Investing for the long term

Economic discussion in hotel bar.

Intrinsic Value

http://www.adam-khoo.com/1028/the-danger-with-warren-buffetts-strategy/

Greed, fear and indecision

A History of U.S. Home Values

Be fearful when others are greedy. Be greedy when others are fearful.

Petronas Chemicals Q1 net profit up 12pc

Petronas Chemicals Q1 net profit up 12pc

2011/08/27

KUALA LUMPUR: Petronas Chemicals Group Bhd (PCG) posted a 12 per cent increase in net profit to RM814 million for the first quarter ended June 30 2011.

PCG suggested that it would have made a higher net profit if it wasn't bogged down by maintenance activities and methane gas supply limitations during the quarter.

The setbacks caused group revenue quarter-on-quarter to ease 23 per cent, or RM1 billion, to RM3.3 billion, although on a year-on-year basis, the revenue was up by 6 per cent, or RM183 million.

"Going forward, we remain highly focused on improving our plant utilisation rate. In addition, we are working diligently with our counterparts on feedstock to secure a reliable rate of gas supply to support our operations as we compete in a continuously challenging business environment," PCG president and chief executive officer Dr Abd Hapiz Abdullah said in a statement yesterday.

A single tier final dividend of 19 sen per share, amounting to RM1.52 billion in respect of the financial year ended March 31 2011, was paid to shareholders on Thursday.

PCG has changed its financial year-end from March 31 to December 31 effective April 1 2011. Accordingly, the group's financial statements for the period ending December 31 2011 cover a nine-month period. Thereafter, its financial year will revert to the usual 12 months from January 1 to December 31 .

PCG said during the quarter, methane gas supply limitation had affected the production in the fertilisers and methanol business segment.

On the other hand, the supply of ethane and propane was unaffected and continued to support the operations of the olefins and derivatives segment, a key contributor to group revenue.

However, as the group had undertaken maintenance activities during the quarter, production volume declined inevitably.

Nonetheless, higher product prices and lower feedstock costs lifted the group's operating profit by RM114 million, or 13 per cent, year-on-year to RM981 million.

PCG's ebitda (earnings before interest, tax, depeciation and amortisation) rose 14 per cent year-on-year to RM1.24 billion in the current quarter from RM1.09 billion.

Its ebitda decreased by RM262 million from RM1.50 billion in the preceding quarter. However, ebitda margin in the current quarter improved to 37.1 per cent from 34.6 per cent.

Saturday August 27, 2011

Dark clouds over US and Europe

WHAT ARE WE TO DO
By TAN SRI LIN SEE-YAN

The world is adrift and it will continue to drift in the coming months or even years

Within the past couple of weeks, the world has changed. From a world so used to the United States playing a key leadership role in shaping global economic affairs to one going through a multi-speed recovery, with the emerging nations providing the source of growth and opportunity. This is a very rapid change indeed in historical time. What happened? First, the convergence of a series of events in Europe (contagion of the open ended debt crisis jolted France and spread to Italy and Spain, forcing theEuropean Central Bank or ECB to buy their bonds) and in the US (last minute lifting of the debt ceiling exposed the dysfunctional US political system, and the Standard & Poor's downgrade of the US credit rating) have led to a loss of confidence by markets across the Atlantic in the effectiveness of the political leadership in resolving key problems confronting the developed world. Second, these events combined with the coming together of poor economic outcomes involving the fragilities of recovery have pushed the world into what the president of the World Bank called “a new danger zone,” with no fresh solutions in sight. Growth in leading world economies slowed for the fourth consecutive quarter, gaining just 0.2% in 2Q'11 (0.3% in 1Q'11) according to the Organisation for Economic Cooperation and Development. The slowdown was marked in the euro area. Germany slackened to 0.3% in 2Q'11 (1.3% in 1Q'1) and France stalled at zero after 0.9% in 1Q'11. The US picked up to 0.3% (0.1% in 1Q'11), while Japan contracted 0.3% in 2Q'11 (-0.9% in 1Q'11).

