The Financial Market Consists Of Money

Published Date: 02 Nov 2017

Middlesex_University_logo

INSTRUCTOR

Dr.Jatin Pancholi

SUBMITTED BY

Hassan Hussain

(M00427771)

PROGRAM: MBA

MODULE: Finance & Economics

(M00427771)

MIDDLESEX UNIVERSITY

INTRODUCTION

The Financial market consists of money market and capital market. Money market basically deals with the short –term debt securities, which is safe and have high liquid able investment, while capital market deals with the long-term debt securities and they are traded. For being an efficient market, the information is included quickly into the price so that the price reflects information. The current market price reflects all existing information.

Efficient Market Hypothesis (EMH) is defined as the information which is quickly and efficiently included into asset prices at any point in time, so that old information cannot be used to predict future price movements. There are three level of information available as to distinguish the EMH.

Strong EMH: It’s a private (insider) information that is incorporated quickly into the market price and cannot be used to reap unusual trading profit. In this, the company’s management is unable to make gains from the information.

Semi-strong EMH: In this the information is publicly available and is reflected in the securities current market price. The public information includes past prices, company’s financial statement, announcement, economic factor etc.

Weak EMH: It reflects past price and volumes information from the current assets price. It is a weak form because the price is easily accessible information and no one would be able to outperform the market using this information.

NYSE & COMPANY BACKGROUND

The New York Stock Exchange (NYSE) also known as "Big Board". It is the largest and oldest stock exchange in US. It been originated back in 1792, when a group of brokers rendezvous under a tree in Manhattan and signed an agreement to do a securities trade. The NYSE employs individuals who are called specialists who deal with the selling and buying of stocks.

Nike Inc., develops and designs footwear, sportswear, apparels and equipment. They make the availability of goods in Nike stores, franchisee stores and online through the website – www.nikestore.com . The company mainly operates in the Europe, Americas, Africa, Asia Pacific and the Middle East. It is headquartered in Beaverton, Oregon and employs about 38,000 people. They organize, supports and sponsors main sports around the world as they think sports is the main key for being healthy and they also sponsors high profile athletes so that the people can follow their icons. Nike has a trademark logo "Just Do It.

ANALYSIS

The purpose of a stock price analysis is to study the behavior of stock prices and thereby determine whether buying, selling or holding on to a stock would be beneficial for the investor. A stock price is basically the market price that is ascribed to it by public appreciation of the stock. Hence, analyzing stock prices gives one an idea about the price a stock would demand within a future timescale.

While thoroughly analyzing the share price of two years, the company faced lots of ups and down in the share price due to several reasons.

On Dec 13, 2010, Nike Inc. shares were up by 3 percent at $90.35 due to solid sneakers sale in United States, growing demand for apparels and accelerating sales in china. Analyst Michael Binetti state that "China represents about 10 percent of Nike's total revenues today, and we believe Nike is focusing resources to double its China revenues over the next five years".

There was a decrease in shares price of Nike by 5 percent on Dec 21, 2010 as the company was not able to satisfy the rising expectations for future orders. The delay was because across the globe there was high demand of Nike footwear and clothing and the company was not able to deliver the item on time. The downward trend of the share price was seen for the next few days because of the reason above.

A high magnitude earthquake was felt in Japan on April 07, 2011 causing a downfall in the share on Nike by 3 percent. The effect was seen on the NYSE Exchange. The New York Times reported that the effect of the earthquake was felt over the market and the downfall was seen overall. Nike spokesperson stated that they will re-establish the infrastructure as soon as possible as to fulfill the people demand.

The company again faced a downfall of 7 percent on March 18, 2011 as the company planned to raise the prices of the shoes and sports clothing so that they can cope up with the rising cost of cotton, oil and transportation that are hampering its profitability. The news did not have a good impact on the investors and a price overreaction was seen due to the news.

