Application of Management Theories

Application of Management Theories Abstract Most successful corporations have applied either employee empowerment theory or the penetration pricing theory. A combination of both theories might also enhance market performance of any given corporation. However, empowerment theory facilitates a culture of employees’ contribution by allowing them to participate and contribute to the decision making processes.Advertising We will write a custom essay sample on Application of Management Theories specifically for you for only $16.05 $11/page Learn More The application of this theory enables an organization to discover the full synergy and power of its employees as regards to problem detection, solving alongside better service deliveries. In contrast, the penetration pricing theory might help a company to evade market competition. It can be applied when a company wants to operate at the least cost possible while setting the lowest product prices. Introduction Various theories have been applied during decision making processes. The memo however highlights the applications of the employee empowerment and penetration pricing theories as noted in human resource and marketing areas respectively. Moving towards workforce empowerment culture Workforce empowerment turned out to be a corporate catchphrase in early nineties and the corporate press accord deemed it to be a noble thing. During this periods, the customary view saw workforces as replaceable objects in corporations, individuals who ought to be well trained to execute well defined and narrow tasks as well as people who should be constantly supervised and watched every time (Rehkopf, 2009). With the advent of employees’ empowerment culture, there has been the necessitation that even the sophisticated and more educated employees have the urge of contributing in their workplaces and to the employers. Basically, employees’ empowerment in simple term implies the full-fledged cronies in pursuit of high quality le vels and better services. Empowered employees are always encouraged to make decisions, think and take personal actions on the basis of the defined corporate guidelines (Rehkopf, 2009). The organizational management must thus recognize employee abilities and offer the requisite authority and tools which enables them to incessantly advance their performances. The management is charged with responsibility of stating its expectations as regards to the recognition and solving of the problems through empowering the employees to so.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More A practical example of empowerment Very few corporations truly embrace the employees’ empowerment concept. In fact, corporations that adopt this concept have realized the massive synergy and power which could be released when workforces are allowed to fully participate in the assumed operations. A practic al example where the concept of employees’ empowerment culture was widely embraced is Ritz-Carlton Hotel. Instead of marginalizing its employees by failing to listen to them and refusing to have them contribute in the hotel decision making processes, Ritz-Carlton Hotel does exactly the opposite. Employee empowerment is not merely used in guests’ satisfaction, but it is rather intended to crown them imaginary services (Hardina, 2007). Every employee at Ritz-Carlton Hotel has a chance to contribute to the decision making process and they have the mandate from the leaders to act accordingly. How the employee empowerment concept bring about specific actions Initially, Ritz-Carlton Hotel did not engage its workforce in the continual process improvement and in the development of work processes. It was thus very difficult to gauge how the indispensable service deliveries to partners could be made. There was equally laxity and non-commitment on the side of employees as regards to service deliveries and goal attainments. The morale and motivation in the institution was extremely low while the employees were less energized by failure to involve them in the decision making processes. The employees thus felt like they were not recognized and neither were they deemed part of the organization. Thus, they lacked the full sense of entrepreneurial commitment (Rehkopf, 2009). The theory of employee empowerment necessitates that each employee within the organization must totally sense the commitment of the organization to such an empowerment. Merely saying that the workforce is empowered is actually not real. In fact, the management and all leaders found at different levels ought to act by shunning the mere talks. This theory requires that the management ought to realize that workforce empowerment is not like the magical gifts that workers receive from the management. The leaders have the responsibility of establishing a pivotal atmosphere and environment where the workforce feels the real empowerment (Ryan, 1998). They should have a feeling that they are emboldened in the decision making process and must be aware of the management backing and support. Results achieved by practicing employee empowerment theory After the theory was implemented at Ritz-Carlton Hotel, the employees unleashed their full potentials as regards to service delivery and consequently participated in all the entrepreneurial operations. They aided the hotel management in detecting and solving the emerging problems besides providing guests with legendary services.Advertising We will write a custom essay sample on Application of Management Theories specifically for you for only $16.05 $11/page Learn More The employees felt like they had greater stakes in the hotel and fully remained loyal and accountable to their assumed tasks. Indeed, they equated their respective triumphs and purpose with those of the hotel. There were sky-high