The US slides

Recent data disclosures and revisions showed that the 2008 recession was deeper than first thought, and the subsequent recovery flatter. The outcome: Gross domestic product (GDP) has yet to regain its pre-recession peak. Worse, the feeble recovery appears to be petering out. Over the past year, output has grown a mere 1.6%, well below what most economists consider to be the US's underlying growth rate, a pace that has been in the past almost always followed by a recession. Over the past six-months, the US has managed to eke out an annualised growth of only 0.8%. This was completely unexpected. For months, the Federal Reserve had dismissed the economy's poor performance as a transitory reaction to Japan's natural disaster and oil price increases driven by turmoil in the Middle East. They now admit much stiffer headwinds are restraining the recovery, enough to keep growth painfully slow. Recent sentiment surveys and business activity indicators are consistent with expectations of a marked slowdown in US growth. Fiscal austerity will now prove to be a drag on growth for years. Housing isn't coming back quickly. Households are still trying to rid themselves of debt in the face of eroding wealth. Old relationships that used to drive recoveries seem unlikely to have the pull they used to have. Historically, consumers' confidence had tended to rebound after unemployment peaked. This time, it didn't happen. Unemployment peaked in Oct 2009 at 10.1% but confidence kept on sinking. The University of Michigan's index fell in early August to its lowest level since 1980. Thrown in is concern about the impact of the wild stock market on consumer spending. Indeed, equity volatility is having a negative impact on consumer psychology at a time of already weakening spending.

Three main reasons underlie why the Fed made the recent commitment to keep short-term interest rates near zero through mid-2013: (i) cuts all round to US growth forecasts for 2H11 and 2012; (ii) drop in oil and commodity prices plus lower expectations on the pace of recovery led to growing confidence inflation will stabilise; and (iii) rise in downside risks to growth in the face of deep concern about Europe's ability to resolve its sovereign debt problems. The Fed's intention is at least to keep financial conditions easy for the next 18 months. Also, it helps to ensure the slowly growing economy would not lapse into recession, even though it's already too close to the line; any shock could knock it into negative territory.

The critical key

Productivity in the US has been weakening. In 2Q11, non-farm business labour productivity fell 0.3%, the second straight quarterly drop. It rose only 0.8% from 2Q10. Over the past year, hourly wages have risen faster than productivity. This keeps the labour market sluggish and threatens potential recovery. It also means an erosion of living standards over the long haul. But, these numbers overstate productivity growth because of four factors: (a) upward bias in the data - eg the US spends the most on health care per capita in the world, yet without superior outcomes; (b) government spending on military and domestic security have risen sharply, yet they don't deliver useful goods and services that raise living standards; (c) labour force participation has fallen for years. Taking lower-paying jobs out of the mix raises productivity but does not create higher value-added jobs; and (d) off-shoring by US companies to China for example, but they don't enhance American productivity. Overall, they just overstate productivity. So, the US, like Europe, needs to actually raise productivity at the ground level if they are to really grow and reduce debt over the long-term. The next wave of innovation will probably rely on the world's current pool of scientific leaders - most of whom is still US-based.

US deficit is too large

The US budget deficit is now 9.1% of GDP. That's high by any standard. According to the impartial US Congressional Budget Office (CBO), even after returning to full employment, the deficit will remain so large its debt to GDP will rise to 190% by 2035! What happened? This deficit was 3.2% in 2008; rose to 8.9% in 2010, pushing the debt/GDP ratio from 40% to 62% in 2010. This “5.7% of GDP” rise in the deficit came about because of (i) a fall of “2.6% of GDP” in revenue (from 17.5% to 14.9% of GDP), and (ii) a rise of “3.1% of GDP” in spending (from 20.7% to 23.8% of GDP). According to the CBO, less than one-half of the rise in deficit was caused by the downturn of 2008-2010. Because of this cyclical decline, revenue collections were lower and outlays, higher (due to higher unemployment benefits and transfers to help those adversely affected). They in turn raise total demand and thus, help to stabilise the economy. These are called “automatic stabilisers.” In addition, the budget deficit also worsened because, even at full-employment, revenues would still fall and spending rise. So, the great recession did its damage.