Nike shares gained 4.3 percent to $84.14 on June 27, 2011 in after-hours trading when the company announced that its quarterly net income rises by 14 percent due to footwear sales increased by 20 percent, apparel revenue rose by 28 percent as they were driven by earlier shipment, strong category presentations and improved product lines of summer season products

The very next day the shares price was up by 10.1 percent when Chief Executive Mark Parker told to its investors that the apparel maker and sports gears, which reported stronger fiscal growth for fourth quarter profits, is ahead of schedule in meeting its targets. The news was announced through a conference call. An overreaction was seen to this price.

Shares were up by more than 5 percent on Sep 22, 2011 as sales rose by 35 percent in emerging markets and 15 percent in Greater China. Together both these regions supply about 23 percent of Nike's business. The future demand of the brand measures to be 16 percent to total $8.5 billion.

There was high demand for footwear and clothing line in North America which led in rose in revenue by 15 percent to $5.8 billion which led in the rise in the share price of the company by 3 percent on March 22, 2012.

On April 10, 2012 Nike did an out-of-court settlement with Reebok as Reebok used Footballer Tebow’s name in their apparels without having approved from Nike as Nike is authorized and licensed to use Tebow’s name on football related product. This news did not go good with investors as there was a downfall of share by 4 percent.

The company announced to sell its two brands Cole Haan and Umbro on May 31, 2012. The news did not go good with the investors as the downfall in the share price by 2 percent on the very next day.

During Olympics 2012, Egypt Olympic team claimed that they got fake Nike kit from the company. They stated that "The workout bag had a big Nike logo in the front and the zipper had an Adidas branding on them". This news showed effect on the share price of the company which made a fall of 4 percent on the market on July 26, 2012. The trend was seen for few more days because of the news.

CONCLUSION

As we can look, the Efficient Market Hypothesis provides us to what type of information is available in the market and how much the investors can earn from it. Whenever new information is available in the market, the reaction can be seen on the share price. If I look into the news, I can see that the company provides semi-strong news to its investors. During the Olympics 2012, Egypt alleged that they got a fake Nike kit from the company and due to that a shares fall in the market can be seen. If we look into the news, it is semi-strong news and we can see the effect on the market. In few news we can see the overreaction and under reaction, as it helps us to understand what happens when a particular news come to the market and effect can be seen in the next few days of the market.

EMH was a theory which was invented long back to know the market but now days there are software which is available in the market which can fetch us high accuracy results of the market. We have a theory called Random walk Theory stating that the market is random and the price of the stock price cannot be predicted using any past price moment, especially in short term.

REFERENCES

Efficient Market Hypothesis (EMH) by Alvin Han. 2013. Efficient Market Hypothesis (EMH) by Alvin Han. [ONLINE] Available at: http://www.alvinhan.com/Efficient-Market-Hypothesis.htm. [Accessed 9 January 2013].

Introduction to Stock Exchanges and the NYSE. 2013. Introduction to Stock Exchanges and the NYSE. [ONLINE] Available at: http://www.investorguide.com/igu-article-422-investing-basics-introduction-to-stock-exchanges-and-the-nyse.htm. [Accessed 9 January 2013].

Nike picks up pace, says UBS; stock hits life-high | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2010/12/13/nike-research-ubs-idUSSGE6BC0B620101213. [Accessed 10 January 2013].

Nike future orders disappoint, shares fall | Reuters . 2013. Nike future orders disappoint, shares fall | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2010/12/21/us-nike-idUSTRE6BK6DI20101221. [Accessed 10 January 2013].

Nike to raise prices sharply as costs hit gains | Reuters . 2013. Nike to raise prices sharply as costs hit gains | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2011/03/18/us-nike-idUSTRE72G7YU20110318. [Accessed 10 January 2013].

Nike quarterly net income rises 14 percent | Reuters . 2013. Nike quarterly net income rises 14 percent | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2011/06/27/us-nike-idUSTRE75Q64E20110627. [Accessed 11 January 2013].

