Wards Model Essay Example Pdf - Free Essay Example

Sample details Pages: 10 Words: 3040 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? In their book- Corporate Financial Strategy-(CFS), Bender and ward (1995) had tried to build closer links between finance and strategy. Dealing first with CFS, it should not be considered with corporate finance as the discipline addresses a range of issues which interconnects finance and competitive strategies. In the book, they based their model with the product life cycle (PLC) by matching external sources of finance to strategies for corporate development throughout the life cycle of a company and composed financial elements mainly venture capital, debt, dividend, profit, P/E, and risk into the model. Don’t waste time! Our writers will create an original "Wards Model Essay Example Pdf" essay for you Create order In their model, they tried to describe each stage of the PLC and the effects on these financial elements throughout the stages of the company life cycle and described in details how to raise finance throughout the company life cycle and whether to pay dividend or retain earnings etc. In this article, the main purpose is to analyse each stage of their model and how these stages have effects on these elements and evaluate the model in terms of its strength and weaknesses and recommendations if any to improve the model. Bender and Wards model The use of the PLC concept as a framework to formulate and implement timely financial strategies can be justified in bender and wards model of CFS as they have adopted the same curve as PLC where the main objective is to ensure overall company profitability and maximize shareholders wealth over the life cycle. In their model, they describe optimal financial decisions that a company should take at various stages of the company life cycle (CLC). The PLC concept has an essential impact on companys strategy in different areas such as finance. The basic issue Ward and Bender explained through their book- is that there are loads of finance textbooks, which explain the theory and put it into some sort of context, but there did not seem to be anything that said look this is what you actually do, and this is why you do it. They started the model with defining the risk in two ways- financial risk and business risk. By financial risk, in the model it specifically means the amount of borro wing a company has in its capital structure. So, if a company has a lot of borrowing then it is taking on a lot of financial risk; if it has no borrowing or gearing at all, then it has got no financial risk. And that way it is easy because it means that business risk is everything else, but business risk really is what it says. In their model, the business risk refers to the volatility of profits and cash flows of a company and that is going to depend on whether it is a younger company or a mature company, what sort of industry it is in and how susceptible it is to the economic cycle. Moreover, to connect the strategy and financial, they put emphasize on the importance of P/E ratio which represents the ratio of current share price to its earnings per share (EPS), where high P/E ratio represents the high potential for growth in future. According to their model, at the beginning stage, venture capital is the main source of financing the operations in any company and will remain the main source of funding until the company will start heading towards the maturity stage. According to the model, at the launch stage, the business risk is so high because of the product risk in the new market and low operating income (or some time even suffering losses), so to create the balance it with the financial risk the company should not borrow to keep the financial risk low. Static trade-off theory also supports the opinion that a firm in growth stage should not finance with debt because of the high bankruptcy cost. There is also no benefit in tax with expenditure of interest because of their low revenue. Moreover if a company try to finance it business with debt at the launch stage it might lose the opportunity to increase its revenue or minimizes its losses as it has to pay interest on the fund acquired through debt. And when the company is unknown and the business risk is high at this stage and it is likely that company might suffer initial losses, borrowing does not soun d an attracting option for funding as it will create an imbalance between financial risk and business risk. And also at this stage, according to the model, it is wise no to pay dividend as company has not sufficient earnings to pay out. Ward also mention that at this stage the P/E ration of the company is normally high because of the low earning per share (EPS). Even at the growth stage the company is still facing high business risk as it has to pay promotional expenses for increasing the sales. At this stage company can enter in to small stock market to raise their equity from the broader range of equity investors and keep the level of its financial risk still low. Despite of that many companies still fail to manage the rapid growth sales, so it is wise not to go for borrowing at this stage as well and finance should be taken from capital market in the form of equity and by retaining the profit of the company and company should pay small dividend to keep the investors interest i n the company (Bender Ward, 2003). Capital structure may be influenced by the firms life stages, as needs for funds may change with the changing circumstances of the firms from equity to cheap source of financing that is debt (Bender Ward, 1993). It is not always advisable for mature company to only use equity financing therefore, company should use debt financing in order to balance companys finance and business risk in particular circumstances during the maturity stage. Damodaran (2001) also proposed that expanding and high-growth firms would finance themselves primarily with equity mostly through venture capital and when it enters in the maturity