Eight ways to recession-proof your job
Think of ways to generate revenues or cut costs.
That brilliant idea you had that would open whole new markets for the company, but require substantial spending to get started? Scrap it for now. Concentrate instead on finding places to pinch pennies, or identifying cheap new sources of revenue. Or both.
Be visible.
"This isn't the moment to take an extended vacation. Your position could be eliminated while you're gone," says Dale Winston, CEO of New York City-based executive recruiters Battalia Winston (www.battaliawinston.com). "It's also not the time to come rolling in at ten o'clock." If you possibly can, figure out a way to stand out and distinguish yourself. She adds: "If you're in sales, get your numbers up. Nobody will be laying off star salespeople."
Talk up your contributions.
"Make sure you're adding value at work by going above and beyond your basic job responsibilities," says Christine Price, principal at staffing firm Ready to Hire (www.readytohire.com) "Then make sure your boss knows it, without being obnoxious."
Keep a broad perspective. "Don't get a reputation as someone who only does what he or she is told to do," advises Richard Bayer, chief operating officer of career counseling network The Five O'Clock Club (www.fiveoclockclub.com). "Pick your head up, look around, and get in on the action. Volunteer for crucial responsibilities, including tasks for which your boss is responsible."
Just doing your job well isn't enough. "The question is," says Bayer, "when your organization is making a list of who has crucial skills, will you be on it?" If you suspect not, now's the time to hustle.
Get your skills up to date.
"Companies get rid of people whose skills are obsolete and replace them with people who are already trained," Bayer says. "Take classes, join trade organizations, and prove you're plugged in." Christine Price adds: "Consider going back to school, to show your employer you're serious about your career and your performance."
No whining allowed. Attitude does count - a lot.
"Management wants people who can boost morale during tough times," observes Dale Winston. Not only that, says Christine Price, but happy workers are less likely to get laid off than people who seem to dislike what they do. After all, the reasoning goes, if you grumble about your job all the time, then maybe giving you the sack would really be doing you a favor. Gulp.
Never stop networking. Of course, the day you get a pink slip is not the day you want to start calling old colleagues, asking former bosses out to lunch, and getting in touch to say hello to all the interesting people you've known over the years. No, the time to start doing that is now. Whether or not you move seamlessly (and relatively painlessly) into a new job after a layoff often depends on how consistently you've contacted - and maybe even helped - lots of people when you didn't need them.
Update your resume, return headhunters' phone calls, and start picturing where else you might like to work - just in case. If you're mentally prepared for a move, you'll make a wiser one than if you wait until you're desperate .
One more thought: If we really are in, or headed for, a recession - and economists can't even agree on whether or not we are - it may not be so bad. Every downturn is different. So who knows? If you're not a mortgage banker or a home builder, maybe your current position is perfectly "safe." But think about it for a while and you may find yourself wondering: Is "safe" good enough? Maybe it's time to change jobs anyway -- and heed the immortal words of Keith Richards, "I'm gonna leave while it's still fun/ I'm gonna walk before they make me run."
Thursday, February 28, 2008
Fine to Microsoft
European Commission fined the software giant a record $1.3 billion
Heartwarming though it was, last week’s declaration of software openness from Microsoft won’t end its regulatory troubles. European antitrust watchdogs made that clear Wednesday.
The European Commission fined the software giant a record $1.3 billion, saying the company for three years overcharged competitors for information on how to make products that work with Microsoft’s dominant Windows operating system. Microsoft was quick to portray the fine as an echo of the past, noting that regulators have said Microsoft is now living up to its commitments.
But it’s not so simple. The fine also shows that European regulators still have a bone to pick with Microsoft, and that could make it tough for the company to take bold steps to acquire competitors and compete with Google.
Just look at the commission’s official statement about the Microsoft fine. The acrimony is a little obvious. “Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision,” said European Competition Commissioner Neelie Kroes. “I hope that today’s decision closes a dark chapter in Microsoft’s record of non-compliance.”
In other words, they trust Microsoft about as far as they can throw Steve Ballmer.
Indeed, there are plenty more opportunities for Microsoft to clash with Europe. Regulators are formally investigating antitrust claims that Microsoft doesn’t give competitors enough information to link their programs to dominant Microsoft offerings such as Office, and that Microsoft inappropriately bundles Internet Explorer with Windows, harming competitors like the Opera browser (which, notably, is made by a Norwegian company).
And, of course, there’s Microsoft’s attempt to buy Yahoo for more than $40 billion, which is all but certain to raise antitrust hackles in Europe. “The EU has obviously demonstrated a clear, continuing concern about Microsoft,” Randal C. Picker, an antitrust law professor at the University of Chicago, said in a recent interview. “I think they still regard Microsoft as being a behemoth.”
A behemoth that, from Europe’s perspective, needs to be on a short leash.
Heartwarming though it was, last week’s declaration of software openness from Microsoft won’t end its regulatory troubles. European antitrust watchdogs made that clear Wednesday.
The European Commission fined the software giant a record $1.3 billion, saying the company for three years overcharged competitors for information on how to make products that work with Microsoft’s dominant Windows operating system. Microsoft was quick to portray the fine as an echo of the past, noting that regulators have said Microsoft is now living up to its commitments.
But it’s not so simple. The fine also shows that European regulators still have a bone to pick with Microsoft, and that could make it tough for the company to take bold steps to acquire competitors and compete with Google.
Just look at the commission’s official statement about the Microsoft fine. The acrimony is a little obvious. “Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision,” said European Competition Commissioner Neelie Kroes. “I hope that today’s decision closes a dark chapter in Microsoft’s record of non-compliance.”
In other words, they trust Microsoft about as far as they can throw Steve Ballmer.
Indeed, there are plenty more opportunities for Microsoft to clash with Europe. Regulators are formally investigating antitrust claims that Microsoft doesn’t give competitors enough information to link their programs to dominant Microsoft offerings such as Office, and that Microsoft inappropriately bundles Internet Explorer with Windows, harming competitors like the Opera browser (which, notably, is made by a Norwegian company).
And, of course, there’s Microsoft’s attempt to buy Yahoo for more than $40 billion, which is all but certain to raise antitrust hackles in Europe. “The EU has obviously demonstrated a clear, continuing concern about Microsoft,” Randal C. Picker, an antitrust law professor at the University of Chicago, said in a recent interview. “I think they still regard Microsoft as being a behemoth.”
A behemoth that, from Europe’s perspective, needs to be on a short leash.
Wednesday, February 27, 2008
Dollar hits record low versus euro
Dollar hits record low versus euro in Feb 2008
NEW YORK (AP) -February 26, 2008- The dollar sank to a new low against the euro after the release of three disheartening economic reports Tuesday.
The dollar also hit floating-era lows against the Brazilian real and New Zealand dollar, or "kiwi."
The 15-nation euro leaped to $1.4982 before settling at $1.4967, its previous record, in late New York trading. On Monday, the euro was worth $1.4825. The euro's previous high of $1.4967 was set on Nov. 23.
The dollar also hit floating-era lows against the Brazilian real and New Zealand dollar, or "kiwi."
The 15-nation euro leaped to $1.4982 before settling at $1.4967, its previous record, in late New York trading. On Monday, the euro was worth $1.4825. The euro's previous high of $1.4967 was set on Nov. 23.
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The New York-based Conference Board said its Consumer Confidence Index fell to 75 in February from 87.3 in January, the index's lowest level since February 2003. The reading was below analysts' expectations.
Meanwhile, the Labor Department reported that wholesale inflation rose by 1% in January, more than analysts estimated. The price index was driven higher by soaring oil and food costs.
"It's the cumulative effect of negative economic reports," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. "The U.S. economy is either in recession or heading into recession."
The New York-based Conference Board said its Consumer Confidence Index fell to 75 in February from 87.3 in January, the index's lowest level since February 2003. The reading was below analysts' expectations.
Meanwhile, the Labor Department reported that wholesale inflation rose by 1% in January, more than analysts estimated. The price index was driven higher by soaring oil and food costs.
"It's the cumulative effect of negative economic reports," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. "The U.S. economy is either in recession or heading into recession."
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Federal Reserve Vice Chairman Donald Kohn was "somewhat dismissive of inflation and focused on the greater near-term risk to growth," in his comments today, said Gilmore. His comments may be a preview to Chairman Ben Bernanke's Congressional testimony Wednesday, which is expected to signal more rate-cut easing to come from the Fed.
Meanwhile, the European Central Bank is expected to hold rates steady.
"That juxtaposition is not good for the dollar," said Gilmore.
Lower interest rates can jump-start a nation's economy, but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.
Lastly, Standard & Poor's reported that U.S. home prices fell 8.9% in the last three months of 2007 from a year earlier. It is the sharpest drop in the S&P/Case-Shiller quarterly index's history.
The British pound soared to $1.9862 from $1.9667 late Monday, while the dollar fell to 107.26 Japanese yen from 108.07 yen.
The dollar fell to a floating-era record of 1.6805 Brazilian reais, according to Gilmore. It rose to settle at 1.6857 Brazilian reais, he said, its highest close since the real was floated in May 1999. Brazil's benchmark interest rate, at 11.25%, offers investors high yields.
Meanwhile, the New Zealand dollar soared to a second high in as many days of 81.58 U.S. cents per kiwi, according to Dow Jones' Interbank foreign-exchange rates. The kiwi settled at 81.53 U.S. cents from 81.01 U.S. cents on Monday, when it set its previous high of 81.15 U.S. cents.
