booth et al., 2001; Chen, 2004; Bauer, 2004; Tong and Green, 2005; Huang and Song,2006; Zou and Xiao, 2006; Viviani, 2008; Jong et al., 2008; Serrasqueiro and RogaÃÆ'†¹Ãƒâ€¦Ã¢â‚¬Å"o , 2009). Debt to Equity Ratio: According to our results beta coefficient is -0.326, whereas the value t-statistics is -2.257. Level of significance is 0.033. Debt to Equity Ratio is negatively correlated to leverage at -0.068. Our result shows that money lenders have been risk averse and they try to insure their profitability along with principle amount. If company debt ratio continuously shows increasing trend, this will give bad impression to money lenders so they will not be willing to invest. In this case companies always prefer to use their internal funds or retained. Harry Markowitz(1952) Current Ratio:Current ratio variable is positively correlated at coefficient of 0.362. Value of t-statistics is 2.622 this shows a highly significant result at 0.015. Our correlation table suggests that there is a highly significant positive correlation between current ratio and leverage. The value of Pearson correlation is 0.482**. This would encourage the investor to invest in companies with high current ratio becaus e in this case companies Current Assets shows increasing trend. In case of company default these assets will ensure investors repayment of principle amount. So companies can easily get leverage. Conclusion Using 5 variants of panel data analysis, we attempt to find the determinants of capital structure of KSE listed none-financial firms for the period 2005-2010. The effect of 5 explanatory variables is measured on leverage ratio which is calculated by dividing the total debt by total assets. Tangibility is significantly negatively related to debt. In Pakistan, where court process is slow and accounting profits do not reflect a true picture of firm performance, creditors prefer the security of specific claim on fixed assets. The prediction of trade-off theory is confirmed by our result. Size, measured by natural log of sale, has a negatively coefficient but is insignificant. It means that firms in the sample do not consider their sizes as an active variable in deciding the leverage level. Size gives a comparative advantage of lower asymmetric information when a large firm makes an IPO. Referencess Altman, E. 1984.A further empirical investigation of the bankruptcy cost question, Journal of Finance, Vol. 39, pp.1067-1089. Amihud, Y. and B. Lev. 1981. Risk reduction as a managerial motive for conglomerate mergers, Bell Journal of Economics, Vol.12 pp. 605-616 Banerjee, S., A. Heshmati, and C. Wihlborg. 2000. The dynamics of capital structure, SSE/EFI Working Paper Series in Economics and Finance 333, pp.1-20. Baker, G.P., M. C. Jensen and K.J. Murphy. 1988. Compensation and incentives: Practice vs. theory Journal of Finance, Vol. 43, pp. 593-615 Baltagi 2001, Econometric Analysis of Panel Data, 2nd Edition John Wiley Sons. Barclay, M.J., Smith C.W. and Watts, R.L. 1995.The determinants of corporate leverage and dividend policies, Journal of Applied Corporate Finance, Vol. 7 pp. 4-19. Baxter, N. 1967.Leverage, risk of ruin and the cost of capital, The Journal of Finance, Vol.22.pp- 395-403 Booth, L., V. Aivazian, A. Demirguc-Kunt, and V. Maksmivoc, 2001 , Capital structures in developing countries, Journal of Finance Vol. 56, 87-130 Bradley, Jarrell and Kim. 1984. on the existence of an optimal capital structure: theory and evidence, Journal of Finance, Vol. 39, pp. 857-878 Cheung, C.S, and ItzhakKrinsky. 1994 Information asymmetry and the underpricing of initial public offerings: further empirical evidence, Journal of Business Finance Accounting, Vol. 21 pp- 739-747 DeAngelo, H. and R. W. Mausulis. 1980. Optimal capital structure under corporate and personal taxation, Journal of Financial Economics, pp- 3-29 Allen, D.E. and Mizuno, H. (1989), The Determinants of Corporate Capital Structure: Japanese Evidence, Applied Economics, Vol. 21, pp. 569- 585. Anderson, C.W., Makhija, A.K. (1999), Deregulation, disintermediation and agency cost of debt: evidence from Japan, Journal of Financial Economics, Vol. 51, No.2, pp.309-40. Anderson, R., Mansi, S. and Reebc, D., (2003), Founding Family Ownership and the Agency Cost of Debt, Journal of Financial Economics, Vol. 68, 263-285. Baer, H. L., Caprio, G., Demirguc-Kunt, A. and D. Vittas, (1994), Term Finance: Theory and Evidence, World Bank mimeo. Balance Sheet Analysis of Joint Stock Companies Listed on the Karachi Stock Exchange, various Volumes (1988-2005), Statistics and DWH Department, State Bank of Bank of Pakistan. Banerjee A, Dolado J, Galbraith JW, Hendry DF. (1993), Cointegration, Error Correction, and the Econometric Analysis of Non-Stationary Data, Oxford University Press: Oxford. Bannerjee, A., J. Dolado and R. Mestre, (1998), Error-Correction Mechanism Tests for Cointegration in Single Equation Framework, Journal of Time Series Analysis, Vol. 19, 267-283. Barclay, M. J. and Clifford, W. Smith, (1995), The Maturity Structure of Corporate Debt, Journal of Finance, Vol. 50, pp.609-631. Bauer, P. (2004), Capital Structure of Listed Companies in Visegrad Countries, Prague Economi c Papers, No. 13. Bevan, A. A. and Danbolt, J., (2000), Capital Structure and its Determinants in the United Kingdom: A Decompositional Analysis, Department of Accounting and Finance, University of Glasgow, Working Paper No. 2000/2.