Looking ahead, the Obama administration's budget proposals would add (according to CBO) US$3.8 trillion to the national debt between 2010 and 2020. This would raise the debt/GDP ratio to 90% reflecting limited higher spending, weaker revenues from middle and lower income taxpayers, offset in part by higher taxes on the rich. Even so, these are based on conservative assumptions regarding military spending, no new programmes and lower discretionary spending in “real” terms. No doubt, actual fiscal consolidation would imply much more spending cuts and higher revenues. According to Harvard's Prof M. Feldstein, increased revenues can only come about, without raising marginal tax rates, through what he calls cuts in “tax expenditures,” that is, reforming tax deductions (eg cutting farm subsidies, eliminating deductions for ethanol production, etc). Such a “balanced approach” to resolve the growing fiscal deficit will be hard to come-by given the political paralysis in Washington. Worse, the poisonous politics of the past two months have created a new sort of uncertainty. The tea partiers' refusal to compromise can, at worse, kill off the recovery. The only institution with power to avert danger is the Fed. But printing money can be counter-productive. Fiscal measures are the preferred way to go at this time. Even so, the US fiscal problems will mount beyond 2020 because of the rising cost of social security and medicare benefits. No doubt, fundamental reform is still needed for the long-term health of the US economy.

Eurozone stumbles

Looming large as a risk factor is Europe's long running sovereign debt saga, which is pummelling US and European financial markets and business confidence. So far, Europe's woes and the market turmoil it stirred are worrisome. The S&P 500 fell close to 5% last week extending losses of 15.4% over the previous three weeks, its worse streak of that length in 2 years, and down 17.6% from its 2011 high. The situation in Europe has been dictating much of the global markets' recent movements. The eurozone's dominant service sector was effectively stagnant in August after two years of growth, while manufacturing activity, which drove much of the recovery in the bloc shrank for the first time since September 2009. Latest indicators add to signs the slowdown is spreading beyond the periphery and taking root in its core members, including Germany. The Flash Markit Eurozone Services Purchasing Managers' Index (PMI) fell to 51.5 in August (51.6 in July), its lowest level since September 2009. The PMI, which measures activity ranging from restaurants to banks, is still above “50”, the mark dividing growth from contraction. However, PMI for manufacturing slid to 49.7 the first sub-50 reading since September 2009. Both services and manufacturing are struggling.

Going forward, poor data show neither Germany nor France (together making- up one-half the bloc's GDP) is going to be the locomotive. Indeed, the risks of “pushing” the region over the edge are significant. Germany faces an obvious slowdown and a possible lengthy stagnation.

European financial markets just came off a turbulent two weeks, with investors fearing the debt crisis could spread further if Europe's policy makers fail to implement institutional change and new structural supports for the currency bloc's finances. In the interim, the ECB has been picking up Italian and Spanish bonds to keep borrowing costs from soaring. The action has worked so far, but the ECB is only buying time and can't support markets indefinitely. So far, the rescue bill included 365 billion euros in official loans to Greece, Portugal and Ireland; the creation of a 440 billion euros rescue fund; and 96 billion euros in bond buying by the ECB. Despite this, market volatility and uncertainty prevail. Europe is being forced into an end-game with three possible outcomes: (a) disorderly break-up - possible if the peripherals fail in their fiscal reform or can no longer withstand stagnation arising from austerity; (b) greater fiscal union in return for strict national fiscal discipline; and (c) creation of a more compact and more economically coherent eurozone against contagion; this implies some weaker members will take “sabbatical” from the euro. My own sense is that the end-game will be neither simple nor orderly. Politicians will likely opt for a weak variant of fiscal union. After more pain, a smaller and more robust euro could emerge and avoid the euro's demise. Nobel Laureate Paul Krugman gives a “50% chance Greece would leave and a 10% odds of Italy following.”

Leaderless world

The crisis we now face is one of confidence. Starting with the markets across both sides of the Atlantic and in Japan. This lack of confidence reflected an accumulation of discouraging news, including feeble economic data in the US and Europe, and signs European banks are not so stable. The global rout seems to have its roots in free-floating anxiety about US dysfunctional politics and about euroland's economic and financial stability. Confidence is indeed shaky, already spreading to businesses and consumers, raising risks any fresh shock could be enough to push the US and European economies into recession. Business optimism, at best, is “softish.” Consumers are still deleveraging. Unfortunately, this general lack of confidence in global economic prospects could become a self-fulfilling prophecy. In the end, it's all about politics. The French philosopher Blaise Pascal contends politics have incentives that economics cannot understand. To act, politicians need consensus, which often does not emerge until the costs of inaction become highly visible. By then, it is often too late to avoid a much worse outcome. So, the demand for global leadership has never been greater. But, none is forthcoming not for the US, not from Europe; certainly not from Germany and France, or Britain.

