Macroeconomic Factors that Greatly Impact the Banking Industry
I have previously worked in the banking industry. Being in the business of lending and borrowing, the macroeconomic factors that the industry was most sensitive to were inflation and interest rates. This is because inflation rates determined the purchasing power of consumers as well as the level of interest rates they charge on loans as well as those made on deposits. Since they deal with money supply and demand in the economy, these two macroeconomic factors greatly impact their operations (Maigua & Mouni, 2016).
Contemporary Factors Affecting the Banking Industry
One contemporary factor that has affected the banking industry is the COVID19 pandemic. This pandemic has slowed down the growth of most economies as well as reduced the purchasing power of customers leading to fewer deposits and hence less earnings for banks. Another factor is unemployment. Most people have lost jobs this season and hence wage inflation is lower. This has therefore reduced the inflationary pressures on the interest rates they charge on their products (Maigua & Mouni, 2016).
References
Maigua, C., & Mouni, G. (2016). Influence of interest rates determinants on the performance of commercial banks in Kenya. International journal of academic research in accounting, finance and management sciences, 6(2), 121-133.
Tomar, D. S., & Sisodiya, V. V. S. (2020). A study of factors affecting interest rate spread with special reference to Indian Public Sector Banks. JIMS8M: The Journal of Indian Management & Strategy, 25(2), 21-25.
Part 2: Stock Valuation
There are various ways of valuing the stocks of a company. The dividend discount model is one of the ways. It is used to predict the value of a firm’s shares. It assumes that the value of a stock today is equivalent to the total present value of its future dividends. Our company has used this model before in valuing its stock by discounting the possible future dividends payable on the stock (Agosto, Mainini, & Moretto, 2019). In financing, I believe that it is better to use stock rather than bonds. This is because it is riskier and less expensive. For example, if a company issues bonds of $ 1,000 face value whose coupon rate is 8%, it will have to make coupon payments of $ 80 annually until the bond matures. It has to pay the $ 1,000 too on maturity. This is unlike common stock where it does not have to pay dividends and the prices are also lower.
Risk and Return
Every investment contains an element of uncertainty in the returns it promises. This is the risk associated with the investment. To earn the returns thereof, therefore, one has to assume the risk involved. In making financial decisions, it is crucial to understand the level of risk involved in an investment before undertaking it (AlKhouri & Arouri, 2019). This is because it influences the returns that arise from the investment. To incorporate risk and return by using measures such as standard deviation to first measure the level of risk before undertaking a project for my company.
References
Agosto, A., Mainini, A., & Moretto, E. (2019). Stochastic dividend discount model: covariance of random stock prices. Journal of Economics and Finance, 43(3), 552-568.
AlKhouri, R., & Arouri, H. (2019). The effect of diversification on risk and return in the banking sector. International Journal of Managerial Finance.
5)_
Capital is the money utilized to fund the daily operations of a business and protect a business from uncertain events. In today’s world, everything is usually uncertain and all entities face a challenge on how to utilize their business resources more efficiently to increase the overall profit. Cost of capital, on the other hand, is the required return that a company must earn before making value. Cost of capital is also the cost of an entity’s funds (both equity and debt). Cost of capital is vital in businesses as it helps in assessing and examining every investment opportunity.
I don’t agree with Harriet. It is not a good idea to rely only on the cost of debt. Although the worth of a leveraged company is greater than that of unleveraged company and the cost of debt is lower than that of equity, relying too much on depts. reduces the confidence of investors because loan payment will affect the company’s cash flow. Investors/shareholders will also view the firm as a risk (Woodruff, 2019). In most cases, they end up being reluctant to make additional investments which is dangerous to a company.
I think that a capital project/investment should have its own exceptional cost of capital rates based on the financing factors to the particular project/investment. Each project has its own uncertainties and risks which means that the rates should be unique.
In the case of risk inherent, project risk arises from the cash flow uncertainty. The uncertainty normally depends on the internal and external conditions: the business risk, the statutory risk, and the market risk that can increase the overall cost or decrease the demand.
We can factor into the analysis the risk of the projects in the following ways:
· Scenario Analysis: In this analysis, the value of a project is evaluated in different scenarios. Management normally utilizes this analysis particularly when there are potentially unfavorable or favorable occurrences that might affect the project. When conducting the analysis, the executives and the management usually generate several different states of the industry, economy, and the project (CFI, 2017). These states will create distinct scenarios that comprise of assumptions like operating costs, interest rates, inflation, and many others.