stage, the funding would be replaced by debt. Likewise in the Bender and Ward model also, as the company progress towards the maturity, the business risk tends to reduces and at this stage, company can think of taking the advantage of borrowed money from the market to decrease its cost of equity by the mean of cheap debt. As company moves from equity to debt financing, its financial risk gradually increases as it uses more and more debt financing. Since the potential opportunity for growth is low, the money is not working hard in the business and now company should start to repay the invested amount to its shareholders in form of dividends. Now at the declining stage, company knows that what is going to happen, so here it should use debt financing for the business activities because the business risk is low at this stage. Dividend should increase to its maximum level at this stage as the opportunity for growth is very low. At this stage, the principle source of finance that is debt is associated with high financial risk, which offsets the low business. Critical Evaluation of the Model Looking from the practicality of the model, Bender and Ward model seems very attractive and guides company how, when and by what mean to raise money. Nevertheless, what about the companies (industry) which are already at the maturity stage. However, their model finds difficulty to answer this question, as these mature companies want growth. Their model simply adopts the PLC model and extended it to company life cycle. Another consideration about their model is that the PLC is not following the classical mode of theorising and since their model is based on PLC, the weaknesses of the PLC can also affect their model (Sion 2012). It is not clear that the PLC is a concept, theory, model or framework? Management only looks for the practicality of the model but what is the underlying theory behind that which is missing in bender and wards model. It is also not necessary that all the companies go through all the stages of the life cycle. It is not unusual for product to gain second life or even reincarnation that can help companies to progress from maturity stage not to decline or death but to fresh period of repaid growth. And now a day, many companies borrow money from the financial institutes as they are the cheap sources of financing and government also provides financial support for companies to start the business and encourage them for borrowing and also help the mature companies or industries to bring them back to the growth track. There is also a lot of confusion about the fact that what kind of evidence can prove the model. There are number of mature companies who have no dividend which is against their model. It is also not clear that what kind of hypothesis can prove or disprove the model. Moreover, the model is over emphasized on finance and give relatively low importance to the strategy thus difficulties can be found to interlink finance and strategy. In addition, the concept of value is also not very defined in their model; however, they came very close to define the value in their model. For linking strategy and finance together, value can be considered the main concept that is required to interlink these two disciplines. However, their model gives more weight to finance and thus it misses the link with strategy. The value is behind their model but they did not realize the actual value, which arises from the consumption of the financial resources and utility. The model is developed by using PLC idea but there are many other strategic theories like porters five force, value chain, generic strategy which are well defined in terms of value and can help to interlink finance and strategy together. One of the limitations of the PLC is that it cannot predict the length of the each stage of the life cycle and also cannot forecast the sales accurately. Although the PLC stages concept provides the manager directions about the changes of characteristics of companies and diagnosis tool to direct the company to reach and keep their b est life stage. However the limitation of the model is that it is not clear that when and how a company should raise the money as the model fails to predict the length of each stage and as a result company cannot clearly decide when the best time to use debt funding is. The PLC also assumes that the entire product passes through these four stages of the life cycle. If this is correct then the company must enter to decline stage after the maturity stage and company usually wants to avoid this stage. In reality, as said earlier, a product can rebirth after the maturity stage and can avoid the decline stage by improving the quality of the product and thus it can again enter in the growth stage. Another possibility is that a product may perform so badly at the launch stage because of the poor marketing strategy and thus it straight away move towards the declining stage of the life cycle. And bender and ward has applied the same concept of PLC in their model, so these limitations of PLC are directly affecting their model. In addition to these, another criticism against their model comes from the MM theory developed by Modigliani and Miller (1958). According to their theory, borrowing can help small companies to grow rapidly as borrowing supports the sales increase and consequently the growth of the company. They argued that the change in debt-equity ratio will not affect the value of the company and as a company increases its debt the overall cost of equity tends to decreases and shareholders bear higher risk due to the increased possibility of the bankruptcy. Also the agency problem is missing in Bender and Ward model. In their model it is not clear who controls the company, managers who are the agents or the shareholders who are the source of financing at the launch and maturity stage? And one of the important criticisms against their model is risk. In their model the business risk is keep on declining as the company progresses to