morale and motiva tions in the hotel devoid of sporadic campaigns and gimmicks by the management (Rehkopf, 2009). The employees were passionate about fellow workers and service deliveries to guests. What I could have done differently As a practicing manager, I could have aspired to know the employees by their names, share my time with them, treat them like adults and personally look for their welfare. Most important, I could have shared with them my visions and goals for the hotel by thoroughly and frequently communicating with them. Information and guidelines for empowered behaviors could also have been made available to each worker. Workers who attain beyond expectations could have been rewarded while any emanating member issues could have been instantly resolved. Thus, the employees could have been made and parcel of the hotel. Another theory that could be used in decision making is the self-determination theory. Based on this theory, workers have both external and internal perceived locus of loca lity which makes them feel that any force initiates and sustains their actions. Such forces might in turn cause motivation. Penetration pricing theory This concept has been widely employed by most new market entrants when they aim at winning clients and consequently garnering larger market shares from their competitions. The theory derives from the demand price responsiveness by assuming that clients will always move to the novel brands and products whose prices are seemingly low. The assumption is that provided brand loyalty has been developed, then the set prices might be raised progressively to attain the dominant market price. In case prices are low, then the preliminary goodwill will be generated and hence companies will be capable of holding unto their clients besides gaining other positively referred customers (Baker, 2006). A practical application of penetration pricing There are numerous issues that are addressed via applying this theory. As reported in the media, this theo ry has been extensively applied by Wal-Mart Corporation. The company believed that when higher prices are charged on commodities, market competitors will eventually outperform it by reducing their prices. Since identifiable and distinct prices segment are inexistent in the market while price elastic demand are exhibited, larger products market will permit competition take place. Prices will eventually reduce thus permitting subsequent price hikes which will operationally offset the preliminary low prices (Hardina, 2007). Wal-Mart applied this theory by setting low prices to help its clients save money and live better lives. The company did this by offering pleasant shopping experience, guaranteeing satisfaction, setting the least possible prices, providing knowledgeable experience and a variety of quality products. It was as a result of price antagonism and market competition that Wal-Mart opted to adopt this theory.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More How penetration pricing concept bring about specific actions The theory of penetration pricing helps customers to recognize each other. Any company that draws on penetration pricing stands a better chance of countering the competitors’ actions and has exceptional positioning strategies. For instance, Wal-Mart applied this theory in its business operations and the corporation has had the chance to utilize economies of scale. Economies of scale in turn helped the company to produce numerous goods at the least cost possible. The end result is a reduction on the charged prices, avoidance of market competition and becoming a market leader (Winninger, 1994). Results achieved by employing penetration pricing theory When Wal-Mart applied this concept, it created a positive impression which made clients to believe that the corporation truly provides the lowest priced products. The created image overshadowed various clients’ expectations by creating a price loop. The company eff ectively applied penetration pricing to an extent that clients deemed it an imperative factor when making their product choices (Hardina, 2007). Therefore, while the suppliers assume low pricing strategies, the company offers better prices to ensure low sourcing costs. What I could have done differently Given that Wal-Mart employees and suppliers show their ill-treatment grievances at the company, the company is in the verge of being negatively portrayed. However, to make all market participants’ and employees happy, I could have offered the clients’ quantity and product loyalty discounts. The cost of production could have been reduced via economies of scale which in turn could have allowed the setting of low prices. Conclusion Employee empowerment can be applied to ensure performance improvement. It is considered as an important element for managers who are in quest for outstanding services. Any effort put towards employees’ empowerment could possibly give resu lts beyond expectations. Conversely, any company that applies the penetration pricing theory stands a better chance of making its products to be recognized by the clients. The theory helps in creating a positive brand image in the minds of clients. References Baker, R. J. (2006). Pricing on purpose: Creating and capturing value. Sudbury, MA: John Wiley and Sons. Hardina, D. (2007). An empowering approach to managing social service organizations. Florence, KY: Springer Publishing Company. Rehkopf, E. (2009). Club resources international: Making employee empowerment a reality at your club. Retrieved from clubresourcesinternational.com/media/8651/employee%20empowerment.pdf Ryan, J. (1998). Giving people the chance to sparkle. Journal of People Management, 1(13), 40-42. Winninger, T. J. (1994). Price wars: How to win the battle for your customer. Ontario, CA: St. Thomas Press.