It is the kiwi's highest level since it began trading freely against the dollar in 1985. The New Zealand currency has benefited from soaring prices of its commodities and a high interest rate of 8.25%, as has Brazil's real.
The real and kiwi are beneficiaries of the carry trade, which involves borrowing currencies from countries with low interest rates, such as Japan, and investing the funds in higher-yielding assets elsewhere. Carry-trade beneficiaries are often the euro and currencies of countries with high interest rates.
In other New York trading, the dollar fell to 1.0759 Swiss francs from 1.0889 Swiss Francs. The dollar also slumped to 98 Canadian Cents from 99.72 Canadian Cents
Meanwhile, the New Zealand dollar soared to a second high in as many days of 81.58 U.S. cents per kiwi, according to Dow Jones' Interbank foreign-exchange rates. The kiwi settled at 81.53 U.S. cents from 81.01 U.S. cents on Monday, when it set its previous high of 81.15 U.S. cents.
It is the kiwi's highest level since it began trading freely against the dollar in 1985. The New Zealand currency has benefited from soaring prices of its commodities and a high interest rate of 8.25%, as has Brazil's real.
The real and kiwi are beneficiaries of the carry trade, which involves borrowing currencies from countries with low interest rates, such as Japan, and investing the funds in higher-yielding assets elsewhere. Carry-trade beneficiaries are often the euro and currencies of countries with high interest rates.
In other New York trading, the dollar fell to 1.0759 Swiss francs from 1.0889 Swiss Francs. The dollar also slumped to 98 Canadian Cents from 99.72 Canadian Cents
Finding Investors for your Business
Finding investors for the new business is not easy. This is a problem that many startups face. If your venture is too risky for a bank loan , your next step is to decide if you should approach angel investors, who typically give less than $500,000, or venture capitalists, who usually invest $1 million or more in high-growth companies and in return take an equity stake in the company.
Regardless of which you chose, the same rules for approaching them apply.
Lawrence Gelburd, a lecturer at the University of Pennsylvania's Wharton School, tells his students to divide the prep work into two categories: assembling the analytical data they'll need to present to potential investors, and networking to reach the right people.
"No business plan has ever been funded," he says. "People get funded. When people are deciding whether to give you money, they will look you in the eye and decide whether or not you are trustworthy and will do what you claim with the money."
On the data side, Gelburd recommends practicing answering the following questions so that you have no hesitation when speaking with an investor:
1. Who is the customer?
2. What is the product or service?
3. What is your mission statement?
4. What is your value proposition?
5. What is your total market and target markets?
6. What are your past, present and anticipated future financial conditions?
Once you've got your answers down, work on your charm and investor lingo. Attend pitch lunches to see other peoples' presentations. Network at VC fairs in your area - you can find them by contacting your local Small Business Administration office.
Note that cold calling is useless - and no one knows this better than Kay Koplovitz of Koplovitz and Co., an investment firm in New York City.
Killer startups: FSB business plan competition winners
"Move through your own contacts - lawyers, attorneys and bankers - to make an introduction," she suggests. "Also, find out if the Angel Capital Association or the National Venture Capitalist Association is holding events in your area. Finally, look to your local university or business incubator for assistance."
Once you get the attention of an investor, keep you pitch brief.
"A two-page executive summary is all you need," Koplovitz says. "Be sure to describe the company's service, market size, your background, the amount you are requesting and what you plan to do with the funds."
Gelburd also recommends offering references, even if they're not requested.
If you are hoping to score a small amount of capital and decide to network with angels, don't underestimate the power of early planning. One day you may need to reach a VC, so be sure to establish relationships with them before you actually need them.
For more information, Koplovitz suggests checking out business school websites and the website of Springboard Enterprises for examples of executive summaries and other resources, and the Kauffman Foundation for information on networking with investors in your area
Regardless of which you chose, the same rules for approaching them apply.
Lawrence Gelburd, a lecturer at the University of Pennsylvania's Wharton School, tells his students to divide the prep work into two categories: assembling the analytical data they'll need to present to potential investors, and networking to reach the right people.
"No business plan has ever been funded," he says. "People get funded. When people are deciding whether to give you money, they will look you in the eye and decide whether or not you are trustworthy and will do what you claim with the money."
On the data side, Gelburd recommends practicing answering the following questions so that you have no hesitation when speaking with an investor:
1. Who is the customer?
2. What is the product or service?
3. What is your mission statement?
4. What is your value proposition?
5. What is your total market and target markets?
6. What are your past, present and anticipated future financial conditions?
Once you've got your answers down, work on your charm and investor lingo. Attend pitch lunches to see other peoples' presentations. Network at VC fairs in your area - you can find them by contacting your local Small Business Administration office.
Note that cold calling is useless - and no one knows this better than Kay Koplovitz of Koplovitz and Co., an investment firm in New York City.
Killer startups: FSB business plan competition winners
"Move through your own contacts - lawyers, attorneys and bankers - to make an introduction," she suggests. "Also, find out if the Angel Capital Association or the National Venture Capitalist Association is holding events in your area. Finally, look to your local university or business incubator for assistance."
Once you get the attention of an investor, keep you pitch brief.
"A two-page executive summary is all you need," Koplovitz says. "Be sure to describe the company's service, market size, your background, the amount you are requesting and what you plan to do with the funds."
Gelburd also recommends offering references, even if they're not requested.
If you are hoping to score a small amount of capital and decide to network with angels, don't underestimate the power of early planning. One day you may need to reach a VC, so be sure to establish relationships with them before you actually need them.
For more information, Koplovitz suggests checking out business school websites and the website of Springboard Enterprises for examples of executive summaries and other resources, and the Kauffman Foundation for information on networking with investors in your area
PayPal alternatives
Digital River
digitalriver.comDigital River, based in Eden Prairie, Minn., has worked with 40,000 online stores to build e-commerce functionality, starting with basic shopping cart features. Understanding that each business has different needs, Digital River can implement new features as its clients grow, such as multi-currency support for overseas expansion or integrating "try before you buy" options. Best selling point: Digital River does not hold sellers' money and will take the hit if a product needs to be returned.
"Digital River understands that small business owners need that cash immediately," explains David Heath, CEO of Matrix Games, a computer game company that has worked with Digital River for three years.
Digital River has no up-front cost and won't charge until the first sale. Then, its fee is based on performance, beginning at 2.9% plus a $1.00 transaction fee.
"Our cost analysis shows that it would be foolish for us to try alone what Digital River does," Heath says.
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2CHECKOUT
2checkout.com"I knew I had to start accepting credit cards on my online site or my company wouldn't grow," says Saqib, owner of SuperXpert.com. "I had poor credit at the time and knew I wouldn't get a merchant account, but 2Checkout.com allowed me to accept credit cards without all the paperwork."
2Checkout.com processes credit cards and checks while monitoring for fraud and ensuring data security. The site has about 50,000 active vendors and signs up 1,500 new clients every month. For each transaction, there's a 5% rolling reserve for 90 days. Vendors with an existing shopping cart system can integrate their platform with 2Checkout.com or chose to use 2Checkout's own shopping cart.
2Checkout.com has a one-time setup fee of $49.00 and takes a 5.5% commission plus $0.45 for each sale. So the commission isn't bad, considering the headache one will avoid, not having to deal with fraud issues."
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Payment processor
AlertPay
AlertPay
AlertPay founder Firoz Patel saw a problem: PayPal and other payment processing companies catered well to mainstream merchants, but fell behind when it came to less serviceable markets.
"We saw this particularly with multi-level marketing," he says. "Some clients simply need more time and attention when it comes to payments."In 2004, Patel launched Montreal-based AlertPay to make online payments easier. AlertPay.com simplifies bank transfers, bank wires, direct deposits and other payment methods - everything except cash. AlertPay's team of 25 works to ensure extra security for all transactions. Back-end flagging services alert banks to security breaches, and automated fraud-tracking tools lock down accounts when activity is abnormal.The introductory rate for AlertPay is 2.5% per transaction. But if your company is off the beaten path and requires more service, be prepared to pay 3.9%.
"We saw this particularly with multi-level marketing," he says. "Some clients simply need more time and attention when it comes to payments."In 2004, Patel launched Montreal-based AlertPay to make online payments easier. AlertPay.com simplifies bank transfers, bank wires, direct deposits and other payment methods - everything except cash. AlertPay's team of 25 works to ensure extra security for all transactions. Back-end flagging services alert banks to security breaches, and automated fraud-tracking tools lock down accounts when activity is abnormal.The introductory rate for AlertPay is 2.5% per transaction. But if your company is off the beaten path and requires more service, be prepared to pay 3.9%.
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TrialPay
TrialPay is a particularly unorthodox payment option. It pairs merchants with advertises to boost sales for both and offer consumers a chance to get products they're looking at for free.
Here's how it works: Merchants enlisted with TrialPay give away their products for free when a shopper completes an offer from one of TrialPay's client advertisers, who then pays the merchant a bounty that equals or exceeds the product price. The system works best for software and online services vendors that can offer instantaneous digital delivery.
TrialPay has worked with more than 2,500 merchants. You can see it in action at WinZip and Skype. Vendors can use TrialPay's shopping cart system or integrate it with any other existing shopping cart.
"Once you get the set-up done, it's all hands off," says Rick Trefzger, vice president of sales at Boynton Beach, Fla.-based iS3, which sells StopZilla anti-spyware software. "TrialPay's reporting is great -- you get a link that tracks each campaign and TrialPay will track it in real time."
Here's how it works: Merchants enlisted with TrialPay give away their products for free when a shopper completes an offer from one of TrialPay's client advertisers, who then pays the merchant a bounty that equals or exceeds the product price. The system works best for software and online services vendors that can offer instantaneous digital delivery.