maturity and decline so the q uestion arises here is that what motives company to proceed to decline stage? It is not clear in their model. Although there are lots of limitation for the model, Bender and Ward are the first one who came with the concept to link finance and strategy together, and it is impossible for any model to meet out all the necessary criteria in the relevant field of research. Despite of that, there are also lots of advantages of their model. The interesting thing about the model is that it is very simple to understand and managers can use it easily to grow their business and change the financial sources for the company over the stages of the organization life cycle. The model gives crucial weight to venture capital for any company as it is the best way of financing the new business at the launch and maturity stage which keeps the balance between business and financial risk and when the company is in mature stage it can use debt funding. Adding to this, their model clearly identifies the high risk of borrowing and kept risk grounded to the firm level, which can help to company to avoid the credit crisis. Frielinghaus, Moster and Firer (2005) also conclude that capital structure life stage asserts that more debt should be utilised by firms as they mature, but they also have mentioned that there is a little test has been done to test this model empirically. It also helps people to understand the difference between junior and major stock markets which will help them to guide in their financial decision. Although the model is not tested against the evidence so far, it can be tested against the real situation of the companies in the stock markets. Porters budge Others might still give the importance to the simplicity of the model and will criticise the model, however, complexities can be built into the model. An important step in improving the model is taken by Sion by introducing the porters bulge derived using the porters five forces model. Many companies who are at the growth stage want to remain at this stage for longer period. But the potential high growth attracts entry and rivalry in the industry which can shake out the present companys life cycle and that is where the PLC and Porters five force model can be combined together to improve the model. In porters bulge, Sion introduced three new stages in the life cycle of a company by taking into account the industry in which a company operates, shaping between growth and maturity stage which are new entries, rivalry and shake-out. The five-force model will help to compare bender and ward model and can bring different point of view which can affect the company at the growth stage. A t the growth stage, the industry attracts the potential entrants and that can cause the market share of a company. At this stage, a company might experience slow but positive growth in sale, no growth in sale or a negative growth in sale and then accelerates with rapid pace depending on the rivalry increased because of the new entrants. At this stage a company will face stifle decline earlier in the life cycle but with the help of differentiation or new product introduction or developing alternative use of the old product can help the company to avoid the initial decline stage (porters bulge) in their sales. The introduction of revitalized product will smoothen the porters bulge. This idea of Sion is supported by the from the real world as many growing companies continuously keep on spending on the research and development to introduce new product every year to remain in the growth stage for longer period of time. But the problem with this is that competitors might also follow th e same trend and some time the company which is not able to compete in this kind of environment will straight away face the declining stage before the maturity period of the life cycle because of the shakeout in the industry. Another concern is that the five-force model assumes the neoclassic economics and perfect market which are not robust enough the present financial situations (crisis). It isolates the finance from the capital market, business and accounting. Conclusion The points Bender and Ward are trying to pull out very simply are that one can take a life cycle model of the company and can correlate what business risk and financial risk looks like over the life cycle, adjusting it for the type of business that the company is in. And say in these early stages company need equity it doesnt matter that debt is cheap, it need equity and this is what dividend policy should be and this is the type of investments it should be making and this is how it should be funding them. And then the message, as move through the life cycle and through the book, is company can make it more complex after this, but the only reason for complexity is if it benefits company rather than its investment bank. Its basically a practical guide to corporate finance for people who do understand a little bit of the theory. Their model also explains what the corporate financial strategy is all about and how a company should raise money throughout the life cycle of the company a nd how it should apply the money within the business. The link between Bender and Ward model and Porters five-force model can also help to connect the finance and strategy as these two models are interconnected with each other. To further evaluate the model, it will be required to analyse the number of companies where the focus should mainly be on the launching and growing companies to test the practicality of the model. This will help to fully understand the model from both qualitative and quantitative. Words count: 3039

Business Model And Strategic Plan - 2380 Words