Nike raises sales forecast; to lift prices | Reuters . 2013. Nike raises sales forecast; to lift prices | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2011/06/28/us-nike-outlook-idUSTRE75R5JQ20110628. [Accessed 11 January 2013].

Strong demand, price increases help Nike top Street | Reuters . 2013. Strong demand, price increases help Nike top Street | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2011/09/22/us-nike-idUSTRE78L67D20110922. [Accessed 12 January 2013].

Nike, Reebok settle Tim Tebow apparel dispute | Reuters . 2013. Nike, Reebok settle Tim Tebow apparel dispute | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2012/04/10/reebok-nike-tebow-idUSL2E8FAD4C20120410. [Accessed 12 January 2013].

Nike looking to sell Cole Haan and Umbro brands | Reuters . 2013. Nike looking to sell Cole Haan and Umbro brands | Reuters . [ONLINE] Available at: http://www.reuters.com/article/2012/05/31/us-nike-colehaan-idUSBRE84U0Q520120531. [Accessed 13 January 2013].

BBC News - London 2012: Egypt Olympic team get 'fake' Nike kit. 2013. BBC News - London 2012: Egypt Olympic team get 'fake' Nike kit. [ONLINE] Available at: http://www.bbc.co.uk/news/world-middle-east-18995905. [Accessed 15 January 2013].

BBC News - London 2012: Egypt Olympic team get 'fake' Nike kit. 2013. BBC News - London 2012: Egypt Olympic team get 'fake' Nike kit. [ONLINE] Available at: http://www.bbc.co.uk/news/world-middle-east-18995905. [Accessed 16 January 2013].

Effect in the Market due to Earthquake | Oregon Live. Effect in the Market due to Earthquake | [ONLINE] Available at: http://blog.oregonlive.com/playbooksandprofits/2011/04/nike_report_lowers_expectation.html. [Accessed 16 January 2013].