The world is adrift. Unfortunately, it will continue to drift in the coming months, even years. Voters on both sides of the Atlantic need to demand more from their leaders than “continued austerity on autopilot.” After all, in politics, leadership is the art of making the impossible possible.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome; email:starbizweek@thestar.com.my.

Listed companies have an obligation to be clear in their disclosures and fair

Saturday August 27, 2011

When and how to tell

A QUESTION OF BUSINESS
By P. GUNASEGARAN

Listed companies have an obligation to be clear in their disclosures and fair

Sometimes it is just better to keep quiet, if you do not have anything concrete to say yet, until you have formulated your action plan. Then you are in a position to explain to investors and the public how you intend to run your operation.

If you happen to be a listed company which is giving that explanation then you have other obligations to think about too. You cannot give material information to one group and not to another because that gives an advantage to one group.

Malaysian listed companies have been and continue to be seriously remiss about this very often despite the heavy responsibilities that they have under Bursa Malaysia listing requirements and under the law to ensure fair, timely and appropriate disclosure of information.

In the past, some very large Malaysian companies have come under fire for apparent disclosure of material information to selected brokerages and at selected meetings. Some have learnt their lesson and open their analyst briefings to the press and other interested parties.

Also, they put their slide and other presentations on their website the moment the briefing opens so that anyone anywhere can access this information at exactly the same time and have equal opportunity to analyse it.

Some companies are so serious about fair dissemination of information that they even broadcast their briefings live on the Internet. This is particularly so among some of the larger companies across the Causeway.

But in Malaysia, until today, the press is routinely barred from the analyst briefings of some large companies on all sorts of pretexts. One typical condescending “reason” advanced is that newsmen won't understand what's going on. That's not always true.

If a presentation is true, accurate and made with full explanation, some business reporters are fully capable of understanding them and coming to their own conclusions about them. The trouble arises when the company does not agree with what reporters, analysts and other commentators say about their operations.

But still, listed companies have the obligation to disclose relevant information and to disclose it fairly to all stakeholders.

Earlier this week the media was told by one airline that there would be a briefing for them over the release of its quarterly results. But later, there was another statement to say that the briefing was cancelled “due to unforeseen circumstances”. But there was an analysts' conference call though.

The media reported a day later what had transpired from these conference calls, some of which could be considered to be quite material. Also, some of the material disclosed appeared to be somewhat contradictory compared to what had transpired at an earlier press conference. It would have been a simple matter to include the press on the call or to just put the relevant information on the website. But that was not done.

Sometimes, it would seem, public listed companies are just unaware of their responsibilities. They could not only be flouting listing rules but may well be flouting the law as well.

Under Section 188 of the Capital Markets and Services Act, an insider (a person, such as a director, with material information) is prohibited from communicating such information to a third party who is likely to trade on it.

If analysts are given such information ahead of a general announcement of such information to everyone, that gives them an advantage over other sections of the public and provides an unfair advantage to him, his firm and its clients.

The punishment for such an offence is a prison term of up to 10 years and/or a fine of at least RM1mil. Still, companies continue to take this matter very lightly.

It is high time the authorities set clear, unambiguous standards for disclosure and enforced them. This is really not difficult to do and enforce. Below are 10 things they can be required to do almost immediately.

1. Have one briefing for all stakeholders, including analysts and journalists, and give them all one set of identical documents. That way everyone gets all the information simultaneously

2. At the same time as these documents are distributed have them available at the website so that those unable to attend can get the documents too.

3. Have a live webcast of the briefing and leave this on the website for anyone who wants to watch them. Set a deadline for companies to do this.

4. In the interim, require the company to post a transcript of the proceedings within 12 hours on the website.

5. At all Bursa Malaysia investor conferences, open company briefings to everyone who is interested.

6. Ask all companies to clearly identify publicly available information, distribute and display them, and update them regularly.

7. Tell companies and remind them that they are not supposed to disclose any further hard material facts to individuals and companies whether they represent funds or not.

8. Monitor all brokers' reports regularly and closely to ensure that insider information is not being disclosed to selected analysts and funds.

9. Monitor closely unusual market activities and take action when necessary.

10. Make sure that these measures are followed and come down hard on those who still will not follow.

Fair, timely and appropriate disclosure is a cornerstone of a healthy stock market. The sooner the authorities and listed companies take all reasonable measures to comply with this, the better it will be for the market.