Business Model and Strategic Plan Part 1: Conceptualizing a new product or service division of an existing business Miracle Spa is a therapy store center on relaxation as an aid in healthy living. Miracle Spa gives a mixture of products, techniques, and tools for customers to follow at home relaxation therapy. These goods combine body and cosmetics services, reflexology, aromatherapy products, candles, and perfumes. The performance of a healthy balance of spirit, mind, and body is Miracle Spa’s focus point. Miracle Spa offers facials, massages, nails, and waxing services at the store. Miracle Spa wants the customers to feel comfortable to decide to buy the items for relaxation, or just come in and have individual therapist provide them†¦show more content†¦Miracle Spa store will establish a niche because the business store has become a tremendous opponent for resorts and stores. Every market will have and present and a variety of Guided imagery, which is a method utilize by several for coping and stress management. These guided models will be ready for clients to use and buy for at home therapy sessions. Miracle Spa’s mission statement is to give the best quality of products and services for at home relaxation therapy. With the diversified collections of tools, products, and methods for the clients to obtain a healthy balance of spirit, mind, and body. Organization Vision: â€Å"A vision statement performs the firm’s strategic plan that centers the services and resources of the company on delivering a desirable tomorrow† (Pearce Robinson; 2010, p38). The vision of Miracle Spa is to produce the best tools, product, and methods available to meet the customer’s desires and demands in a relaxing, comfortable, and discrete environment. The future vision the author has for the company is a vision that workers will be please, it will become managed by the business helping and contributing back to the public. By doing all the above Miracle Spa values. It will benefit the company to make what pronounce in the vision and

Sports and Drugs Free Essays

Consider if steroids were legal, how much more exciting sports would be and t would be fair to everyone. Why: As an athlete and competing in a high level sport, I easily understand athletes and their reasons for doping in sports. At a high level you’re always striving to be the best you can be ad better than your opponents to win. We will write a custom essay sample on Sports and Drugs or any similar topic only for you Order Now Also, as a candidate for the Provincial and National Team for Canada I have experience in knowing what you need to know and expect while participating in these events. At a camp for team Canada, WADA showed up unexpectedly and took one of the girls’ urine test. So really this is why the topic of doping in sports caught my attention to is because I can relate to it and I’m interested in learning more about it. Why Illegal: it gives you an unnatural advantage against your opponent. Drugs or blood transfusions can provide a 5 or 10 percent advantage (Thomas Murray, Hasting report). Doping up your body and eliminating the concept of fair play is different from exceeding to your best abilities natural and being competitive. When participating in sports, it builds character to be determined, honest, and cooperative, but when an athlete pumps illegal performance enhancing drugs into their system it shows true character on what they would do just to win. It has a big effect on the athlete altogether. Doping also effects the psychological aspect of your morals and becoming a criminal by being dishonest and putting illegal substances in your body, it can be mentally damaging. Not only mentally damaging but doping messes up your body, the natural growth and development of it from unnatural drugs is something all athletes should be concerned about. Sacrificing your body to win isn’t a right way to compete. Most likely sport: From Peter Sullvan: The first overall highest percentage(3. 6) of positive illegal drug tests is cycling, in the 2006 tour de France( Including Floyd Landis in first) the top 5 placed athletes were all guilty of drug use. Along with Lance Armstrong admitting to doping after winning 7 tour de France titles. Floyd Landis describes cycling as â€Å"Professional cycling is organized crime. † Coming in second not too far behind cycling is Weightlifting with a 3% average of positive testing. Seeing how these athletes need to lift mass amounts of weight, its almost predicted that this sport is top 5 for positive doping statistics. Turkey and Russia are common countries who’s athletes are accused of steroids. Thirdly, Boxing is a candidate for doping in sports with a 2. 9% average. A case in 2007 was where an anti- aging agency was distributing steroids to famous boxers such at Even Fields. Boxing requires strength and stamina and some feel the need to enhance their training with steroids to just be stronger than their opponents. Coming after boxing in fourth, is Triathlon. Athletes involved in this race are super humans, in perspective of many people. To run, swim and bike with out stopping is impressive and takes mass amounts of mental and physical strength. Lastly, Baseball makes top 5 sports in doping with a 2. 5% average in positive testing. Even though this sport isn’t in the Olympics, Major League Baseball players have been known for steroid use in the past of 1999 and early 2000’s, as well this past year 20 players got suspended for steroid use. Types: EPO (Erythropoietin): This is a method of an increase of blood oxygen. Erythropoietin is a natural hormone found in the human body. It revitalizes blood cells to have more oxygen, which then increases anaerobic activity. (Kelland, 2012). CERA(Continuous Erythropoiesis Receptor Activator): This is another form of EPO. It increases your blood oxygen level without having to inject yourself as often. Anabolic Steroids: This is a fake replacement of testosterone to help the body utilize protein allowing the athlete to train with more intensity, along with building muscle mass and strength easier. Another aspect is that it acts as an anti- inflammatory to recovery quickly.  (Kelland, 2012) Diuretics: A substance that can mask illegal substances so they wont be detected. Side effects of weight loss. (Kelland, 2012) Blood Doping: Methods of substances to enhance red blood cell mass, to move more oxygen to muscles which increases stamina. 