TrialPay has worked with more than 2,500 merchants. You can see it in action at WinZip and Skype. Vendors can use TrialPay's shopping cart system or integrate it with any other existing shopping cart.
"Once you get the set-up done, it's all hands off," says Rick Trefzger, vice president of sales at Boynton Beach, Fla.-based iS3, which sells StopZilla anti-spyware software. "TrialPay's reporting is great -- you get a link that tracks each campaign and TrialPay will track it in real time."
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Tucson-based E-junkie is one of many shopping cart providers, but it distinguishes itself in the market by automating delivery. The shopping cart is an integral part of an e-commerce site experience; choosing the right one for your business takes time and research, but will make purchasing an easier experience for the customer. E-junkie particularly well-suited for do-it-yourself artists and creative freelancers. For tangible goods, its system can automatically determine what size and shape packaging works best for each product in a vendor's inventory. For digital products, it streamlines file storage and instantaneous delivery. Prices vary depending on the services selected, but start at $5 per month for 10 products.
Paypal Earns by Holding Funds
What PayPal does with your money
The money-transfer service earns interest on funds in its custody, but analysts say it's a drop in the bucket compared to eBay's larger revenue picture.
The money-transfer service earns interest on funds in its custody, but analysts say it's a drop in the bucket compared to eBay's larger revenue picture.
Furious at the prospect of waiting to receive funds, sellers have been publicly speculating about how much money PayPal (and its parent company, eBay) makes off the accruing interest on funds under PayPal's control - and whether a desire to retain those funds for longer spurred eBay's holding plan.
However, company executives and industry analysts say the money PayPal makes off such payments has a negligible impact on its bottom line.
Any funds PayPal holds for dispersal are automatically deposited in a corporate bank account, which earns interest, according to Paypal representative Amanda Pires. The money is kept there until it's ready for distribution. PayPal, which processes payments for eBay auctions as well as e-commerce transactions from elsewhere on the Internet, counts interest payments on those funds as one of its revenue streams.
That's a perfectly legal practice, as PayPal is classified as a deposit broker, according to Federal Deposit Insurance Corporation (FDIC) spokesman David Barr.
"Deposit brokers make money being deposit brokers," Barr said. "That's the reason they're in business. As long as fees are disclosed, that's fine from our standpoint."
Indeed, Paypal's user agreement - which all accountholders must read and accept - states: "Paypal may combine your funds with the funds of other Users and place those Pooled Accounts in one or more bank accounts in PayPal's name."
This applies to any user funds that are in the company's "custody." The agreement further states that accountholders "irrevocably transfer and assign to PayPal any ownership right that you may have in any interest" that accrues in these accounts.
However, company executives and industry analysts say the money PayPal makes off such payments has a negligible impact on its bottom line.
Any funds PayPal holds for dispersal are automatically deposited in a corporate bank account, which earns interest, according to Paypal representative Amanda Pires. The money is kept there until it's ready for distribution. PayPal, which processes payments for eBay auctions as well as e-commerce transactions from elsewhere on the Internet, counts interest payments on those funds as one of its revenue streams.
That's a perfectly legal practice, as PayPal is classified as a deposit broker, according to Federal Deposit Insurance Corporation (FDIC) spokesman David Barr.
"Deposit brokers make money being deposit brokers," Barr said. "That's the reason they're in business. As long as fees are disclosed, that's fine from our standpoint."
Indeed, Paypal's user agreement - which all accountholders must read and accept - states: "Paypal may combine your funds with the funds of other Users and place those Pooled Accounts in one or more bank accounts in PayPal's name."
This applies to any user funds that are in the company's "custody." The agreement further states that accountholders "irrevocably transfer and assign to PayPal any ownership right that you may have in any interest" that accrues in these accounts.
But the revenue generated from this practice is miniscule given PayPal's total revenue picture, said Thomas Weisel Partners managing director Christa Quarles.
"Money's definitely being made on the float, but is that the purpose at the end of the day?" said Quarles, who covers eBay. "Our sense is it's not necessarily material in its contribution."
Citigroup Director of Internet Research Mark Mahaney arrived at similar estimates by examining PayPal's public quotes of average "stored value." Mahaney approximates the interest earned on the float at "single-digit millions per quarter, and at most $10 million a quarter."
All that's a drop in the bucket, said Quarles. In 2007, PayPal generated $1.8 billion in revenue. EBay's total 2007 revenue was $7.7 billion. EBay does not break out PayPal's earnings in its financial statements, meaning analysts must rely on their own estimates of the division's profits.
"I understand sellers are angry about the 21-day policy, but the fee changes are really what's going to drive broader revenues at eBay," Quarles said.
PayPal's Pires said accountholders should be aware that they have the power to collect interest for their own use on delayed funds. It's as simple as enrolling in the company's PayPal Money Market Fund, Pires said.
For enrolled accountholders, any funds earmarked for a hold are diverted into the Money Market Fund rather than PayPal's corporate bank account, Pires said. The dividends earned are credited to user accounts on a monthly basis.
"Every U.S. accountholder has the ability to invest in the Money Market Fund," Pires said.
PayPal's Money Market Fund is run by Barclay's Global Investments. No minimum balance is required, and the fund's current interest rate is 3.46%.
The company would not disclose what percentage of PayPal's 57 million active accountholders have enrolled in the fund. But Pires said the fund is a "well-utilized service by our customers."
Barr of the FDIC notes that PayPal does not ultimately fall under the jurisdiction of the FDIC, which regulates banks and banking institutions. Regulation of deposit brokers or money-transfer operations falls to individual states, he said.
Alana Golden, spokeswoman for California's Department of Financial Institutions, said PayPal's plans for a 21-day holding period do not run afoul of any DFI regulations. The DFI regulates only PayPal transactions that involve transmitting money to foreign countries, and has no jurisdiction over PayPal's domestic operations.
Therein lies PayPal's competitive advantage, said Quarles of Thomas Weisel Partners.
"They've figured out how not to be regulated, and they've done that globally," Quarles said. "PayPal has gone to great pains to be not considered a bank."
Representatives from PayPal, which eBay acquired in 2002, declined to comment on how the new policy would affect individual cases, but noted that the changes are paired with increased protections for merchants who use the service.
If Paypal deems a transaction fraudulent, it currently covers merchants for up to $5,000 per year. That cap will be lifted for eBay's PowerSellers, the site's highest-volume merchants, who will now receive unlimited coverage. PayPal will also offer PowerSellers protection on items sent to any address (not just confirmed addresses, the current policy) and expand its merchant coverage for international sales.
PayPal estimates that its new hold policy will affect less than 5% of eBay transactions, and it emphasizes that only relatively untested sellers risk incurring a freeze. Merchants who have been registered with eBay for more than six months, have a feedback score of 100 or higher (meaning they've received positive comments for at least that many transactions), and have a "dissatisfied buyer" rate of less than 5% will never have their funds held.
But on a site that hosts an estimated 113 million listings worldwide at any given time, a policy affecting as many as 5% of those transactions puts millions in jeopardy. If funds are frozen after a sale, PayPal will release them after the buyer leaves positive feedback, three days after the item's confirmed delivery, or at the end of 21 days without a dispute, whichever happens first.
Paypal says the factors that will play into its formula for triggering a hold include the length of time a seller has been on eBay, the seller's feedback rating, and the final cost and shipping fees for the item.
Because PayPal has sole discretion over whether to freeze funds, sellers are upset about a perceived lack of accountability. They're also grouchy about eBay's efforts to force buyers to rely on PayPal: in some categories and for all new sellers, eBay requires vendors to offer PayPal as an option or have their own merchant credit card account. The site has blocked rival payment systems such as Google Checkout, saying they are not yet proven safe, which in our opinion is not true.
If Paypal deems a transaction fraudulent, it currently covers merchants for up to $5,000 per year. That cap will be lifted for eBay's PowerSellers, the site's highest-volume merchants, who will now receive unlimited coverage. PayPal will also offer PowerSellers protection on items sent to any address (not just confirmed addresses, the current policy) and expand its merchant coverage for international sales.
PayPal estimates that its new hold policy will affect less than 5% of eBay transactions, and it emphasizes that only relatively untested sellers risk incurring a freeze. Merchants who have been registered with eBay for more than six months, have a feedback score of 100 or higher (meaning they've received positive comments for at least that many transactions), and have a "dissatisfied buyer" rate of less than 5% will never have their funds held.
But on a site that hosts an estimated 113 million listings worldwide at any given time, a policy affecting as many as 5% of those transactions puts millions in jeopardy. If funds are frozen after a sale, PayPal will release them after the buyer leaves positive feedback, three days after the item's confirmed delivery, or at the end of 21 days without a dispute, whichever happens first.
Paypal says the factors that will play into its formula for triggering a hold include the length of time a seller has been on eBay, the seller's feedback rating, and the final cost and shipping fees for the item.
Because PayPal has sole discretion over whether to freeze funds, sellers are upset about a perceived lack of accountability. They're also grouchy about eBay's efforts to force buyers to rely on PayPal: in some categories and for all new sellers, eBay requires vendors to offer PayPal as an option or have their own merchant credit card account. The site has blocked rival payment systems such as Google Checkout, saying they are not yet proven safe, which in our opinion is not true.