Managing editor P Gunasegaram agrees it is better to be late than never.

Be More Like Buffett: Buy Fear

The stock market's volatility has some investors on the sidelines just when the famed investor would tell them to leap in—and options could be a good way to do it.

Everyone likes to quote Warren Buffett. He's rich. He plays bridge with Microsoft founder Bill Gates, who is even richer. And he has simple, solid ideas about investing.
He buys good stocks. Forever is his favorite holding period. Buy fear. Those are just some of the pearls that Buffett gives away, though he also sells pearls at Borsheim's, a jewelry store that he owns in Omaha, Neb.

As oft-quoted as Buffett is, few people have the guts to actually do what he says. Whenever people have the chance to be greedy when others are fearful, another Buffett bon mot, they tend to be too terrified to do anything.
Now is a Buffett moment. Fear is widespread. Many good stocks can be bought for decent prices, and Buffett has been active. He reportedly bought more Wells Fargo (NYSE: WFC - News) stock, and created a new position in Dollar General (NYSE: DG - News). Contrast that with stories of people dumping stocks because they are scared. One woman with a multimillion-dollar stock portfolio recently sold everything, and is sitting in cash, because she has grown tired of the stock market's incessant volatility.

But it is precisely because of volatility that long-term investors should summon their inner Buffett and buy quality stocks, or add to positions in blue-chip stocks, especially those that pay hefty dividends.

The fear of a stock-market decline, or another sharp whip up and down, is so high that the volatility premiums in many bearish puts, and even bullish calls, are unusually high. Investors with long-term horizons can buy stocks and sell puts, or calls.
Selling a put obligates investors to buy more stock should the stock price dip below the put's strike price. If the stock market plunges lower—and two major macro-economic events will occur in the next few weeks—put sellers could be buying stock at sharply lower prices.

The Institute of Supply Management August report is scheduled for release on Sept. 1. The report is widely followed by major investors, who view it as a key factor in determining whether economic growth is accelerating or slowing. And before that looms Ben Bernanke's Aug. 26 speech at the Federal Reserve's Jackson Hole retreat.

Selling calls obligates investors to sell their stock should the stock price rise above the call's strike price. If the stock market plunges, and the stock never rises above the call's strike price, the money received for selling the call is like an extra dividend payment. In fact, the money received for selling puts or calls and buying stock can be thought of as conditional dividends. If the stock doesn't cross the strike price of the put or call, investors can keep the money.

Another strategy rising in popularity is the "risk reversal." By selling a put with a strike price that is below the stock's price, and buying a call with a strike price above the stock's price, many investors are finding they can get paid by the options market to speculate on stock prices. If the stock surges higher, moving past the call's strike price, investors can sell the call bought for free at a profit. If the stock price declines below the put's strike price, investors are obligated to buy the stock.

The key in these options strategies is to use them only on stocks you want to own. If the stock pays a dividend, even better.

Some people will criticize all this options legerdemain as unworthy of value investing. They will think that larding up a good stock, trading at or near its intrinsic value, with the clockwork complexity of derivatives is to head down a tortuous path. But the simple fact is that few places let you take advantage of the fear of other investors better than the options market.

Thursday August 25, 2011

RM15bil Gas project to benefit TNB

By LEONG HUNG YEE
hungyee@thestar.com.my

Increased supply to alleviate utility firm’s gas shortage in the longer term

PETALING JAYA: The RM15bil gas exploration project in the North Malay Basin, to be undertaken by Petroliam Nasional Bhd (Petronas) and its production-sharing contract (PSC) partners, will benefit a number oil and gas companies as well as utility giant Tenaga Nasional Bhd (TNB).

Analysts said the project would provide a boost to the oil and gas industry as contracts would be dished out for the commissioning of the new project as well as the increase in gas volume for Petronas' customers.

A key customer is TNB, which has been facing prolonged gas shortage for months and is currently getting 30% less than it is supposed to. TNB said the gas curtailment exercise by Petronas had severely impacted its bottom line, prompting the company to issue a warning on its profitability and dividend payment.

The project will give assurance of supply in the longer term. But this will not solve the immediate gas shortage problem in the country. — SKR Research Head Chris Eng

On average, TNB was getting about 900 million standard cu ft per day (mmscfd), far from the usual rate of 1,250 mmscfd.