The Investigation On The Hassan s Family Who Has A Child...

Introduction This report is based on the investigation on the Hassan’s family who has a child who is not feeding, has a slow growth rate and is not thriving very well. The Mother and Father were sent to a parental clinic to undergo genetic testing, before the birth of the child due the mother receiving regular transfusions. They were also tested for FBE and Hb Electrophoresis after few months for transfusion and part of postnatal testing. The child also had a Hb electrophoresis performed. The reason the Mother was sent to have these tests was due her having regular transfusion which indicates the mother might be anemic. Anemia can be defined as a decrease in Red Blood Cell (RBC) count or decrease in hemoglobin. RBC have an important†¦show more content†¦There are different types of anemia with some being hereditary. In these cases infants may be affected from time of birth. If a parent is heterozygous for a hereditary disease they would be carrying the disease without knowing they have it. This is why genetic screening is important and why both parent had it done, as it helps to identify if infants are at risk of inheriting them. Two types of hereditary anemia are Thalassemia and sickle cell anemia. The Full Blood Examination (FBE) was performed to check the hemoglobin content, RBC number and morphology, White blood cell (WBC) number and morphology, Platelet count, Mean Cell Volume (MCV) and Mean Cell Hemoglobin (MCV). The information received from this test can be used to determine an estimated idea of what could be wrong with the patient. Hemoglobin Electrophoresis was performed to support and give a more defined result of what the problem was. Hemoglobin Electrophoresis measures the different types of hemoglobin’s in the blood. This occurs by an electrical current being passed through the hemoglobin in a blood sample causing different types of hemoglobin to separate and form bands. The different bands include Hgb (hemoglobin) A1, Hgb A2, Hgb F, Hgb S and Hgb C. The most common type of Hemoglobin found in health children and adults is Hgb A1 which makes up 95% - 98% of the total hemoglobin. Hgb F is found in

Analysis of the Effects of Product Cannibalism Free Essays

PRICING STRATEGY – CANNIBALISM AND NEW PRODUCT DEVELOPMENT – R. A. KERIN M. We will write a custom essay sample on Analysis of the Effects of Product Cannibalism or any similar topic only for you Order Now G. HARVEY J. T. ROTHE 1. My choice I have chosen to work on this topic for these reasons. For many years now, and mostly because of the economic crisis, a lot of « premium  » and mid-range brands have to compete against low-cost ones. In order to do this, some of these companies decided to launch low-cost brands to bring back lost customers. But I have already learned that this strategy can sometimes become a real threat for their premium brands: in fact, companies who do this can think that they bring new customers but unfortunately these customers are coming from their premium brand. Some real life examples are coming to me such as Coca-Cola Company who launched Coca-Cola light and Coca-Cola zero which was successful. How to avoid or reduce the brand cannibalization? What kind of strategy to develop? I hope that this article, even if it’s a very old one, can answer these questions. . The summary The article starts be giving a definition of the cannibalization effect: we consider 2 different products (A and B) belonging to the same company – cannibalization means that (all other things equal), decreasing the price of product A will bring the sales decreasing of product B. This undesirable effect is occurring when the company, instead of launching a new product, prefer to reformulate one which already exist s in an already created market. Authors are putting lights on two main consequences of cannibalistic strategy. The first one is positive, it allows to the company, through the new product, to open a new market, and thus gain market shares. The second seems to be negative, because customers of the first company’s product can switch to the second, and it will not bring any additional revenue to the company. But, as authors underline, sometimes it’s better for the company to see customers moving from the first product to the second one inside the same portfolio than reaching the competitor’s product. So, cannibalism strategy can be a good way for the company to kill competitors, but the risk is huge if the new product creates an artificial segmentation which implies artificial needs. The distortion effect of cannibalism is the second main part of the article. Basically, it means that in order to appreciate the profitability of the new product, you must take in account cannibalization of the first one. Authors are talking about  « Pyrrhic Victory  » when one’s overestimate the growth of the sales volume and market share due to the new product. Authors provide a solution to avoid this bas effect of cannibalism: the market test. For them it’s the best method to know what need(s) the new product will fulfill when it will be launched. This method can help managers to identify (the most early as possible) what amount of the new product should be produced in order to reduce the cannibalization. The question of the  « acceptable  » level of cannibalization is evoked: the two main drivers to compute it are according to the authors the cost structure and market maturity. 