· Sensitivity Analysis: In this analysis, the management evaluates the impacts of the independent variable on the project’s NPV and how NPV is quick to respond to the variable. This analysis is vital in examining the riskiness of the project.
· Real Options Analysis: In this analysis, we assess the opportunity cost of abandoning or continuing with the project and make a suitable decision based on the assessment. Companies must choose the right business project. The ability to select the right business project bears a substantial impact on an entity’s growth and profitability. All these are vital to the overall performance of a company.
References
CFI. (2017). Scenario Analysis. https://corporatefinanceinstitute.com/resources/knowledge/modeling/scenario-analysis/
Woodruff, J. (2019). The Advantages and Disadvantages of Debt and Equity Financing. Chron. com/advantages-disadvantages-debt-equity-financing-55504.html#:~:text=Cash%20flow%3A%20Taking%20on%20too,to%20make%20additional%20equity%20investments”>https://smallbusiness.chron.com/advantages-disadvantages-debt-equity-financing-55504.html#:~:text=Cash%20flow%3A%20Taking%20on%20too,to%20make%20additional%20equity%20investments.
6)
Part 1.
Beta of Microsoft (5y monthly. 0.87)
Beta of Apple (5y monthly 1.35)
Beta of Dell (5y monthly 1.11)
The Beta of an investment security is a measure of the volatility of the returns measured as relative to the entire market. Beta is used in the measuring and assessment of risk and is an integral part of capital asset pricing model (Fabozzi & Francis, 2018). The higher the beta of a company, he higher the risk it faces in the stock market and the higher too the returns expected from it. Beta is thus a description of the activities of the returns of the securities of the company in response to changes in the market. Statistically, it is a representation of the slope of regression of data points. Each of these data points financially represent individual stock returns when they are compared to the entire market.
One of the reasons that the beta of companies differ is how far back whoever is calculating the risk is willing to go. As the number of years that the person is willing to calculate the beta increases then the apparent volatility of the company’s stock in the market will also change. A deep dive in history will prove that the company is more stable compared to when the beta is compared only to one or two previous years where financial change may make it come across as volatile (Pereiro, 2017).
The other reason why the beta of companies differ is the capital structure that is adopted by the firms. This is the main reason for the difference occurring between the better of the company under study and the three other companies. The company under study is not financed by debt while the other companies are to various levels financed by debts and loans. Companies with higher debt financing are said to have a higher beta when compared to those with low debt financing (Pereiro, 2017).
Part 2.
NPV and IRR are both techniques used when it comes to calculating the capital expenditures. The two methods of calculation differ on aspects such as: (a) the outcome where by the results gained from the NPV methods are the dollar value of a project while IRR is the percentage return expected from the products, (b) NPV is a focus on the surplus of a project while IRR regards the point where the cash flow of the company hits breakeven (c) NPV method requires the use of a rate of discount that is difficult to discern because it is based on the risk apparent to the company while the IRR method is simpler because it calculates its return rates with a basis on cash flows (Bora, 2015).
The ultimate goal of companies of maximizing the wealth of their owners is ethical because most investments are done with the view of gaining returns (Singhapakdi et al. 2016). The basis of how ethical a company is should be judged based on the means that it uses to achieve its wealth not because of how much wealth it achieves. We all expect returns from investments and judging companies for doing exactly that can only be considered as setting double standards. Companies that operate while observing ethics of business are proven to be more profitable compared to companies which do not take ethics into account. When all the key factors of an organization are ethical, companies are more likely to be a success in the long term as the companies will operate seamlessly compared to when ethics are not observed. In such a case, the company will be a success in the short run but then it will eventually falter and fail.
References.
Singhapakdi, A., Karande, K., Rao, C. P., & Vitell, S. J. (2016). How important are ethics and social responsibility?‐A multinational study of marketing professionals. European Journal of Marketing.
Bora, B. (2015). Comparison between net present value and internal rate of return. IJRFM, 5(12), 61-71.
Fabozzi, F. J., & Francis, J. C. (2018). Beta as a random coefficient. Journal of Financial and Quantitative Analysis, 101-116.
Pereiro, L. E. (2017). The beta dilemma in emerging markets. Journal of Applied Corporate Finance, 22(4), 110-122.