“It will be good for the industry. It means there will be more assurance of gas supply in the country. The project will give assurance of supply in the longer term. But this will not solve the immediate gas shortage problem in the country,” said OSK Research head Chris Eng.

A local bank-backed analyst said although the project would not solve the immediate gas shortage problem as the first gas was expected in 2013, the project was nevertheless a boost for Petronas customers.

“It remains to be seen how much gas will TNB get in the future, given the increase in gas capacity when the North Malay Basin project comes on stream,” he said.

Based on TNB's current gas power generation capacity, the volume needed is about 1,700 mmcfd. The power sector is entitled to about 1,350 mmscfd.

CIMB Research said the new project was a “positive development” forPetronas Gas Bhd, which would benefit from additional transport and processing revenues from 2013, when the first gas was expected.

The research house said Wah Seong Corp Bhd could also benefit from pipe-coating works.

OSK Research believes the first to benefit among the oil and gas support services providers would include fabricators (such as Kencana Petroleum Bhd and Malaysia Marine and Heavy Engineering Bhd), pipe layers (SapuraCrest Petroleum Bhd) and centralised tankage facilities operator Dialog Group Bhd.

The research house said there should be flow-through to vessel players like Perdana Petroleum Bhd, Alam Maritim Resources Bhd and Tanjung Offshore Bhd to transport the fabricated structures to the offshore platforms.

Subsequently, the hook-up and commissioning as well as brownfield service providers like Dayang Enterprise Holdings Bhd, Petra Energy Bhd and even Kencana may benefit from the initial set-up and maintenance activities on the platforms. KNM Group Bhd may also get some jobs for its process equipment segment even though the bulk of its sales are from outside Malaysia.

OSK Research analyst Jason Yap said the main objective of the project was to “help sustain the supply of gas” to Petronas customers in Peninsular Malaysia.

“And, in doing so, Petronas would be able to benefit from the recently introduced incentives by the Government, particularly for the development of marginal fields, high carbon dioxide gas fields and fields located in high-pressure, high-temperature conditions.

“Also, with the gradual revision of gas prices to domestic customers by the Government, this helps to make the project more economically feasible for Petronas and its PSC contractors,” Yap said.

On Tuesday, Petronas said it was embarking on the North Malay Basin upstream project to extract gas from fields off Peninsular Malaysia.

Petronas said the project comprised nine discovered gas fields within Blocks PM301 and PM302 and in the Bergading contract area, about 300km off the peninsula's coast.

“It will also involve the development of a new 200km pipeline to transport gas from the fields to Kertih, Terengganu. The project is estimated to cost RM15bil.

“Petronas and its PSC partners are undertaking the project on an accelerated basis. First delivery of 100 million mmscfd is expected by early 2013, ramping up to 250 mmscfd by 2015,” it said.

Should I study for an MBA?

Date: 03/06/2011

By Sean O'Hare

A Masters in Business Administration (MBA) is a vocational qualification designed to speed up career progression or facilitate a career change.

Candidates are supposed to be mobile, bright and ambitious, and over a 100,000 of them take up the full-time challenge each year, with a further 300,000 students opting for part-time and online study.

In today's economic climate where competition for jobs is fierce, an MBA certificate not only gives candidates more choice in the job market, but can often make the paper thin difference between securing a second interview and being turned down. 

More specifically, an MBA cultivates sought-after technical and personal skills, as well as providing access to an international network of usually well-connected alumni, who might be able to help not only with contacts, funding and advice but often with friendship in a foreign country.

For those interested in becoming an international manager in a multinational company, it is worth bearing in mind that an MBA is usually the prerequisite qualification. 

Deciding to study for an MBA is one of the toughest professional decisions you are likely to make. In order to make that decision a little easier, we put the following questions to Nunzio Quacquarelli, managing director of QS, a leading global career and education network that provides a platform for universities, business schools and employers to target, meet and select the best qualified candidates from around the world.

How does a candidate select the right MBA course and institution?

"With so many schools to pick from, MBA candidates need to carefully research their choice of institution to ensure that it matches their personal requirements.

Candidates need a rational selection approach deciding  which criteria matter. Identifying and then getting into the right school is often the biggest challenge 

According to QS TopMBA Applicant Research, the most popular selection criteria for UK MBA applicants, in order of importance, are:

1) An institutions career placement record

2) Return on investment

3) Reputation of the school

4) Quality of academic staff

5) Specialisations

6) Student profile

7) Rankings

8) Scholarships

9) Location

10) Length of course

One of the best ways to choose the right school is to actually meet with admissions officers. Admissions offices of over 100 leading business schools will visit London with the QS World MBA Tour on October 29th."