TOP 100 Employers in USA (2008 Ratings)
Employee's Favourite Companies
List of Top 100 Employers in USA (2008 Ratings)
Company Job Growth Rate # of US Employees
1 Google 60% 8,134
2 Quicken Loans 68% 4,920
3 Wegmans Food Markets 4% 35,302
4 Edward Jones 5% 31,451
5 Genentech 9% 10,842
6 Cisco Systems 17% 32,160
7 Starbucks 15% 134,013
8 Qualcomm 15% 10,095
9 Goldman Sachs 10% 13,764
10 Methodist Hospital System 11% 10,481
11 Boston Consulting Group 8% 1,543
12 Nugget Markets 20% 1,322
13 Umpqua Bank 25% 1,788
14 Network Appliance 25% 4,481
15 W. L. Gore & Associates 6% 5,211
16 Whole Foods Market 11% 41,385
17 David Weekley Homes -11% 1,450
18 OhioHealth 4% 11,254
19 Arnold & Porter -3% 1,272
20 Container Store 5% 3,019
21 Principal Financial Group 3% 13,438
22 American Century Investments -5% 1,694
23 JM Family Enterprises 4% 4,609
24 American Fidelity Assurance 1% 1,376
25 Shared Technologies 28% 1,401
26 Stew Leonard's 13% 2,282
27 S.C. Johnson & Son 0% 3,419
28 QuikTrip -5% 9,630
29 SAS Institute -1% 5,153
30 Aflac 5% 4,475
31 Alston & Bird 0% 1,762
32 Rackspace Managed Hosting 38% 1,443
33 Station Casinos 6% 14,920
34 Recreational Equipment (REI) 19% 9,137
35 TDIndustries 19% 1,595
36 Nordstrom 0% 49,769
37 Johnson Financial Group 12% 1,259
38 Kimley-Horn & Associates 9% 2,368
39 Robert W. Baird 0% 2,093
40 Adobe Systems 8% 3,900
41 Bingham McCutchen 0% 1,652
42 MITRE 5% 6,037
43 Intuit 11% 7,635
44 Plante & Moran 0% 1,522
45 Children's Healthcare of Atlanta 3% 5,427
46 CarMax 13% 14,223
47 J. M. Smucker 7% 3,042
48 Devon Energy 15% 3,368
49 Griffin Hospital 4% 1,133
50 Camden Property Trust -5% 1,894
51 Paychex 7% 11,622
52 FactSet Research Systems 21% 1,102
53 Vision Service Plan 6% 2,052
54 CH2M HILL -2% 15,674
55 Perkins Coie 6% 1,629
56 Scripps Health 6% 11,223
57 Ernst & Young 4% 25,947
58 Scottrade 13% 1,584
59 Mayo Clinic 4% 41,004
60 Alcon Laboratories 6% 6,848
61 Chesapeake Energy 15% 5,752
62 American Express 4% 30,162
63 King's Daughters Medical Center 13% 2,934
64 EOG Resources 17% 1,388
65 Russell Investments 5% 1,267
66 Nixon Peabody 9% 1,728
67 Valero Energy -8% 17,488
68 eBay 13% 7,769
69 General Mills -2% 17,090
70 Mattel 2% 5,000
71 KPMG 8% 22,857
72 Marriott International -2% 123,203
73 David Evans & Associates 9% 1,085
74 Granite Construction 6% 4,650
75 Southern Ohio Medical Center 7% 2,032
76 Arkansas Children's Hospital 8% 3,283
77 PCL Construction Enterprises 18% 3,558
78 Navy Federal Credit Union 15% 6,069
79 National Instruments 3% 2,353
80 Healthways 42% 3,730
81 Booz Allen Hamilton 7% 17,650
82 Nike 4% 14,570
83 AstraZeneca 5% 12,810
84 Stanley 7% 2,756
85 Lehigh Valley Hospital 9% 8,420
86 Microsoft 8% 47,645
87 Yahoo 16% 7,915
88 Four Seasons Hotels 21% 12,851
89 Bright Horizons Family Solutions 7% 14,660
90 PricewaterhouseCoopers 5% 29,818
91 Publix Super Markets 5% 142,084
92 Milliken -8% 8,800
93 Erickson Retirement Communities 14% 10,248
94 Baptist Health South Fla. 4% 9,838
95 Deloitte & Touche USA 7% 36,517
96 Herman Miller 14% 6,063
97 FedEx 8% 228,211
98 Sherwin-Williams 1% 29,554
99 SRA International 6% 5,200
100 Texas Instruments -1% 15,051
List of Top 100 Employers in USA (2008 Ratings)
Company Job Growth Rate # of US Employees
1 Google 60% 8,134
2 Quicken Loans 68% 4,920
3 Wegmans Food Markets 4% 35,302
4 Edward Jones 5% 31,451
5 Genentech 9% 10,842
6 Cisco Systems 17% 32,160
7 Starbucks 15% 134,013
8 Qualcomm 15% 10,095
9 Goldman Sachs 10% 13,764
10 Methodist Hospital System 11% 10,481
11 Boston Consulting Group 8% 1,543
12 Nugget Markets 20% 1,322
13 Umpqua Bank 25% 1,788
14 Network Appliance 25% 4,481
15 W. L. Gore & Associates 6% 5,211
16 Whole Foods Market 11% 41,385
17 David Weekley Homes -11% 1,450
18 OhioHealth 4% 11,254
19 Arnold & Porter -3% 1,272
20 Container Store 5% 3,019
21 Principal Financial Group 3% 13,438
22 American Century Investments -5% 1,694
23 JM Family Enterprises 4% 4,609
24 American Fidelity Assurance 1% 1,376
25 Shared Technologies 28% 1,401
26 Stew Leonard's 13% 2,282
27 S.C. Johnson & Son 0% 3,419
28 QuikTrip -5% 9,630
29 SAS Institute -1% 5,153
30 Aflac 5% 4,475
31 Alston & Bird 0% 1,762
32 Rackspace Managed Hosting 38% 1,443
33 Station Casinos 6% 14,920
34 Recreational Equipment (REI) 19% 9,137
35 TDIndustries 19% 1,595
36 Nordstrom 0% 49,769
37 Johnson Financial Group 12% 1,259
38 Kimley-Horn & Associates 9% 2,368
39 Robert W. Baird 0% 2,093
40 Adobe Systems 8% 3,900
41 Bingham McCutchen 0% 1,652
42 MITRE 5% 6,037
43 Intuit 11% 7,635
44 Plante & Moran 0% 1,522
45 Children's Healthcare of Atlanta 3% 5,427
46 CarMax 13% 14,223
47 J. M. Smucker 7% 3,042
48 Devon Energy 15% 3,368
49 Griffin Hospital 4% 1,133
50 Camden Property Trust -5% 1,894
51 Paychex 7% 11,622
52 FactSet Research Systems 21% 1,102
53 Vision Service Plan 6% 2,052
54 CH2M HILL -2% 15,674
55 Perkins Coie 6% 1,629
56 Scripps Health 6% 11,223
57 Ernst & Young 4% 25,947
58 Scottrade 13% 1,584
59 Mayo Clinic 4% 41,004
60 Alcon Laboratories 6% 6,848
61 Chesapeake Energy 15% 5,752
62 American Express 4% 30,162
63 King's Daughters Medical Center 13% 2,934
64 EOG Resources 17% 1,388
65 Russell Investments 5% 1,267
66 Nixon Peabody 9% 1,728
67 Valero Energy -8% 17,488
68 eBay 13% 7,769
69 General Mills -2% 17,090
70 Mattel 2% 5,000
71 KPMG 8% 22,857
72 Marriott International -2% 123,203
73 David Evans & Associates 9% 1,085
74 Granite Construction 6% 4,650
75 Southern Ohio Medical Center 7% 2,032
76 Arkansas Children's Hospital 8% 3,283
77 PCL Construction Enterprises 18% 3,558
78 Navy Federal Credit Union 15% 6,069
79 National Instruments 3% 2,353
80 Healthways 42% 3,730
81 Booz Allen Hamilton 7% 17,650
82 Nike 4% 14,570
83 AstraZeneca 5% 12,810
84 Stanley 7% 2,756
85 Lehigh Valley Hospital 9% 8,420
86 Microsoft 8% 47,645
87 Yahoo 16% 7,915
88 Four Seasons Hotels 21% 12,851
89 Bright Horizons Family Solutions 7% 14,660
90 PricewaterhouseCoopers 5% 29,818
91 Publix Super Markets 5% 142,084
92 Milliken -8% 8,800
93 Erickson Retirement Communities 14% 10,248
94 Baptist Health South Fla. 4% 9,838
95 Deloitte & Touche USA 7% 36,517
96 Herman Miller 14% 6,063
97 FedEx 8% 228,211
98 Sherwin-Williams 1% 29,554
99 SRA International 6% 5,200
100 Texas Instruments -1% 15,051
Tuesday, February 26, 2008
Stocks struggle amid inflation worries
Traders eye producer prices, weak Home Deport earnings
Stocks struggle amid inflation worries
Stocks wobbled in early trading Tuesday after the government said core wholesale prices shot up more than expected last month, reinforcing the market’s worries about rising inflation.
Uncertainty about the retail sector also weighed on stocks. Home Depot Inc. said it expects sales to decline up to 5 percent this year as it contends with a slowing housing market.
Stocks had rallied Monday after ratings agency Standard & Poor’s affirmed investment grade “AAA” ratings for bond insurers Ambac Financial Group Inc and MBIA Inc. Market sentiment in recent sessions has been influenced to a large degree by the plight of the insurers who appear undercapitalized and could have trouble paying back bond holders if default levels are too high.
But economic concerns outweighed some of the optimism about the bond insurers Tuesday. The latest wholesale inflation report showed headline producer prices rising by a full 1 percent in January, driven up by higher energy prices and soaring food costs.