3. My opinion One of the main lessons I learned reading this article is that cannibalism can really be a positive thing for companies. Even if customers of the new product are indeed customers who switched from the previous one, they still not competitor’s customers. Far to be a threat, the cannibalism strategy can really be useful and great for companies, especially, as I said in my first part, in time of crisis. Then I think, the article could provide more examples of  « positive  »or  « negative  » cannibalization. The example of Coca-Cola provided at the beginning of this memo is revelatory of the « positive  » cannibalization. In fact, a lot of different soda beverages belong to the Coca-Cola company (such as for instance Fanta, Minute maid or Coca-Cola). In 1983, Coca-Cola company launched Coca-Cola light, which tastes different from the original Coca-Cola but sugar free ; and then, at the beginning of 2000†², Coca zero was launched which was supposed to have the same taste as Coca-Cola original, and still sugar free. Even if Coca- Cola light lost many customers who switched to Coca zero, they still  « inside  » the same company and not moved to competition. This kind of strategy was learned in our Brand management course that sometimes it consists in creating a similar product can extend the market share of both products. Named the Flanker strategy, the two products are belong not only to the same company but also to the same product category. This strategy has many advantages: it’s often almost free to market, as it’s very close to the first product and using the same brand, and it was noticed that it’s also a good way to promote both products and brands. How to cite Analysis of the Effects of Product Cannibalism, Essay examples

Public Versus Private Education in Primary †MyAssignmenthelp.com

Question: Discuss about the Public Versus Private Education in Primary. Answer: Introduction Private schools are the independent schools that are not aided by the government and are funded totally by the students. There are some private schools, where a student might get access to education free of cost, but that mainly depend on the academic excellence of the individual students (Ruban 2012). In this paper a literature review has been provided exploring about different private schools across the world and why the Emirati families choose to send their children to private schools. According to Ball (2017) government schools do not provide special facilities to the students in terms of education. Government schools sometimes do not have proper laboratory facilities for the science students. Since, government has to fund the entire spending for the school; all the aspects related to the infrastructure and advanced facilities might not be addressed. Since government have to aid a large number of schools it becomes very difficult for them to reach the perfection. Furthermore, government schools provide education to different classes of people irrespective of the socio economic status of the students (Klugman 2012). Students coming from wealthier families might not find it suitable to mix up with the students coming from low socio economic background, which leads the parents to admit their children in the private schools. Each and every parent want that their children to get the best, including success, safety, healthcare and love. Most of these parameters are based on good education. As per the bureau of Labor statistics, graduation rate is inversely proportional to the murder and the assaults rate. Education can be perceived both from government funded institutions or private institutions. Nowadays the education is not cheap. According to the reports by Hvidman and Andersen (2013) public college education costs nearly $100, 00 for a student who are likely to attend public schools. In spite of the increasing amount of financial burden, people are daunting towards the private schools with the hope of getting advanced education. Iqbal (2012) has argued that there is not much difference between the academic levels of the government schools and the private schools and has also cited examples that the eight grade math and the fourth grade readings were just a wash. According to Klugman (2012) most of the effects of the private school education are influenced by the family decisions and motivations. According to Lubienski and Lubienski (2013) families of the students studying in the public schools can at least question the authorities regarding the licensing and the certification of the teachers, as most of the teachers are appointed on the basis of a level of teaching quality, whereas in the private schools there are no such rules regarding the appointment of the teachers (Lubienski and Lubienski 2013). Private schools in the UAE Most of the Emirati schools are bestowed with Islamic values other than the western culture. Emirati families can want their child to be acquainted with other cultures and thus choose to send their children to private schools (Hvidman and Andersen 2013). The general, socio economic status of most of the Emirati families are quite good, which leads them to opt for private schools with better facilities. Some private schools have much advanced extracurricular facilities like provision for games such as soccer, basket balls, and dance classes, swimming classes, interactive clubs and more. It can be easily said that public schools will not be able to give their students with such a varied number of facilities other than studies (Mazawi 2017). The Emiratis often face problems with the English language as in most of the Islamic schools, Arabic is used as the medium of instruction and the curriculum is mainly based on the Islamic values (Mazawi 2017). Since, English is an accepted language all over the world and is the medium of instruction for all the official work, knowledge of this language is necessary. According to Ruban (2012) most of the Emirati schools are incapable of providing proper English education. Hence, this can be one of th e important factors which drive the Emirati families towards private schools. According to Mazawi (2017) private schools in Abu Dhabi had outperformed the government schools in several aspects. According to the reports, private school parents have a higher viewpoint about the school quality than the public school parents, in terms of school climate, student learning and school-parent relationships. According to the study conducted by Mckinnon et al. (2013) the cognitive achievement scores of the students in comparison with the students from the public schools have been proven to be higher. In terms of math and science subject the achievement advantage is found to be higher in the private schools in UAE. According to the study conducted by Mckinnon et al. (2013) the cognitive achievement scores of the students in comparison with the students from the public schools have been proven to be higher. In terms of math and science subject the achievement advantage is found to be higher in the private schools in UAE. The national statistics of UAE shows that private schools in UAE have increased from 168 to 473 since 1982 to 2011(Mazawi 2017). Reports show that in the last five years the number of students in the private schools has increased drastically. According to Mckinnon et al. (2013) the two factors that are driving the Emirati parents to admit their wards in private schools can be listed as The influence of the school ambience As per the parents feedback, the private school climates are much healthier than that of the government schools as the parents donate a large amount of money as the tuition fees. Focus on the science subjects- Private schools generally follow an international curriculum that is accepted worldwide and generally emphasize on the pedagogy of science teaching. On the other hand the public schools are mainly based on Islamic teachings and virtues and focus less on science topics (Mckinnon et al. 2013). Conclusion It cannot be said that government schools are not capable of giving proper education to the students, as academic performances depend upon the merit of a persona and not on the type of the school. It can be definitely said that private school cater to the overall development of the child apart from the studies. References Ball, S.J., 2007.Education plc: Understanding private sector participation in public sector education. Routledge. Hvidman, U. and Andersen, S.C., 2013. Impact of performance management in public and private organizations.Journal of Public Administration Research and Theory,24(1), pp.35-58. Iqbal, M., 2012. Public versus private secondary schools: A qualitative comparison.Journal of Research and Reflections in Education,6(1), pp.40-49. Klugman, J., 2012. How resource inequalities among high schools reproduce class advantages in college destinations.Research in Higher Education,53(8), pp.803-830. Lubienski, C.A. and Lubienski, S.T., 2013.The public school advantage: Why public schools outperform private schools. University of Chicago Press. Mazawi, A. ed., 2017.World Yearbook of Education 2010:" Education and the Arab'World': Political Projects, Struggles, and Geometries of Power". Routledge. McKinnon, M., Barza, L. and Moussa-Inaty, J., 2013. Public versus private education in primary science: The case of Abu Dhabi schools.International Journal of Educational Research,62, pp.51-61. Ruban, N.A.B.H., 2012. United Arab Emirates.TIMSS 2011 Encyclopedia, p.961.