What should candidates expect from the course?

"All MBA courses are slightly different, though they have common elements. The traditional general management MBA provides an introduction to core disciplines like: finance, marketing, economics and accounting followed by more in depth courses with a broad range of modules; from entrepreneurial management, to organisational structures, to leadership.

In recent years, MBA studies have innovated a great deal, placing more emphasis on developing interpersonal and communication skills, as well as including business ethics and social entrepreneurship as core components. Practical learning through live consultancy assignments and multi-disciplinary project work is also becoming more widespread.

There have also been a growing number of specialist MBA programs launched in the last decade that concentrate on industry or functional areas, like; luxury brand management MBA at ESSEC or the football management MBA at Liverpool University."

Is it likely to pay off?

"An MBA is a lifetime investment in an individual’s human capital. It is probably the most important investments you will ever make – certainly more important than buying a house – because it will affect your future income over their rest of your professional career.

Over 90 per cent of MBA candidates experience a 40-100 per cent uplift in salary pre-to post-MBA with the European-North American average salary being £61,500 in 2010.

For a one year MBA earning less than £30,000 pre-MBA, the payback period on a top course will be under three years.

For a two year top-tier MBA the payback period is less than five years. Over a 25 year career, the net present value of the salary surplus will be in excess of £2 million."
 

Find out more:

• Find the best MBA course for you
  
• More news and tips to support your study
• Latest Business news from The Telegraph

http://courses.telegraph.co.uk/news/should-i-study-for-an-mba/16/?utm_source=tmg&utm_medium=top5_mba&utm_campaign=courses

Black Scholes Option Calculation

Black Scholes Model¶
The Black-Scholes stock option pricing formula uses five variables to compute the price of a stock option. The variables are the time remaining until the stock option expires, the price of the underlying security, the strike price of the stock option, time value of money, and the volatility of the underlying security.

Black and Scholes The Black-Scholes stock option pricing formula was developed by Fischer Black and Myron Scholes in the 1960s in an effort to solve the problem of determining fair prices for stock options and other financial derivatives. The formula can be used to price various financial derivatives. There are several variations of the Black-Scholes formula, and there are also other formulas used to price options and other financial derivatives.

http://www.wikicfo.com/Wiki/Black%20Scholes%20Option%20Calculation.ashx

Intrinsic Value – Stock Options

Intrinsic Value of a Stock Option

Intrinsic value is one of the factors – along with time value – that contribute to the value of a stock option. For an in-the-money stock option, intrinsic value is the difference between the strike price and the price of the underlying stock. For an option that is at-the-money or out-of-the-money, the intrinsic value is zero. An option’s intrinsic value cannot be negative, because if the option is not worth anything, the option holder would not exercise it.

Intrinsic Value – Call Option 

For an in-the-money call option, the intrinsic value equals the price of the underlying stock minus the option’s strike price. (If the stock option is at-the-money or out-of-the-money, the intrinsic value is always zero.)

Call Option Intrinsic Value = Stock Price – Strike Price

Intrinsic Value – Put Option

For an in-the-money put option, the intrinsic value equals the stock option’s strike price minus the price of the underlying stock. (If the option is at-the-money or out-of-the-money, the intrinsic value is always zero.)

Put Option Intrinsic Value = Strike Price – Stock Price


http://www.wikicfo.com/Wiki/Intrinsic%20Value%20Stock%20Options.ashx

Insider Trading

Insider Trading Defined

Insider trading is buying or selling stock based on nonpublic information that will affect the stock’s price. A company’s executives and directors have access to significant information regarding the company’s activities. These people could easily profit by buying or selling the stock based on the private information they have. However, doing so is illegal. 

Insider trading, in certain circumstances, is prohibited by SEC regulations. The idea is that trading based on private information is unfair. If insider trading were legal, insiders could make huge profits by buying or selling a company’s stock just before important information is made available to the public. This behavior would put the investing public at a tremendous disadvantage in terms of buying and selling financial securities.