The result was a bit below the 1.1 percent advance projected by Thomson/IFR, but core PPI — which excludes food and energy prices — rose 0.4 percent, steeper than the predicted 0.3 percent gain. The data was disconcerting because the Federal Reserve is known to closely monitor core-level inflation in setting monetary policy.
In early trading, the Dow Jones industrial average fell 31.27, or 0.25 percent, to 12,538.95.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 3.72, or 0.27 percent, to 1,368.08, and the Nasdaq composite index fell 2.64, or 0.11 percent, to 2,324.84.
Government bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.90 percent from 3.91 percent late Monday.
The dollar fell against most other major currencies.
Crude oil fell 25 cents to $98.98 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 2.63, or 0.37 percent, to 713.09.
Overseas, Japan’s Nikkei stock average closed down 0.65 percent. In afternoon trading, Britain’s FTSE 100 rose 0.72 percent, Germany’s DAX index rose 0.81 percent, and France’s CAC-40 rose 0.20 percent.
nflation at the wholesale level soared in January by the fastest pace in 16 years, pushed higher by rising costs for food, energy and medicine.
The Labor Department said Tuesday that wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists had been expecting.
The worse-than-expected performance was certain to capture attention at the Federal Reserve, which has chosen to combat a threatened recession by aggressively cutting interest rates in the belief that weaker economic growth will keep a lid on prices.But the combination of rising inflation and weaker growth raises the threat of “stagflation,” the economic malady that plagued the country through the 1970s, when a series of oil shocks left households battered by the twin problems of stagnant growth and rising prices.
The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. That gain had been driven by sharply higher energy costs.
With the January jump, wholesale prices have risen over the past 12 months by 7.5 percent, the fastest increase since the fall of 1981, when the country was in a deep recession.
The big jump in wholesale prices followed a worse-than-expected increase in consumer prices, which rose by 0.4 percent last month as consumers got hit by higher costs in the same areas of food, energy and health care. The wholesale report said that energy prices jumped 1.5 percent, reflecting a 2.9 percent rise in gasoline and an even bigger 8.5 percent jump in the cost of home heating oil.
Food prices, which have been surging because of increased demand stemming from ethanol production, rose by 1.7 percent last month, the biggest monthly increase in three years. Prices for beef, bakery products and eggs were all up sharply.
Core wholesale inflation, which excludes food and energy, posted a 0.4 percent increase, the biggest increase in 11 months. This gain was led by a 1.5 percent spike in the cost of prescription and non-prescription drugs.
Small Business: online toy rental service
Online Toy Rental Service
After scouring the Internet to fill her house with only the best toys for her infant twin sons, Lori Pope hated to watch the clutter build as the boys lost interest.If you can rent movies, video games and even handbags online, she thought, why not toys?
That’s the idea behind Baby Plays, a Web-based company Pope launched in October that allows parents to receive four or six toys in the mail every month, assembled and ready for playtime.
Baby Plays subscribers visit the company’s Web site to browse among nearly 200 toys for newborns through preschoolers. Customers build a wish list of toys they’d like to rent, and Pope’s staff ships them to their door.
“It’s going to take a load off of moms,” Pope said.
The program has been great for Heidi Borden, a financial analyst from the Houston suburb of Katy who used to dread shopping for toys with her now 11-month-old daughter and 2-year-old son.
“She wants to get on the floor and he’s running down the aisle and I’m just stressed to pick out something really good really quick, get in and out,” said Borden, 39. “It’s just a lot nicer to be able to do this online and not worry about if it’s something that they don’t like.”
As the co-owner of an oilfield supply business, Pope also didn’t have a lot of time to shop. To save time, money and space, she searched the Internet for a toy rental company. When she couldn’t find one, she decided to start her own.
Pope started with 10 customers, shipping toys out of spare office space in her business. Now she’s got about 200 customers nationwide, including about 40 grandparents, and is preparing to move into a 3,000-square-foot warehouse next door.
She has spent $250,000 of the money she’s made from her other business to get the company off the ground, from buying toys and hiring employees to subletting the office and storage space. She still pours about $12,000 a month into the company but hopes to begin turning a profit by this fall.
Customers pay $28.99 a month to get four toys a month for three months and $35.99 a month to get six toys a month for three months. Families willing to sign a yearlong contract can get six toys a month for $31.99.
Baby Plays’ inventory includes popular toys by brands such as VTech, LeapFrog and Playskool as well as more obscure European manufacturers. Pope keeps at least seven of each kind of toy in stock so she can fulfill almost every request. She plans to double her inventory over the next two months.
Pope mainly stocks sturdy, easy-to-clean toys with few parts or parts that are easily replaced. She searches Web sites and catalogs for popular toys that are appropriate for small children and meet all European and American safety standards.
Once a new toy comes in, Pope invites Houston-area customers and their children to her office for some hands-on testing. If the kids love them, she’ll order more. If they ignore the toy or lose interest just a few minutes, it’s cut.
The toys are sanitized with Clorox wipes and loaded with fresh batteries before being shrink wrapped and boxed for shipment. The few toys that are too big to be shipped fully assembled are boxed with a screwdriver and instructions.
Families generally keep the toys for one month and then send them back in the box they came in, using a postage-paid return label the company includes with each shipment. Most parents know that’s long enough for little kids to exhaust their interest.
But it’s no big deal if the little one wants to hang on to a couple of toys for several months, Pope said. Parents can just exchange the toys they don’t want, and new toys are shipped out as the old ones are returned.
Pope also keeps a close eye on the merchandise, yanking toys that are broken or more than “gently worn” and donating them to needy families nominated by her customers.
“If it has a little scratch on it, we’re not going to take it out of the program,” she said. But, “we’re not going to ever send anybody anything that they’re going to feel like is junk.”
Each type of toy is also tested for lead paint when a new shipment arrives from the wholesaler, Pope said. She also avoids toys with small pieces that a child could break off and choke on.
The lead testing was a big selling point for Regina Rubin Cody, a Cleveland mother of 8-month-old twin girls.
“With the two babies it’s kind of a handful,” she said. “To be able to have one less thing to worry about offers kind of a real peace of mind.”
U.S. economic growth is at zero
Economy may be slow to rebound
Economic growth has stalled and recovery may take longer than usual, former U.S. Federal Reserve chairman Alan Greenspan said on Monday."As of right now, U.S. economic growth is at zero," Greenspan said at an investment conference in Jeddah, Saudi Arabia's second-largest city. "We are at stall speed."
"Recovery might take longer to emerge than it usually does," he added.The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.
"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.
In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.
The Federal Reserve said at the time it was worried the economy could face further setbacks, even after a series of interest rate cuts.
Greenspan also said a boom in oil prices, which hit a record of $101.32 on Wednesday, will "go on forever."
Soaring crude prices have kept U.S. inflation high, even as growth slows.
Here are four indicators with good track records at predicting downturns
The economic data are taking on a new urgency. Recently, a few of the economy's vital signs have been erratic. Most notably, a popular measure of service-sector activity plunged to an all-time low, and payrolls last month posted the first monthly decline in nearly 4½ years. The trouble is, that's what the data often do when the economy is sinking into recession: They surprise, sometimes shockingly, on the downside. Most reports in the coming weeks will almost certainly look glum. But just how glum?Economists' expectations have dropped sharply in only the past four weeks. The 51 forecasters surveyed by Blue Chip Economic Indicators now expect first-half growth to average only 0.8%, down from their 1.6% projection in January, and the number of outright recession forecasts is growing.
More negative data surprises would validate the pessimists' view. However, four indicators will be especially important over the next few weeks: new filings for unemployment insurance every Thursday, the February manufacturing and nonmanufacturing indexes from the Institute for Supply Management (ISM) on Mar. 3 and 5, and the Labor Dept.'s February employment report on Mar. 7. Why these? They are timely, indicative of broad business trends, and sensitive to swings in activity, and two of them were unexpectedly weak in January.Start with the labor markets. Payrolls don't just edge lower in a recession, as they did in January, falling 17,000. They drop like a stone. In the 2001 recession, for example, which began in March, job gains slowed to a mere 15,000 per month in the first quarter of the year. Then in April they plummeted 281,000, with losses averaging about 200,000 per month for the rest of the year. In a 2008 recession scenario, February's job report would revise January payrolls to show a larger loss, and February employment would drop 100,000 or so.
Weekly unemployment claims gave a warning of the big 2001 job losses, and they would likely do the same in 2008. By mid-March in 2001, the four-week average of claims had jumped to about 390,000 new filings per week, up from about 340,000 in mid-December. Right now, claims are averaging 335,000 through early February. That's consistent with nothing worse than anemic economic growth, suggesting slower hiring rates rather than rising layoffs. Based on past trends, the four-week average would have to jump into the 375,000-400,000 range to foretell recession-like job losses.
The ISM data:
All eyes will also be on the ISM's index of nonmanufacturing activity, mainly service industries, for confirmation of its January swoon, to 44.6, from 53.2 in December. Readings under 50 indicate business is contracting. The index goes back only to 1997, so comparisons to earlier recessions are shaky. But based on the index's past relationship with economic growth, its January level, if maintained for the quarter, would be consistent with a highly unlikely double-digit plunge in real gross domestic product. Also, the sharp decline in the employment component of the overall index would imply payroll losses during the quarter averaging nearly 160,000 per month.