Business Proposal Project and Macroeconomic Policy and Implications

Business Proposal Project and Macroeconomic Policy and Implications University of PhoenixEconomics in Health CareBusiness Proposal Project and Macroeconomic Policy and ImplicationsIn recent weeks the administration along with the Board of Directors voted to expand the holdings. After viewing several localities and considering a multitude of business ideas, the decision was made to invest in an urgent care center. The locality was selected when discussions turned to the International market. Foreign investment was one of the requirements. Several of the doctors have spent time in Italy, had developed a fondness for the city of Genoa.A closer look at the pros and cons of doing business in a foreign country brought about a desire to build a medical urgent care center and move forward with the plans for expansion of holdings. As reported by the web page on Italian-American citizenship, Italy has an affordable health care system and a high standard of medical assistance. Italian doctors are well trained and very passionate about their profession, and the private hospitals are comparable with any throughout the world.English:The National Health System of Italy, called the Servizio Sanitarioi Nazioanale (SSN), (Italian American Citizenship, 2009) offers inexpensive health care to all European citizens. The center administration feels is a good fit for this type of market.Cost to Patients and ReimbursementItaly stands with regard to current health care charges in order to anticipate what price to relate to urgent care services. Urgent care is not common for private facilities in Italy and is usually offered at public health care locations (United States Diplomatic Mission to Italy, 2007).In order to determine how reimbursement will be obtained it is important to look at the both the National Health System (NHS), private insurance, and private pay. The urgent care center will be required to undergo credentialing of staff in order to become eligible...

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Russian Mafia - Research Paper Example As Mallory (2006) points out, The Russian organized crime started in US when Soviet criminals started entering the US making use of the liberalized immigration policies of the country. An area called Brighton Beach in southern Brooklyn emerged as their center of operations (p, 76). They emerged as a widespread criminal center in the North America in the following years engaging in criminal activities including drug trafficking, extortion, loan sharking, human trafficking, prostitution etc. The Russian mafia comprises of Ethnic criminal gangs comprising of Russian, Chechen, Armenian, Georgian, Azerbaijani criminal groups. The Russian mafia has tie ups with American-Italian criminal network La Cosa Nostra on enterprises like gambling, extortion, prostitution and fraud. According to a report given by FBI director Louis Freeh to the US senate, 27 groups belonging to the Russian mafia are operating in the United States, and they are conceived to be based around cities like San Francisco, Los Angeles, Miami, Chicago and New York (CIS Report, 1997). The FBI uses various methods like undercover operations, confidential entities, reports from the intelligence bureau, patrolling, forensic accounting etc. to track down such groups. FBI also joins hands with other federal investigation agencies like the CIA, and also cooperates with agencies of other countries to capitalize information. The FBI and CIA have employed secret agents worldwide who collect information about potential attacks, conspiracies, and illegal activities taking place against the country. Based on the data they collect from various sources, they form a master plan on how to confront the groups. Russian mafia is so powerful since they cooperate with other mafia organizations, and have financial pumping from all over the world. This makes them one of the most dangerous criminal setups in the world. Evidently, an elaborate