APPENDIX 1

NIKE SHARE PRICE ON MONTHLY BASIS

Date

Open

High

Low

Close

Volume

Adj Close

1-Nov-12

91.9

100.33

89.65

97.48

4800900

48.53

1-Oct-12

94.91

98.1

90.32

91.38

4938200

45.49

4-Sep-12

97.19

100.92

92.79

94.91

7364000

47.25

1-Aug-12

93.51

99.29

91.04

97.36

4801500

48.47

2-Jul-12

88.39

97.75

88.03

93.35

6926000

46.3

1-Jun-12

106.29

109.91

85.1

87.78

10192000

43.54

1-May-12

111.91

114.81

104.27

108.18

4904700

53.66

2-Apr-12

108.42

112

105.93

111.87

4870700

55.31

1-Mar-12

108.89

112.97

106.07

108.44

5454300

53.61

1-Feb-12

104.41

108.28

102.57

107.92

3888500

53.18

3-Jan-12

97.37

104.94

96.51

103.99

5455200

51.24

1-Dec-11

95.36

98.25

92.89

96.37

5440000

47.49

1-Nov-11

93.51

97.5

89.79

96.18

4988000

47.21

3-Oct-11

84.95

97.68

81.01

96.35

5826300

47.3

1-Sep-11

86.35

92.56

80.2

85.51

8120300

41.98

1-Aug-11

90.42

90.46

76.98

86.65

7827000

42.38

1-Jul-11

89.65

94.23

88.55

90.15

6285500

44.1

1-Jun-11

84.34

90.58

79.44

89.98

8068600

44.01

2-May-11

82.78

86.53

81.41

84.45

4905200

41.15

1-Apr-11

75.94

82.73

75.82

82.32

5791900

40.11

1-Mar-11

89.65

91.12

69.43

75.7

9519800

36.89

1-Feb-11

82.75

89.16

82.62

89.03

4934500

43.23

3-Jan-11

85.83

86.58

81.01

82.48

4726900

40.05

1-Dec-10

87.48

92.49

85.12

85.42

4959300

41.48

30-Nov-10

84.5

86.6

84.37

86.13

13162000

41.68

APPENDIX 2

NIKE SHARE PRICE GRAPH

C:\Users\ABC\Desktop\finance individual\grpah compare NYSE & NIKE.jpg

PART-B

INTRODUCTION

Mainstream Properties Private Limited is a real estate firm in Jaipur, India. It is a real estate company whose target is to achieve client satisfaction, excellence execution and timely delivery. Their main competency is to provide end-to-end real estate services to the client. The strength is based on the key business drivers, in-depth project execution experience, robust infrastructure, skilled workforce, wide network and extensive industry knowledge. They also work with leading real estate builders as to ensure the most optimal use of the resources.

BUSINESS ENVIRONMENT & PRODUCT VALUE

They assist customers in step-by-step process in selection of right location, incorporating aspects of operations, including infrastructure. They periodically structure, negotiate, conceptualize documentation procedures, sale process, ventures and finance dealing for its client. They provide proper market analysis, surveys and sale statistics to the client. Their customer centric services are based on policies of honesty, integrity and timely reporting.

The company performs sales and purchase of the residential and commercial properties. They work with other real estate firms in building residential flats, shopping centers, Office buildings etc. They also provide consultancy services to its clients with respect to leasing, renting or buying the property or selling. The company major thrust area is the Retail Malls Business and commercial properties.

ORGANIZATION STRUCTURE

Mainstream Properties Private Limited has a generalized horizontal hierarchy as the company is a medium sized with number of employees comprises of 73. They have kept four accounting personnel for their Finance and accounting Department. As it is a construction company, they have Contract Administration, Project Construction, Administration, Finance and they are under the Managing Director. In Contract Administration, their task comprises of tendering, estimating, purchasing, negotiations, insurance, cost control, progress payment, claims. For Construction Manager, they do plants & equipment, project management, technical research, engineering services, development etc. Administration does recruitment, welfare, wages, training, office administration, legal matters whereas Finance department do the capital procurement, cash flows, bonds, accounts, financial control, audit etc.

Under Construction administration they have site agents, foreman and kapalas. While the company also does consulting services, they have agents who are responsible to get clients as to invest in the property. By looking to the graph we can easily understand that the communications is done from top to bottom.

COSTING AND BUDGETING

The cost of Mainstream Properties Private Limited has been classified into Controllable and Fixed Expenses. In the Fixed expenses, the cost involved of Rent, Utilities, Equipment leases, Depreciation, Insurance, License/permits, Loan payments, Miscellaneous cost like Agents Commissions, Cost in deed preparations etc. For the Controllable cost, the costs are of Salaries/wages, payroll expenses, supplies, advertising, Legal and accounting, Repairs/maintenance.

For keeping the records of the accounting cost, the company uses a software package called Quick Book. They use the software because

Precise Money Management: The software record transactions and set up dues date recurring bills as it will help the company to know where it financially stand.

Payroll Management: The software helps in recording the payroll and payroll taxes.

Sales Tracking: It helps in tracking sales and creates invoices for the purchases done. It also creates mini Profit & loss statement for business

Easy Reporting: The software creates timely reports such as Profit & Loss statement, balance sheet, and cash flow statement, account receivable and payable.

The costing of the company is of Fixed and Variable cost which is divided into direct and indirect cost. For the fixed cost, the direct costs engaged are of Insurance, License, Loan whereas the indirect cost it consists of utilities bill, agent commission. In variable cost, the direct costs are salaries/wages, payroll, advertising whereas the indirect costs are fees, Legal and accounting fee, maintenance fee.

The company uses absorption costing as the company builds residential and commercial properties and the company has a target to sell these properties within a particular financial year. If the target is not fulfilled within the time frame, they do not count the cost for the unsold properties as they are the overhead costs. They only consider the fixed and variable costs that are used in making that property.