7)
The cash conversion cycle refers to a metric that is used to express time which is measured in the form of days that it takes for a company to convert its inventory and other resources into cash received from the total sales made (Moss, & Stine, 2015).it is also known as the net operating cycle or the cash cycle. The cash conversion cycle is thus an attempt by companies to analyze how long each dollar that is input into a company is tied to the company until it can be converted into cash received. It is a measurement of the time needed by a company to sell its inventory the time it takes to collect receivables and pay the running bills before penalties can be incurred.
The Cash Conversion Cycle is a quantitative measure that help in the evaluation of the efficiency of the operations of the company and the management. If a company was to take a trend of decreasing CCCs. It would be a good sign because it would imply that the company is able to meet all its bills and all the expenditures on time. A trend of increasing CCCs however imply that the operations of the company are no healthy as the company cannot meet the expenses it has and to collect receivables and as a result, it is being penalized (Moss, & Stine, 2015).
Understanding the CCCs of a company is important when it comes to making decisions about aspects that are essential to invest in. in the case where the company is in need of acquiring capital fast, it becomes essential to have knowledge of the company assets that can be conveted into quick cash. Further, CCCs are an indicator of the health of the company and can be important to predicting the profitability and the returns on investment based on the ability to pay off the bills and sell inventories.
Credit policies are guidelines that are used when setting guidelines and terms that a customer will observe when paying and also establishing a course of action where there is delay on payment. A good credit policy is attributed with; 1) determining the customers that have extended credits 2) setting the payment conditions for parties that have been extended credit to 3) defining the limits to be set on accounts with outstanding credits and 4) outlining the procedure of dealing with delinquent accounts. The credit policy thus establishes how averse to risk a company is with respect to credit extension as well as other policies dealing with monetary issue (Chapman et al. 2014). .
Some business have no credit policies and rarely sell on credit instead preferring to be paid upon purchase by the customer. Such business would not gain any advantage from selling on credit, which is a practice that they do not adhere to in the first place. Other businesses, such as those in the construction industry need to employ a sound policy of crediting and integrate it into their business plans, their monetarily policies and their strategies to manage risk (Chapman et al. 2014).
The construction industry is known for slow and partial payments. Customers not making payment on time will thus increase the strain that is placed on the capital of the business as well as the carrying cost. By adopting good credit policies, the company has the ability to take on bigger projects because it will maintain a positive bank balance and reduce the debts that the company has to write off annually. It also enable the nurturing of strong business relations and sharing the policies of the business with regard to credit creates the impression of professionalism. Knowing the credit policies of a company is important because it enables one to decide on the viable projects to take up and affect the annual returns of the company.
References.
Chapman, C. B., Ward, S. C., Cooper, D. F., & Page, M. J. (2014). Credit policy and inventory control. Journal of the Operational Research Society, 35(12), 1055-1065.
Moss, J. D., & Stine, B. (2015). Cash conversion cycle and firm size: a study of retail firms. Managerial Finance.
Applied Sciences
Architecture and Design
Biology
Business & Finance
Chemistry
Computer Science
Geography
Geology
Education
Engineering
English
Environmental science
Spanish
Government
History
Human Resource Management
Information Systems
Law
Literature
Mathematics
Nursing
Physics
Political Science
Psychology
Reading
Science
Social Science
Home
Blog
Archive
Contact
Copyright © 2019 Home
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Our essay writers are graduates with diplomas, bachelor’s, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.
Why Choose Our Academic Writing Service?
Plagiarism free papers
Timely delivery
Any deadline
Skilled, Experienced Native English Writers
Subject-relevant academic writer
Adherence to paper instructions
Ability to tackle bulk assignments
Reasonable prices
24/7 Customer Support
Get superb grades consistently
How It Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Our essay writers are graduates with diplomas, bachelor’s, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.
Why Choose Our Academic Writing Service?
Plagiarism free papers
Timely delivery
Any deadline
Skilled, Experienced Native English Writers
Subject-relevant academic writer
Adherence to paper instructions
Ability to tackle bulk assignments
Reasonable prices
24/7 Customer Support
Get superb grades consistently
How It Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH Essay fount TODAY AND GET AN AMAZING DISCOUNT
The post Macroeconomic Factors that Impact the Banking Industry appeared first on Essay fount.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but you proved you are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 11***| Rating: ⭐⭐⭐⭐⭐
"This company is the best there is. They saved me so many times, I cannot even keep count. Now I recommend it to all my friends, and none of them have complained about it. The writers here are excellent."
"Order a custom Paper on Similar Assignment at essayfount.com! No Plagiarism! Enjoy 20% Discount!"