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Polictal Phylosophy. What it it - Term Paper Example This paper shall be a discussion of my personal political philosophy. Specifically, it shall be a discussion of my liberal political philosophy, largely based and supported by John Locke’s philosophy. A discussion of my political philosophy as applied in the Iraqi invasion shall be established by this paper followed by a discussion related to gay marriage. My other political views shall also be considered, as well as the relationship of this philosophy with other political philosophies. Body I have a liberal political philosophy. By this, I mean that I believe in the freedom of the people to decide their own fates within the bounds of law and morality with limited interference from other people, other states, and from the government. I adhere firmly to this philosophy because I believe that man was by nature born free and possessing of these inherent liberties. As such, he is free to decide his destiny and his fate as an individual and as a free person (Gaus, 1983). I also bel ieve that allowing the individuality of people to emerge can help ensure the favorable development of human beings. It also allows them to become the person they most want to be, without anyone or anything preventing them from fulfilling their ultimate goals (Mill, 1963). I believe this to be the best ideology which a person can apply in his life because through such ideology, he will be able to get closer to the perfection he desires. Only under liberal principles and philosophies can a society which is ideal for the greatest number of people be achieved. Every man has an opportunity to shine and to gain success under this philosophy and it would also serve to equalize economic disparities among the people, thereby giving the poor people a chance to seek their fortunes and dreams under the protection of this philosophy. My political philosophy acknowledges the fact that a favorable life is one which is freely chosen and one where a person can develop his individual and unique quali ties based on his plans in life (Galston, 1980). I also adhere to this political philosophy because I strongly oppose the dictatorial and authoritarian ideals which are contrary to the ideals of liberalism. I also do not adhere to the idea that ‘might makes right.’ I believe that we started out as a people without any government, without police authorities or even private properties, and yet with natural and inherent reasoning, we have managed to coexist favorably with each other and have managed to resolve our differences using natural laws. By adequate and logical reasoning, it is sufficient to think that people have their rights to their labor and their properties (IEP, 2001). Eventually, with time, people have been able to discover that in order to coexist with each other, they needed to establish social contracts with each other, and from such contract, political obligations and the management of private properties have been established (IEP, 2001). With these prec epts, I adhere to the liberal political philosophy because it is a philosophy which is likely to benefit the most number of people in fair and naturally efficient ways. I am also a liberalist because the philosophy it espouses are fertile grounds for the application of

FTSEs Capital Structure and Profitability Relationship

FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance. FTSEs Capital Structure and Profitability Relationship FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance.