The drop in the ISM's nonmanufacturing index contradicts the ISM's manufacturing gauge, which has a better and longer record at spotting recessions. Over time, the two have tracked each other fairly well, but the factory index rose in January, to 50.7 from 48.4, which did not put it at a recession level. Historically, a nonmanufacturing index at January's nadir would be associated with a manufacturing reading of about 42, which would set off alarms. The recession script now? February's nonmanufacturing index would fail to rebound enough to take it out of the danger zone, while the manufacturing gauge would reverse course and join it there.
Economic reports other than these four will also be important in divining the economy's path in the first half. However, if the numbers are going to start singing recession, this quartet will lead the chorus.
Recession Time? It's Still Anyone's Guess
There are mounting concerns over an economic recession in the U.S. Unfortunately, there’s no unambiguous leading indicator of economic downturns. If a recession does occur, a trend of moderating economic volatility since the mid-1980s suggests it will be mild. And when it comes to comparing the total time spent in recession, globally, the U.S. is about average.Leading Indicators
U.S. investors turn to interest rates, stock prices, and economists to predict recessions, but none of them has a perfect track record since 1968.
Tough Times
Percent of Months Spent in Recession* 1962-2007
The U.S. is in the middle of the pack.
Recession:
Defined as a pronounced, pervasive and persistent decline in sales, production, employment and income
Microsoft and Yahoo - Possibilities for success of Bid
Almost all of Yahoo’s main shareholders have Microsoft holdings so Yahoo’s big investors may back Microsoft.
Most of Yahoo Inc’s top institutional shareholders may be more interested in making sure Microsoft Corp does not overpay for the Web pioneer, because they have more money invested in the bigger software maker, a research report said on Friday.
Financial risk management analysis company RiskMetrics Group found that close to 90 percent of Yahoo’s institutional shareholders have a cross-holding in Microsoft, including most of the top 20 — and generally have significantly more money invested in Microsoft.
The two companies are at a stand-off in Microsoft’s $41.7 billion unsolicited bid to acquire Yahoo. Microsoft has offered to buy Yahoo for $31 a share in cash and stock, a bid which Yahoo’s board rejected, saying it undervalued the company.
Microsoft countered by saying that its offer was “full and fair,” but did not say what it planned to do next. Analysts expect Microsoft to sweeten its bid, possibly to $35 a share, to clinch a deal.
Yahoo shares surged on news of the bid, but Microsoft shares have fallen. Shares of Microsoft were down 11 cents to $28.39 in Friday afternoon trading on Nasdaq, down 13 percent since the offer went public.
Yahoo’s stock was down 40 cents to $29.58, representing about a 2 percent premium to Microsoft’s half-cash and half-stock offer, which indicates investors are expecting a higher bid.
A shareholder that owns both the target and an acquirer will be more interested in the net benefit of a deal, RiskMetrics said. Shareholders with more money invested in Microsoft than Yahoo will most likely urge Yahoo not to push its case too hard.
“They may be more concerned with whether Microsoft will get caught up in a ’deal frenzy’ and suffer the ’winner’s curse’ by overpaying for Yahoo,” RiskMetrics analysts wrote in an M&A Edge Note.
“We can expect shareholders who own both companies to pressure Yahoo directors to extract a material sweetener from Microsoft (which will help Yahoo directors save face) that isn’t seen to destroy the perceived benefits of the merger, prior to ... ultimately succumbing.”
Earlier this week, Yahoo’s second biggest shareholder, Legg Mason, urged Microsoft to raise its offer. In a letter to investors, Bill Miller, the star stock-picker at the U.S. asset manager, estimated that fair value for Yahoo was around $40 per share.
RiskMetrics said this was not a big surprise since Legg Mason is one of three of Yahoo’s top 20 institutional shareholders with significantly more money invested in Yahoo than Microsoft.
“Don’t expect to see many of the other top Yahoo shareholders following Bill Miller’s lead,” the report said.
If Microsoft has the money to buy Yahoo! why can't they just purchase the shares via the stock exchange? It may take more time buying it a little piece at a time but eventually couldn't Microsoft buy all the shares they want?
t’s been awhile since merger mania produced a wave of high-profile takeover battles, butMicrosoft’s recent bid for Yahoo is following a fairly well-worn path in the corporate acquisitions game. (Msnbc.com is a joint venture of Microsoft and NBC Universal.) In theory, buying another company is a simple matter of buying all of its shares in the public market. But over the years, Wall Street’s lawyers and investment bankers have developed a complex playbook of offensive and defensive maneuvers that make the process anything but simple.
When one company wants to take over another one, it’s much easier — and cheaper — to arrange a “friendly” deal that has the blessing of the target company’s board of directors. What Microsoft originally tried what’s known in the trade as a “bear hug” — a highly public offer designed to look so attractive to shareholders that the company’s management goes along with the plan.
But Yahoo’s board of directors decided to not go along with the deal, saying they think their shareholders can do better. They may be trying to get Microsoft to raise its $31-a-share offer. Or they may be hoping another bidder — a so-called “white knight” — will come along and offer more money. Or the board may think Yahoo stock’s recent slump — from more than $33 a share last fall to $19 a share just before Microsoft’s bid — is temporary.
Having failed to win over Yahoo’s board, Microsoft could just start buying stock on the open market. But it would run into one of the more effective obstacles in the takeover defense playbook, a provision known as a “poison pill.” This measure says that if a hostile bidder buys 15 percent of Yahoo’s stock, the company can flood the market with new shares that sell for a steep discount to the market price.
The idea is to make it almost impossible for the acquiring company to swallow up all the shares of its target. Some companies take these defensive measures to extremes with defensive provisions that make them extremely unattractive as a target, like spinning off their best assets or triggering a large debt payment, also known as “suicide pill” or “scorched earth” defenses.
Another way to get around an uncooperative board of directors is to replace them — with a so-called proxy fight. Some companies “stagger” their board of directors, with terms that expire in different years so they can’t all be replaced at once. (Yahoo hasn’t done that.) To remove a board, you have to get a new slate of directors listed on the proxy ballot that is sent to shareholders every year before the annual meeting, usually in the spring. Microsoft has until mid-May to nominate candidates who would go along with its offer; it would then have to wage a campaign to get a majority of shareholders to vote for its hand-picked candidates.
Fear of Recession in US economy
More top economists now forecast Recession
Job growth is faltering, consumer confidence plunging. The fallout from the worst housing slump in a quarter-century grows. Wherever you look, the signs are unmistakable that the economy is in trouble.
Because of all the bad news, more and more economists foresee the country falling into a recession, according to the latest survey by the National Association for Business Economics.
The group said in a report being released Monday that 45 percent of the economists on its forecasting panel expect a recession this year. In September, only one in four economists was pessimistic enough to put the chance of a recession at 35 percent or higher.
he drumbeat of bad news since last fall has caused many analysts to consider a recession more likely now, said Ellen Hughes-Cromwick, chief economist at Ford Motor Co. and NABE’s current president.
The survey shows that 55 percent still believe the country will be able to skate by without falling into an actual downturn, typically defined as two consecutive quarters of declines in the gross domestic output, the broadest measure of economic health. All the analysts, however, expect growth to slow considerably this year.
The forecasters believe GDP will expand by 1.8 percent this year, which would be the weakest growth in five years. That compares with an estimate of 2.5 percent growth for 2008 made in the previous survey, in November.
The new estimate is in line with a downgraded forecast from the Federal Reserve this past week.
45 percent predict downturn this year, up from one in four last September
The NABE forecast reflects the expectation the economy will grow only sluggishly or actually contract from January through June. Then it is seen starting to expand more strongly in the second half of the year. Helping accomplish that is a $168 billion federal aid plan, with its rebate checks for millions of families, and aggressive interest rate cuts from the Fed.
The panel of 47 top forecasters thinks “any recession, if it occurs, will be short and shallow,” Hughes-Cromwick said.
The biggest change in the new survey involves the outlook for interest rates.
The biggest change in the new survey involves the outlook for interest rates.
In November, economists expected the Fed would keep a key rate, the federal funds rate, at 4.5 percent through all of 2008. That rate, the target for overnight bank loans, already is at 3 percent, after significant cuts by the Fed in January. Fed Chairman Ben Bernanke has indicated that further rate cuts will be coming if the economy fails to rebound.
So the NABE experts now predict the funds rate will end this year at 2.5 percent.
Inflation is expected to moderate greatly this year as the weak economy cools price pressures. Inflation shot up by 4.1 percent in 2007, the biggest jump in 17 years.
The Consumer Price Index is forecast to rise by 2.5 percent. That is based in part on the NABE panel’s view that demand will weaken for oil and the barrel price will drop to about $84 by December. The current trend, however, is up; crude oil jumped to all-time highs above $100 per barrel over the last week.
The weaker growth will mean higher unemployment, according to the forecasters. They predict that the jobless rate for 2008 will average 5.2 percent, compared with 4.6 percent last year.
Stagflation
Stagflation" is back in the headlines—but the term is being misused, and that's an important story. We're told by eminent newspapers and commentators that stagflation is the messy mixture of both high inflation and high unemployment. It isn't. Stagflation, at least as the concept was initially understood in the 1970s, meant something different. Yes, it signified the simultaneous occurrence of high inflation, high unemployment and slow economic growth; but its defining feature was the persistence of this poisonous combination over long periods of time. Although we're drifting in that direction, we're not there yet.
Let's see why this is a distinction with a difference. The coexistence of high (or rising) inflation with high (or rising) unemployment is not an abnormal event. But it's usually temporary, because the higher unemployment—stemming from an economic slowdown or recession—helps control inflation. Companies can't pass along price increases; they're stingier with wage increases. It's only when this restraining process is not allowed to work that inflationary psychology and practices take root, creating a self-fulfilling wage-price spiral. Higher wages push up prices, which then push up wages. Then we get stagflation: a semipermanent fusion of high joblessness and inflation.