Insider trading is not always illegal. Typically, someone labeled an insider will have designated windows of opportunity throughout the year in which to legally buy or sell the company’s stock. Executives and managers are often awarded stock options, CEOs and directors often own significant amounts of their company’s stock. These people should be able to buy and sell their stock. And they can. But it must be done according to the rules. Insiders must notify the SEC regarding their buying and selling transactions. 

Under certain conditions, if an executive announces publicly that he will sell a certain amount of shares or value of stock at a specified date every year, then he may do so each year without it being considered illegal insider trading. Likewise, managers or executives with access to nonpublic information may buy or sell stock after that information has been made available to the public.

Insider Trading Example

For example, imagine an executive at a large publicly traded corporation who sees the company’s income statement before it is issued to the public via the annual report. The executive sees that the corporation suffered big losses in the current period. Once the Wall Street analysts see these numbers, the company will be downgraded and the stock will decline.

If insider trading were allowed, the executive could quickly go out and sell the company’s stock short, or else he could tell his broker and his friends and family members to sell the stock short. Selling a stock short makes a profit when the stock price goes down. When the reports are finally made public, the stock plummets, and the executive and his friends and family all make a lot of money. Meanwhile, the investors who owned the company’s stock but did not have access to the private information suffered losses.

Who is an Insider?

Technically, an insider is anyone who has access to material nonpublic information regarding a company. Examples of insiders include executives, directors, managers, shareholders with a 10% or greater stake in the company, and the close family members of these people. Insiders may also include lawyers, brokers, investment bankers, and printers of financial documents. It is illegal for insiders to buy or sell a stock based on material nonpublic information.

What is Insider Information?

Inside information is any material nonpublic information regarding a company that could affect the company’s stock price. The information is nonpublic if it has not yet been disclosed to the investing public. The information is material if its disclosure could impact the company’s stock price. Examples of insider information include access to unreleased earnings reports, knowledge of a pending or imminent takeover or merger, or knowledge of any other kind that is of value to investors.


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Capitalization

Capitalization in Finance

In finance, capitalization is the sum of a company’s debt and equity. It represents the capital invested in the company, including bonds and stocks. 

Capitalization can also mean market capitalization. Market capitalization is the value of a company’s outstanding shares of stock and it represents the value of the firm according to investors’ perceptions. It is equal to the number of shares outstanding multiplied by the share price.

Market Capitalization = Shares Outstanding x Share Price

Capitalization in Accounting

In accounting, capitalization refers to recording costs as assets on the balance sheet instead of as expenses on the income statement. A company may record the purchase price of an asset, as well as the asset’s acquisition costs, such as transportation and setup, as assets on the balance sheet.

Capitalization also refers to transferring an off-balance-sheet operating lease onto the balance sheet and recording it as a capital lease. To do this, calculate the present value of the future operating lease payments and record the amount on the balance sheet as an asset with a corresponding liability. 
Capitalization of Cost

For example, a manufacturing company may record the cost of raw materials, direct labor, and overhead as assets – where labor and overhead would be capitalized costs. The assets (including the capitalized costs) are then transferred to the income statement as costs of goods sold as the underlying assets are sold to customers. Capitalizing costs increases the value of total assets and equity on the balance sheet, as well as net income on the income statement. 


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Company Life Cycle

Broadly speaking, companies progress through a predictable series of phases called the company life cycle.

The life cycle starts with the startup phase, moves into the rapid growth phase, followed by the maturity phase, and finally the last phase is decline.

The duration of the individual stages varies widely across industries and differs between individual companies.

The phases differ in terms of characteristics related to profitability and financing needs.


Stages of the Company Lifecycle

The startup phase is the first phase in the company life cycle. Companies in this stage are typically losing money, developing products, and struggling to secure a position in the marketplace.

The next phase in the company life cycle is the rapid growth phase. In this phase the company begins to generate profits. This phase is also characterized by rapid expansion and an increased need for and dependence upon outside financing to sustain the rapid growth.

The third phase is maturity. In this phase growth and expansion slow and the need for outside sources of capital subsides. The company is generating enough profits and cash flows to invest in all available projects.

The final stage is decline. During this phase the company remains profitable but sales decline. The company has more cash than it needs for all available corporate projects.

Company Life Cycle Phases

1. Startup
2. Rapid Growth
3. Maturity
4. Decline

Source:
Higgins, Robert C. “Analysis for Financial Management”, McGraw-Hill Irwin, New York, NY, 2007.

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The Human Life Cycle

Investment Life Cycle