Children’s day Speech Essay

Respected Headmaster, teachers and my dear friends, Today we have assembled here to celebrate the Birth Anniversary of Pandit Jawaharlal Nehru as Children’s day. He was fondly called as Chacha Nehru by all children in a loving manner. He loved children very much so he decided to celebrate his birth day as children’s day. Nehru was born on 14th November, 1889 in Allahabad. His father was Motilal Nehru and Mother was Swaroop Rani. Since from his childhood, he was very intelligent boy in all aspects. After completion of his schooling in Allahabad, he went to England for his higher studies . On completion of his studies, he returned to India in 1912 as a lawyer in profession. In India there were many movements started by different freedom fighters of India against the British people. So, Nehru also joined the Indian National Congress in 1920. It was the period of Mahatma Gandhi who leaded the whole freedom struggle. Nehru also got very much attached with the policies of Mahatma Gandhi that is ‘Peace & Non-violence’. see more:welcome speech in school function He actively took part in all freedom movement started by Mahatma Gandhi. This made a great change in the freedom struggle. Slowly and slowly people started joining the struggle finally it is possible to consolidate a huge mob in the movement like Non-cooperation movement, Dandi March, Quite India Movement and many more. He went to jail for many times but that didn’t stop him from fighting for the country . Finally India got its freedom on 15th August, 1947. Jawaharlal Nehru became the first prime Minister of India in 1951. He was honoured by the country with Bharat Ratna in 1955. So, on the behalf of the entire school I am wishing you all a very happy childrens day. Jai Hind! 3.How to attract audience with our speech on Children’s day Esteemed Directors, Respected principle, Dear colleagues and My dear Students, I am very much delighted to associate myself with all of you on the occasion of Children’s day today. I express my best compliments to you all from the core of my heart. Children’s day has its own significance . Jawaharlal Nehru was born on 14th November . He loved children very much. Children endearingly call him ‘Chacha Nehru’. So we are celebrating Children’s day to commemorate his birth aniversary.According to Nehru , â€Å"The students of today are the citizens of tomorrow†. No doubt, you are best students today. You will occupy important position in future career. All of you should be inspired by our beloved former Prime Minister, Jawaharlal Nehru . Some of you will become doctors , engineers , lawyers , I.A.S Officers ,teachers , lecturers ,leaders etc. You are the strength of our counrty. You are the nation builders. If the younger generation is brought up in a good environment, our country can prosper in the years to come. There is a proverb in English . Strike while iron is hot. It means we have to do certain things in right time. It is easy for us to mend the minds of the children. Thus we can shape their future beautifully and wonderfully. It is the duty of the children to love their parents and respect the teachers and elders. Without this quality , you cannot achive anything great. If achived it is useless. Dear students, Be sincere, Be Honest, Be Frank, Be Devoted, Be Dedicated, Be Determined and Be Disciplined. These words may be easy to utter but diffucult to fallow. You are the little masters today. Tomoro you will be the masters of your minds.It’s time to leave of you wishing you a bright career. Thankyou. Speech Good (Morning / Afternoon / Evening) every one . hearty welcome to my friends, respected teachers, honorable chief guests and media. on behalf of , on this auspicious occasion. I am here to deliver speech regarding the Children’s Day . Very Firstly let me wish you all a joyful Children’s day. All though it is officially declared to celebrate on 20th November in regard to The UN General Assembly as it accepted the Declaration of Children’s Rights in the year 1959.yet In India Children’s day is celebrated every year on the account of Jawaharlal Nehru’s birth day eve as on 14th November. Pandit Jawaharlal Nehru birthday has been chosen for the celebration of children. The ultimate reason behind this celebration is his UN fainted love and ardor towards children. Jawaharlal Nehru had worked passionately and perspicaciously for the betterment of children as well as youngsters right after the independence on august 15,1947. He was very much enthusia stic and whole hearted about welfare, valuable education and overall improvement of children in the country. He was greatly warmhearted about children and therefore & indeed became well-liked as â€Å"Chacha Nehru† for his little buddies. Chacha in the sense UNCLE and finally after his death in 1963, his birthday has been celebrated as children’s Day in India. Its simply not the day which one can assemble, lecture, eat and disband but one should keep in mind that a leader who determined the rosy way which ultimately laid the foundation to renovate a promising nation into a supreme body. The well known fact that all the time reminds me is that, Childhood is the best phase of one’s life which is in fact very free of personal responsibilities and financial burdens too. Intentions are very much clear and mind -body; heart –soul works genially. The impurity of mind makes the children different from others. On the Children’s Day a grand accolade is paid to all children. If truth to be told, Children are always liked and loved by each and every one. They straight away prevail our hearts with their adorable eyes and guiltless smirks. Often strikes that, it is the way the creator (GOD) wanted to see all of us. The back ground part is over now coming to the fun making arena. Children are very much enthusiastic to participate in games, activities and all. To their chance the children’s day clears the barriers and allows them to live how and what they actually want to. As to their wants the institution organizes many exuberant activities to let them show case their talent which cannot be displayed in the normal  course of academics. Various competitions such as essay writing, elocution, painting, modern dress, singing and cultural programs have been conducting by our institution to keep the momentum and encourage children beyond academics’. I hope and wish, all of you will definitely reach your dream destination in life and make your parents and teachers feel proud of your success by the way moving the nation forward with wonderful innovative thoughts striving for the up lift standards of the society. With this I would like to conclude and further proceedings will be taken up by the president of the function.