Naturally, no leading politician is willing to acknowledge the self-evident implication: that recessions, though unwanted and hurtful to many, are not just inevitable; sometimes they're also necessary to prevent the larger and longer-lasting harm that would result from resurgent inflation. Interestingly, many economists (even those in academia and private industry who, presumably, have more freedom to speak their minds) suffer the same deficiency. They treat every potential recession as a policy failure when it is often simply part of the cycle. They thus contribute to a political and intellectual climate that, focused on avoiding or minimizing any recession, may have the perverse result of aggravating inflation and leading to much harsher recessions later. The stagflation that began in the late 1960s and resulted from this attitude was indeed dreadful: from 1969 to 1982, inflation averaged 7.5 percent annually and unemployment 6.4 percent.
What's renewed interest in stagflation is the latest consumer price index (CPI), the government's main inflation indicator. Released last week, it makes for discouraging reading. For the year ending in January, all prices were up 4.3 percent. Excluding the temporary surges after Katrina, inflation hasn't been higher since July 1991. Even eliminating food and energy prices (about a quarter of the index), January's year-to-year increase was 2.5 percent.
All these figures exceed the 's informal inflation target of 1 to 2 percent a year: a range deemed so low that it's effective price stability. And these aren't the truly disturbing numbers. The more upsetting figures are those for the last three months. In this period, the full CPI rose at a 6.8 percent annual rate. Without food and energy, the increase was still 3.1 percent. Medical services were up 5.1 percent, women's and girls' apparel 7.3 percent, and water, sewer and trash collection fees 6.7 percent (again, at annual rates). Inflation is accelerating.
Price increases of individual items can have many immediate causes: poor harvests for food; OPEC for energy; uncompetitive markets for health care; corporate market power for drugs; union market power for construction costs. But persistent inflation—the general rise of most prices—has only one cause: too much money chasing too few goods. It's not a random accident or an act of nature. The Federal Reserve regulates the nation's supply of money and credit. The Fed creates inflation and can control it.
Return on Capital Employed (ROCE)
Return On Capital Employed (ROCE)
A financial ratio that indicates the efficiency and profitability of a company's capital investments.
Calculated by dividing operating income by capital employed:
ROCE =
Operating Income
_____________
Capital Employed
ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders' earnings.
A variation of this ratio is return on average capital employed (ROACE), which takes the average of opening and closing capital employed for the time period.
Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is realising from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilised to generate revenue. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.
A financial ratio that indicates the efficiency and profitability of a company's capital investments.
Calculated by dividing operating income by capital employed:
ROCE =
Operating Income
_____________
Capital Employed
ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders' earnings.
A variation of this ratio is return on average capital employed (ROACE), which takes the average of opening and closing capital employed for the time period.
Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is realising from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilised to generate revenue. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.
Application of ROCE
ROCE is used to prove the value the business gains from its assets and liabilities, a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes the same profit.
It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities.
Drawbacks of Return On Capital Employed Ratio
The main drawback of ROCE is that it measures return against the book value of assets in the business. As these are depreciated the Return On Capital Employed will increase even though cash flow has remained the same. Thus, older businesses with depreciated assets will tend to have higher Return On Capital Employed than newer, possibly better businesses. In addition, while cash flow is affected by inflation, the book value of assets is not. Consequently revenues increase with inflation while capital employed generally does not: as the book value of assets is not affected by inflation.
Notes:
The terms used in calculation of ROCE
Operating income
In the numerator we have Pretax operating profit or operating income. In the absence of non-operating income, operating income agrees with EBIT; otherwise, it can be derived from EBIT by subtracting non-operating income.
Capital Employed
In the denominator we have net assets or capital employed instead of total assets (which is the case of Return on Assets). Capital Employed has many definitions. In general it is the capital investment necessary for a business to function. It is commonly represented as total assets less current liabilities or fixed assets plus working capital.
ROCE uses the reported (period end) capital numbers; if one instead uses the average of the opening and closing capital for the period, one obtains Return on Average Capital Employed (ROACE).
Monday, February 4, 2008
Google is making efforts to block Microsoft's Bid for Yahoo!
Google has said it finds Microsoft's $44.6bn (£22.65bn) bid to buy rival Yahoo "troubling" and wants regulators to scrutinise the proposed deal. In a blog, Google said the tie-up could unfairly limit the ability of consumers to freely access competitors' email and instant messaging services.
It said Microsoft had previously sought "to establish proprietary monopolies".
Microsoft made an unsolicited offer for Yahoo on Friday, and Yahoo has said it is considering the proposal. "Microsoft's hostile bid for Yahoo raises troubling questions," said David Drummond, Google's senior vice president for corporate development and chief legal officer.
"This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the internet: openness and innovation," he said in a company blog. Google's efforts aside, analysts say a bidding war for Yahoo looks unlikely given Microsoft's deep pockets.
It said Microsoft had previously sought "to establish proprietary monopolies".
Microsoft made an unsolicited offer for Yahoo on Friday, and Yahoo has said it is considering the proposal. "Microsoft's hostile bid for Yahoo raises troubling questions," said David Drummond, Google's senior vice president for corporate development and chief legal officer.
"This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the internet: openness and innovation," he said in a company blog. Google's efforts aside, analysts say a bidding war for Yahoo looks unlikely given Microsoft's deep pockets.
Yahoo! Inc. rose the most since its first day of trading when Microsoft offered $44.6 billion for the company, the second- most popular search engine, on Feb. 1. Yang, who returned as Yahoo's chief executive officer to try to reverse a two-year stock slump, had presided over a 32 percent drop before the bid.
Microsoft said Yahoo executives snubbed its overtures last year in favor of tackling Internet search leader Google Inc. independently. Yahoo's stock performance shows investors don't embrace that strategy and that Yang's promises to revamp the company's search engine and gain on Google were in vain.
Microsoft's proposed bid, unveiled in a letter to Yahoo's board on Friday, is 62% above Yahoo's closing share price on Thursday.
Microsoft said Yahoo executives snubbed its overtures last year in favor of tackling Internet search leader Google Inc. independently. Yahoo's stock performance shows investors don't embrace that strategy and that Yang's promises to revamp the company's search engine and gain on Google were in vain.
Microsoft's proposed bid, unveiled in a letter to Yahoo's board on Friday, is 62% above Yahoo's closing share price on Thursday.
Microsoft's $31-a-share bid came three days after Sunnyvale, California-based Yahoo posted an eighth straight quarter of declining profit and projected sales that trailed most analysts' estimates. Yang and co-founder David Filo, both graduate students started the company in 1995 with $2 million from venture capital firm Sequoia Capital in Menlo Park, California. Yahoo's sales increased from $20 million in 1996 to more than $1 billion four years later. As traffic on the Web soared, so did advertising revenue, helping Yahoo's stock market value jump to more than $100 billion, most of which was lost in the technology-stock crash of 2000.
Yahoo was trading at $19.18 before the offer. The stock rose $9.20 to $28.38 in Nasdaq Stock Market trading after the Microsoft announcement, and extended the gain to the equivalent of $28.73 at 9:28 a.m. in German trading today.
Microsoft rose 1.1 percent to the equivalent of $30.77 at 9:25 a.m. in German trading from the close of $30.45 in the U.S. on Feb. 1. Google added 0.4 percent to $518 in Germany from last week's U.S. close of $515.90.
Google Chief Executive Officer Eric Schmidt called Yahoo's Yang and offered a potential partnership between the two companies to thwart Microsoft's $44.6 billion bid, the New York Times and the Wall Street Journal reported today, both citing people familiar with the matter.
Yahoo was trading at $19.18 before the offer. The stock rose $9.20 to $28.38 in Nasdaq Stock Market trading after the Microsoft announcement, and extended the gain to the equivalent of $28.73 at 9:28 a.m. in German trading today.
Microsoft rose 1.1 percent to the equivalent of $30.77 at 9:25 a.m. in German trading from the close of $30.45 in the U.S. on Feb. 1. Google added 0.4 percent to $518 in Germany from last week's U.S. close of $515.90.
Google Chief Executive Officer Eric Schmidt called Yahoo's Yang and offered a potential partnership between the two companies to thwart Microsoft's $44.6 billion bid, the New York Times and the Wall Street Journal reported today, both citing people familiar with the matter.
The offer from Microsoft is one of many options Yahoo is evaluating, Yang and Chairman Roy Bostock said in a Feb. 1 e-mail to employees obtained by Bloomberg News. The board will respond after reviewing the alternatives, they said. If Yahoo accepts the deal, Yang stands to get about $1.6 billion in cash or Microsoft stock for his 52.8 million shares.
Microsoft may have to raise its price to win over Yahoo's board, said Jason Helfstein, an Oppenheimer & Co. analyst in New York. Helfstein suggested in a Feb. 1 report that an increase to as much as $40 a share, or about $53.5 billion, was possible. Microsoft spokesman Bill Cox declined to comment.
Friday, February 1, 2008
Google posts 17% profit gain
Google Posts 17% profit
~~~
Excluding special items, Google said earnings for the period were $4.43 a share. Net revenue, or revenue minus payments made to other sites to acquire Internet traffic, came in at $3.39 billion. Analysts polled by Thomson Financial had estimated Google would post earnings excluding special items of $4.44 a share, and net revenue of $3.45 billion.