2 types; Autologous is where you use your own blood from being put aside until needed. Homologous is where you take someone else’s blood that’s the same as yours. (Kelland, 2012) Insulin: This enhances glucose in take that helps increase endurance levels by making the storage of muscle glycogen bigger for the athlete. If not used properly it can lead to low blood sugar which leads to unconsciousness and seizures. (Kelland, 2012) Gender? : Which gender is most likely to dope in sports? Well males are a dominant factor for doping. They are much more likely to dope in sports by using steroids. Steroids effect women in a much more negative effect then it does to men. For women, steroids have side effects such as growing hair in unwanted places, clitoral enlargement, and deepening of the voice. T’s easy to tell when a women is taking steroids because of the testosterone over load in their body and manly features. Their physical, behavioural and functional part of the women’s body are out of natural sync as well. Why would women want to take steroids in the first place? other than getting very strong? Women want equality and by taking steroids they can feel equally strong as men in the same playing field. Who’s in charge? the name is WADA (World Agency of Anti Doping). This organization keeps it fair throughout sports. The Olympic committee wanted an agency like this for all countries to follow to specialize on key activities include scientific research, education, development of anti-doping capacities, and monitoring of the World Anti Doping Code and it was quite a success. A cool fact is that WADA’s headquarters is right in Canada, Montreal. Their objective is to have a doping free sporting environment. Consequences: As an Olympic athlete it is important to keep your body clean of illegal substances. Why? Some of the consequences are quite serious. If caught by WADA (The World Agency of Anti Doping) before the Olympics, he/she is suspended for 6 months or longer. (Freedman, 2012) If an athlete has cheated during an event, and won, their medal is taken from them and the results are re-evaluated. Conclusion: In conclusion doping in sports is a serious social issue that shouldn’t be taken lightly. Doping shouldn’t be seen as a way to make an athlete feel better. Not only are they cheating themselves, but they are unfair to their opponents and should take into consideration what mental and physical harm they are really doing to their bodies. WADA is a great service to help deal with keeping sports all around the world fair by testing athletes for performance enhancing substances in their bodies. As an athlete myself I choose to really look into this topic because I’ve dealt with WADA myself. If you are an athlete, beware of what you put into your body. Its important to train to your full potential without being artificially enhanced with chemicals. The natural way is the way to go! Most important thing learned was how harmful steroids can be to your body and mind. Always important to stay true to yourself and not cheat. Be the best you can be How to cite Sports and Drugs, Papers

Face of Bravery free essay sample

â€Å"My parents are freaking out†¦ but I’m fine.† These are the words of my best friend just after being told she had a brain tumor. The tumor began growing off of the Schwann cells of her facial and hearing nerve, inside of the innermost ear and brain. The tumor was slowly growing into her brain stem. Upon hearing the news I was utterly shocked, terrified, and fascinated by the science of it all at once. According to her, the tumor was benign but the doctor warned of a probable malignancy. At first I told no one about Kathryn’s predicament, not even my parents. Why would I? How could I? I was having trouble believing it myself. My best friend, my partner in crime did not, could not have a tumor. Benign or not, I had heard countless horrors stories of brain tumors and I was scared out of my mind. We will write a custom essay sample on Face of Bravery or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page I did not cry when she told me, I know I needed to be calm and collected for her sake (and maybe even mine). As I sit here and recall those dark times, I realize now that Kathryn did not need any help being calm and collected. She told me about her situation without a tear, underwent a total of three intense surgeries to clear her head of that horrid threat, and still found time to succeed academically (she was ranked number three in our class at the end of the year). At first I was dumbfounded at her apparent indifference towards the whole situation and it was not until later that she told me of countless nights she spent crying herself to sleep, hating her new half-paralyzed face that resulted from surgery, hating her new crooked smile, hating the pain that she was going through. I even doubted myself as a friend for some time, wondering if I was giving adequate support to such a strong young adult. A year later, she took me aside and thanked me for all that I have done for her over the years. The moment moved me in many ways, knowing that I had made such a huge difference in one’ s life. Now I feel as if I should be thanking Kathryn. Thanking her for teaching me what genuine strength and courage are, for showing me the importance of supporting others, of giving back to the community that has fostered my growth. She has inspired me to join a Special Olympics swim team at the local town hall, to read to elementary school children and see the light of bright futures in their eyes, to strive in all of my academic and extracurricular endeavors, and to appreciate those wonderful people that surround us in our everyday life, those people that make all the difference. There is no doubt that Kathryn, who is today alive and well, has made all the difference, and I am truly grateful that she is here for me to tell her just that.