Global Marketing Chapter 1 Notes

Chapter 1 Global marketing refers to marketing activities that take place across national borders and outside of the firm’s home country Involvement in global marketing does not mean that a firm must sell its products in every country or region of the world Coordination and integration of marketing strategy with an emphasis on standardization are central tenet of GM Evolution of the conceptDomestic marketing – International sales are incidental to marketing strategy Multidomestic marketing – unique strategy for each country market Global marketing – Focus now on standardization and global segments Local marketing – Standardization but with a focus on the needs of local customers â€Å"Glocal Marketing† reflects the need for balance between global marketing, with a focus on standardization, and local marketing, with its focus on adaptation to country differences GlobalizationGlobalization refers to the increased integration of the worldâ€℠¢s economies. Ongoing global technological innovation in marketing has direct effect on the efficiency and effectiveness of all business activities. Globalization reflects a business orientation based on the belief that the world is becoming more homogeneous and that distinctions between national markets are not only fading but, for some products, will eventually disappear. Forms of globalization: Globalization of markets vs. Globalization of production Drivers of Globalization Market factors – convergence of markets, diffusion of telecommunication & internet. Growing # of retailers are now showing great flexibility in their strategies for entering new geographic markets * Cost factors – avoiding cost inefficiencies and duplication of effort are two of the most powerful globalization drivers. Economies of scale refers to the reduction in per unit cost of production. Economies of scope refers to reduced cost per unit as the firm spreads its total costs over a large numb er of brands, product lines, or target markets. Environmental factors – government barriers have fallen dramatically in the last several years and this has further facilitated the globalization of markets and the activities of marketers within them. Rapid technological evolution is contributing to the process. * Competitive factors – to remain competitive, the marketer may have to be the first to do something or to be able to match or pre-empt competitor’s moves. Without a global network, a marketer may run the risk of seeing carefully researched ideas picked off by global players.Market presence may be necessary to execute global strategies and to prevent others from having undue advantage in unchallenged markets. The anti-globalization movement The globalization trend has drawn its fair share of critics over the years. Anti-globalists have expressed concerns about the impact of the trend on the poor, the environment, and on national sovereignty. Many anti-glob alization protests have turned violent in the past Opportunities and challenges in global marketingThe growth of global business activities offers increased opportunities. International activities can be crucial to a firm’s survival and growth. By transferring knowledge around the globe, an international firm can build and strengthen its competitive position. What is needed is an awareness of global developments, an understanding of their meaning, and a development of capabilities to adjust to change. Willing or unwilling, firms are becoming participants in global business affairs.

Free Essays on Hegels State

There is no doubt an urge for criticism of Hegel’s state, which rises up from within a member of present day western civilization which demands an explanation for such an object within society. The dominant argument focuses on what appears to be a lack of justification for Hegel’s necessary movement from morality to ethical life as one’s individuality is lost in a group mentality. An underlying to force may exist in this argument with relation to Hegel’s abstinence from the explicit use of God as the universal will. Would one be less compelled to draws arms if Hegel had associated God with the State? I also lay in disagreement with Hegel, but for more basic reasons; the state is neither the universal nor infinite concrete freedom. However, Hegel does offer anyone the allowance for the understanding of man’s dialectical movement towards a state, the universal, and an ethical life while still leaving room for individual freedom within ethical l ife. From a western perspective, the movement from morality to ethical life is in actuality a self-delusional movement away from oneself. Within morality, one is entirely focused inward towards themselves but far enough along the movement to have experiences with other people. Here the subjective will takes control and develops its inner life, on the lines with a modern day conception of what it means to be a free individual. But for Hegel morality, or subjectivity, is not enough as a higher form lies further, within ethical life, the Idea of freedom (p105 Â §142). The subjective will for the good, conscience, self-consciousness, while the will remains the master of itself, lays a firm foundation for opposition, but they also are catalysts which force one through the dialectical movement. In morality, the individual will reflects inward towards itself in order that it may become aware of itself (p75 Â §105). It is only after the will’s reflection, that it becomes the subje... Free Essays on Hegel's State Free Essays on Hegel's State There is no doubt an urge for criticism of Hegel’s state, which rises up from within a member of present day western civilization which demands an explanation for such an object within society. The dominant argument focuses on what appears to be a lack of justification for Hegel’s necessary movement from morality to ethical life as one’s individuality is lost in a group mentality. An underlying to force may exist in this argument with relation to Hegel’s abstinence from the explicit use of God as the universal will. Would one be less compelled to draws arms if Hegel had associated God with the State? I also lay in disagreement with Hegel, but for more basic reasons; the state is neither the universal nor infinite concrete freedom. However, Hegel does offer anyone the allowance for the understanding of man’s dialectical movement towards a state, the universal, and an ethical life while still leaving room for individual freedom within ethical l ife. From a western perspective, the movement from morality to ethical life is in actuality a self-delusional movement away from oneself. Within morality, one is entirely focused inward towards themselves but far enough along the movement to have experiences with other people. Here the subjective will takes control and develops its inner life, on the lines with a modern day conception of what it means to be a free individual. But for Hegel morality, or subjectivity, is not enough as a higher form lies further, within ethical life, the Idea of freedom (p105 Â §142). The subjective will for the good, conscience, self-consciousness, while the will remains the master of itself, lays a firm foundation for opposition, but they also are catalysts which force one through the dialectical movement. In morality, the individual will reflects inward towards itself in order that it may become aware of itself (p75 Â §105). It is only after the will’s reflection, that it becomes the subje...