The main cost driver for the company is of the agent hour which he engages it with client. It is because it is the agent who plays a key role in convincing the client for buying a particular property. If the property is sold then the agent is liable for the commission. The commission varies according to value of the property sold as they are given a percentage of the property costs.

The company manages its costing by having a proper budgeting which they do on regular basis with time frame on quarterly basis. For budgeting the company looks into the variance analysis. Variance is basically the difference between the actual and budget figures. Variance can be favorable or adverse. It is favorable, when the costing of building property is low and the profits generating after selling the property is high. They face adverse variance when the cost in building is higher than expected and profit generation is low.

The company makes a master budget for which is divided into specific department. While doing Budgeting it helps the company in forecasting the future sale by using the past data which is available within the company. It also helps them in working out with spending like fixed and variable costs. It identifies any operational costs such as taxes or changes in financing. A proper budgeting helps in giving an insight to a business strategy.

The company also focuses on Staff Budgeting as to know number of production and to analyze as how much time the staff is putting to produce it. They have Administrative Budgeting as to keep the records for Payroll, employee benefits, Payroll taxes, bond interest and Property taxes etc. They have a Production Budgeting as to keep the record the sale, expenses etc.

The company deal with variance according to the situation arises. They make different strategies with decision with other head members. The main person in the company is the agents who attract the clients. The company makes strategies to get hold with the clients, if they are not able to do so then make another strategy for it.

CONCLUSION AND RECOMMENDATIONS

Budgeting helps in estimating the probable outflow and income of an organization for a specific period. It helps in determining the most competent and effectual way for making money and expanding the asset base. It helps in forecasting the expense, sales and earnings of a company. The main focus on the company is to lower is costing in every sector with having proper Budgeting for its short and long term goals. Strategic Goals are also fulfilled by having proper Budgeting.

The company main earnings are through the clients. They should focus on the betterment of the customer services. They could only do it through good customer interaction and that can be only achieved through better communication line by having direct contact line to the agents.

Right now the company is following a Master budget as it provides an overall position of the company but they should start using a departmental budgeting system as it will help in keeping the records for each department specifically. They should also keep Zero based Budgeting (ZBB) as it helps in recording detailed information of the activities and determining whether it should be kept in next year budget or not.

The company is following a horizontal hierarchy for communicating with its employee showing a upward communication but it should be followed both ways. As a company is a mid-size, they should not have a horizontal hierarchy instead they could have vertical communication system as it will help employee to have direct conversation to anyone they wants as it will result in gaining of trust within employee.

The company does a Proper Budgeting for managing its costs and by doing it they are able to keep record for every penny they are spending. It also helps them to know how they are performing where exactly they spending more and where they need to look for controlling.

Courtesy - The information written for costing and budgeting is by the questionnaire filled by Finance Manager, Department - Finance and Accounting.

REFERENCES

The Advantages of Using QuickBooks: How This Accounting Software can Help You | PortalCFO. 2013. The Advantages of Using QuickBooks: How This Accounting Software can Help You | PortalCFO. [ONLINE] Available at: http://www.portalcfo.com/the-advantages-of-using-quickbooks-how-your-business-can-benefit/. [Accessed 16 January 2013].

Budgeting - Variance Analysis. 2013. Budgeting - Variance Analysis. [ONLINE] Available at: http://www.tutor2u.net/business/accounts/variance-analysis.html. [Accessed 16 January 2013].

How budget can help in business flourishment [ONLINE] Available at: http://www.icaew.com/en/library/subject-gateways/financial-management/cost-management/small-business-update/how-a-well-planned-budget-can-help-your-business-flourishl. [Accessed 16 January 2013].

APPENDIX 1

Contact Person:

Name: Mr. Rehan Poulose

Designation: Finance Manager.

Company: Mainstream Properties Private Limited

Contact No.: +919829795767, +919314605676

Email: [email protected]

Address: 605, 6th Floor, Diamond Tower, Purani Chungi, Queens Road Corner, Main Ajmer Road, Jaipur-21 (Raj.), India