"We're very, very pleased with our year and also the quarter that's just ended," Google Chief Executive Eric Schmidt said during a conference call with analysts, citing in particular "strong international growth." Revenue from international operations grew to $2.32 billion, or 48% of total revenue, compared to 44% in the period a year earlier, Google said.
But co-founder Sergey Brin said Google's AdSense program, which distributes advertisements among partner sites separate from Google.com, saw some difficulty in the quarter, due to challenges in getting users to click on related ads and generate revenue.
"We have had a challenge in the fourth quarter with social networking [advertising] inventory as a whole," Brin said. "Some of the monetization work we were doing there did not pan out as we'd hoped."
Google's social networking partners in its advertising network include News Corp.'s NWS, popular social networking service MySpace.com and roughly 20 others, Brin said.
Revenue from the AdSense program rose to $1.6 billion in the quarter, compared to $1.2 billion in the period a year earlier. However, Google must make payments to the program's partner sites, which helped increase related costs, the company said. Concerns have emerged recently about the fortunes of Google and other Internet companies amid a U.S. economic slowdown and potential cutbacks in spending on online advertising. Unlike many other companies, Google does not issue financial outlooks. During the conference call, Schmidt steadfastly refused to detail the company's thinking about 2008. When an analyst mentioned a likely "economic slowdown" expected in the coming year, he quickly interjected that, "that's your view, not necessarily ours."
"We have not yet seen any negative impact from the rumors of future recessions," Schmidt said.
One concern specific to Google in recent months has been the company's hiring pace. Google said Thursday it hired 889 new employees in the fourth quarter. In its fiscal third quarter ended in September Google said it hired a record 2,000 new employees, stirring some anxiety about mounting expenses. While i am writing this Article, an important news that can further affect the stock price of Google, Yahoo and Microsoft is as under
"We're very, very pleased with our year and also the quarter that's just ended," Google Chief Executive Eric Schmidt said during a conference call with analysts, citing in particular "strong international growth." Revenue from international operations grew to $2.32 billion, or 48% of total revenue, compared to 44% in the period a year earlier, Google said.
But co-founder Sergey Brin said Google's AdSense program, which distributes advertisements among partner sites separate from Google.com, saw some difficulty in the quarter, due to challenges in getting users to click on related ads and generate revenue.
"We have had a challenge in the fourth quarter with social networking [advertising] inventory as a whole," Brin said. "Some of the monetization work we were doing there did not pan out as we'd hoped."
Google's social networking partners in its advertising network include News Corp.'s NWS, popular social networking service MySpace.com and roughly 20 others, Brin said.
Revenue from the AdSense program rose to $1.6 billion in the quarter, compared to $1.2 billion in the period a year earlier. However, Google must make payments to the program's partner sites, which helped increase related costs, the company said. Concerns have emerged recently about the fortunes of Google and other Internet companies amid a U.S. economic slowdown and potential cutbacks in spending on online advertising. Unlike many other companies, Google does not issue financial outlooks. During the conference call, Schmidt steadfastly refused to detail the company's thinking about 2008. When an analyst mentioned a likely "economic slowdown" expected in the coming year, he quickly interjected that, "that's your view, not necessarily ours."
"We have not yet seen any negative impact from the rumors of future recessions," Schmidt said.
One concern specific to Google in recent months has been the company's hiring pace. Google said Thursday it hired 889 new employees in the fourth quarter. In its fiscal third quarter ended in September Google said it hired a record 2,000 new employees, stirring some anxiety about mounting expenses. While i am writing this Article, an important news that can further affect the stock price of Google, Yahoo and Microsoft is as under
Microsoft seeks to buy Yahoo and take down Google:
Microsoft Corp. on Friday, Feb. 1, 2008, offered to buy Yahoo Inc. for $44.6 billion in an effort to team up on online-advertising juggernaut Google Inc.
Google dominates the lucrative Internet-search business in the U.S. with a 56.3% market share, according to the latest report by Nielsen Online. Yahoo, with 17.7%, and Microsoft, with 13.8%, combined for a market share of 31.5% in December, Nielsen said. Google's global share is even higher. Search is highly valuable because related advertisements can be better tailored to users' interests, increasing the likelihood they will be clicked on and generate revenue. Microsoft's bid for Yahoo is a radical departure from its traditional strategy of building its businesses from within. The $44.6 billion offer dwarfs the $6 billion paid last year for online advertising company aQuantive, Microsoft's largest purchase so far.
Dividend Payout Ratio (DPR)
Dividend Payout Ratio
Definition:
The dividend payout ratio measures the percentage of a company's net income that is returned to shareholders in the form of dividends. (In the United Kingdom, this concept of Dividend Payout is referred to as Dividend Cover)
It is used as a tool in Analysis of Financial Statements. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. When applied correctly, dividend payout ratios can be a powerful analytical tool.
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Calculation of dividend payout ratio:
DPR=
Dividend Per Share
Earnings Per Share
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For example, if XYZ company paid out $2 per share in annual dividends and had $4 in EPS, the DPR would be 50%. ($2 / $4 = 50%)
Growing companies will typically retain more profits to fund growth and pay lower or no dividends. So the Dividend Payout Ratio will be lower as the company expect that retaining the earnings, the return to shareholders can be maximised. Dividend payout ratios provide valuable insight into a company's dividend policy and can also reveal whether those payments appear "safe" or are in jeopardy of possibly being reduced. In the example of XYZ above, a ratio of 50% means that shareholders are only receiving 50 cents for every dollar the company is earning. In this case, the company is generating ample profits to support this relatively modest payment. In fact, if management considered it in the best interests of the company, it could probably afford to raise its dividend payment significantly.
Companies that pay higher dividends may be in mature industries where there is little room for growth and investment, so paying higher dividends is the best use of profits in such cases. An excessively high payout ratio suggests that the company might be paying out more than it can comfortably afford. Not only does this leave just a small percentage of profits to plow back into the business, but it also leaves the firm highly susceptible to a decline in future dividend payments. In some cases, a company will even pay out more than it earns, thus yielding a dividend payout ratio in excess of 100%. Such extremely high payouts are rarely sustainable and should warn investors that a dividend cut may be on the horizon. Because the act of reducing dividends is usually interpreted as a sign of weakness, when a dividend cut announcement is made, it also usually triggers a decline in the share price. Even if management finds a way to maintain an extremely high dividend payout ratio for an extended period of time, this strategy usually results in either a dwindling cash position or a rising debt load.
Companies that pay higher dividends may be in mature industries where there is little room for growth and investment, so paying higher dividends is the best use of profits in such cases. An excessively high payout ratio suggests that the company might be paying out more than it can comfortably afford. Not only does this leave just a small percentage of profits to plow back into the business, but it also leaves the firm highly susceptible to a decline in future dividend payments. In some cases, a company will even pay out more than it earns, thus yielding a dividend payout ratio in excess of 100%. Such extremely high payouts are rarely sustainable and should warn investors that a dividend cut may be on the horizon. Because the act of reducing dividends is usually interpreted as a sign of weakness, when a dividend cut announcement is made, it also usually triggers a decline in the share price. Even if management finds a way to maintain an extremely high dividend payout ratio for an extended period of time, this strategy usually results in either a dwindling cash position or a rising debt load.
Dividend payout ratios can be impacted by a number of factors. For example, different accounting methods yield different earnings per share figures, which in turn influence the ratio. Furthermore, businesses in different growth stages can be expected to have different dividend policies. Young, fast-growing companies are typically focused on reinvesting earnings in order to grow the business. As such, they generally sport low (or even zero) dividend payout ratios. At the same time, larger, more-established companies can usually afford to return a larger percentage of earnings to stockholders.
Note: It can be misleading to compare the ratios of companies operating in different industries.
The Price Earning ratio or the PE ratio is the term commonly used to assess the fairness of the stock price.
PE ratio is defined as the ratio of market price to earning per share (EPS).
PE ratio is defined as the ratio of market price to earning per share (EPS).
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PE ratio = Market price of the share
Earning per share (EPS)
For example, if a company is currently trading at $40 a share and earnings over the last 12 months were $2 per share, the P/E ratio for the stock would be 20 (=$40/$2).
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EPS in turn = Profit After Tax (EAT)
Number of shares in the share capital
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The common sense would dictate that lower Prie/Earning ratio means that the price is undervalued and higher Price/Earning ratio means that the price is overvalued. Unfortunately, it is not so simple that you would be sitting on the stock market and earning money by buying low Price/Earning ratio stocks and selling high Price/Earning ratio stocks.
In absolute terms there is no 'right' PE. One cannot say that PE of a stock of say 10 or 15 is good or bad.
In absolute terms there is no 'right' PE. One cannot say that PE of a stock of say 10 or 15 is good or bad.
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower Price/Earnings. However, the Price/Earning ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical Price/Earning Ratio. The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.It would not be useful for investors using the Price / Earning ratio as a basis for their investment to compare the P/E of a technology company (higher Price/Earning) to a utility company (lower Price/Earning) as each industry has much different growth prospects. The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.
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What is the Right P/E?
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There is no correct answer to this question, because the answer depends on your willingness to pay for earnings. For an investor the stock of a company having PE of 20 is rightly priced the other investor may consider it highly priced due to higher price earning ratio. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the Right Price/Earning is for that particular stock in your decision-making process. Another investor may not see the same value and took your Right P/E as wrong. The positive P/E shows that in how many years you will be able to get back your investment in form of profits. A PE of 10 indicate that you will be able to get back your investment in form of profits in 10 years assuming the price and EPS constant over the time. The negative Price/Earning Ratio shows that the company is suffering losses.
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