Learning About Seahorses

Learning About Seahorses A seahorse isnt a horse at all, but an extremely unique fish. It is named for its  head, which resembles that of a very tiny horse. From its horse-like head, the seahorses body tapers down to a long prehensile tail. Prehensile is a fancy word that means used for grasping. Monkeys also have prehensile tails. Seahorses use their tails for grasping underwater plants to anchor themselves in place. They hold onto coral and seagrasses and camouflage themselves by changing color to hide from predators. Seahorses dont have many predators, but some crabs and fish will prey on them.   Seahorses  also like to hold onto one anothers tails while they swim in pairs. There are many different types of seahorses and all are unique in many ways. For one, although they are fish, they dont have scales. Instead, they have skin. A seahorses skin covers a series of bony plates that run from its head to its tail- including its neck, a body part that other fish dont have. One thing seahorses do have in common with other fish is that they breathe through gills. They also have swim bladders like other fish.  Very slow swimmers, seahorses move about through the water with three small fins. They swim upright, using their fins to propel them forward through the water and their swim bladders to move them up and down. Another surprising fact about seahorses is that the male carries the babies. The female lays the eggs in a pouch, sort of like that of a kangaroo,  in the males stomach. He then carries the eggs until they hatch, usually two to four weeks later. Many people think that these tiny fish mate for life, but facts about seahorses dont seem to bear that out. Seahorses eat plankton, shrimp, and small fish. However, seahorses dont have stomachs! Food passes right through their bodies. That means they must eat almost constantly. Luckily for these tiny fish, they are good hunters. They hold on to coral and seagrass with their tails  and suck food into their mouths with their long snouts. They can slurp up food from over an inch away. Reading About Seahorses Books are a fun way to learn about any topic, including seahorses. Mix fiction and non-fiction to engage young learners. Try these titles: Mister Seahorse by Eric Carle  is a fun and educational story about how male seahorses are the caretakers of their eggs. Find out which other fish fathers have the same responsibility. Seahorses by Jennifer Keats Curtis is a beautifully-illustrated, non-fiction book about the life of a seahorse from the moment hes born- along with 300 brothers and sisters! One Lonely Seahorse by Joost Elffers will draw in your preschool students with its counting story that begins with one lonely seahorse. Amazing Pictures and Facts about Seahorses by Mina Kelly will answer your students questions about seahorses. How do they breathe underwater? Why do seahorses curl their tails?   Seahorse Reef: A Story of the South Pacific by Sally Walker is a delightful, educational story whose facts about seahorses have been reviewed by the Smithsonian Institute for accuracy. This is a must-have for your seahorse study. Seahorses: A Life-Size Guide to Every Species by Sara Lourie will prove an invaluable resource to older students. It features photos and facts about 57 different species of seahorses. Other Resources for Learning About Seahorses Look for other engaging opportunities to learn about seahorses. Try some of these ideas: Use free seahorse printables to learn the vocabulary associated with and facts about these fascinating fish. The printable set includes activities such as word search and crossword puzzles, vocabulary sheets, and coloring pages.Visit an aquarium. If you live near an aquarium, call to see if they offer a seahorse exhibit. Its so much fun to observe seahorses in person!Visit a store that sells fish. You can keep seahorses as pets, so some fish and pet stores will have some that you can see in person.Watch videos and documentaries. Check sources such as your local library, YouTube, Netflix, or Amazon video for films about seahorses.Make a diorama depicting seahorses in their underwater habitat.Make seahorse crafts. Seahorses are fascinating fish! Have fun learning about them. Updated by Kris Bales

The American Holocaust Essay Example | Topics and Well Written Essays - 750 words

The American Holocaust - Essay Example To name a few of them – King Phillip’s War, (1675–76) King William’s War, (1689–97) Queen Anne’s War, (1702–13) King George’s War, 1744–48), and the French and Indian War (1754–63) (John Demos, American Heritage Magazine) All these wars took a heavy toll on England in terms of money, time and bloodshed. Some of the targeted places were Lancaster and Haverhill, Salmon Falls and Oyster River, York and Wells, Maine, in addition to the single most hideous and notorious â€Å"massacre† of Deerfield, Massachusetts. (John Demos, American Heritage Magazine) This was yet another European war which had a â€Å"colonial† dimension that occurred in 1704. Together with their Indian allies, the French made a few devastating raids on the â€Å"eastern frontier† and this was counter attacked by the English who targeted about six Abenaki Indian villages. Deerfield had strengthened its position to protect itself by building a â€Å"stockade† (an area which was fortified and surrounded by a high palisade fence) a â€Å"watch† to patrol along the streets during the nights, a â€Å"garrison† of soldiers who were hired in addition to scouts who patrolled the woods. The French led the attack with war paint and weapons on the sleepy town of Deerfield on the night of 28th February. A group of the attackers get down into the stockade and opened the door for the other to enter. It was too late for anything because the attackers broke down windows and doors sending people helter and skelter to try and save themselves. In a few moments there was massive devastation and gruesome killings of men, women and children. Rev. John Williams and his family were captured and taken as captives. There were 92 captives in all and those who found it difficult to cope were shot down or murdered with a hatchet. Life in New England took on a different perspective as relatives and friends made great efforts to secure their release. A few of them

Persuasive Communication Essay Example | Topics and Well Written Essays - 250 words

Persuasive Communication - Essay Example The same author mentions some which could really be interesting for high school and college students to consider. Becoming a lecturer does not only appeal to those who are interested in sharing their knowledge and expertise to others but also can make them a really good career. Once a teacher becomes experiences, he could be promoted as a senior lecturer then assistant professor up to being a university professor. Others may take another trail in research which could make one famous. Aside from being a lecturer, one can contribute more in the education industry as a quality assurance health manager. This job allows an individual to actively spread awareness among the people about AIDS and the preventive measures to be taken. In addition, he also plays an important role in the development of clinical health plans, investigate adverse medication events and suggest preventive measure. As expected after taking the course, one can always become a pharmacist either as a health system, hosp ital or community pharmacist. Other jobs like medical transcriptionist, analytical chemist of quality control manager, sales and marketing, clinical research, data manager, regulatory manager and career in regulatory bodies (Hadkar) are jobs a pharmacy student could consider delving into. They are equally challenging and satisfying. Pharmacy actually offers a wide variety of jobs to cater to the different interests of students so start a fulfilling job by enrolling in a pharmacy