Managing Human Capital Assignment Example | Topics and Well Written Essays - 3000 words

Managing Human Capital - Assignment Example The researcher states that merit-pay systems can, in fact, serve to demotivate and even generate anxiety, thereby only contributing marginally as motivators of desired performance. Merit pay is usually rolled into the base salary and hence performance in one year will have the effect on the salary in the future. However, this is based on performance appraisal and the methods of performance appraisal followed by the organization are a controversial issue. Even if linkages to productivity do not exist, the plan communicates a useful message to employees. It is generally believed that individuals should be rewarded based on their contributions and hence merit-based pay serves to fulfill the â€Å"norm of distributive justice†. Thus it diffuses concerns among the employees about fairness and equity. Theories of motivation also support the basis of merit for pay. Managers are encouraged to link important outcomes to desired behaviors. Whether they base their decision on the reinfor cement theory or the expectancy theory, managers need to demonstrate to employees a link between performance and rewards. All these would indicate that basis of merit for pay is necessary as well as beneficial. Researchers express doubts whether performance can be accurately measured and there have been suggestions to make the measurement objective instead of subjective judgments. Moreover, individual performance is linked to others in the organization and this poses difficulties in calculating the individual contribution to the organization. Instead of output measures, behavioral measures can be considered but none is satisfied with such measures. Employees’ acceptance of the feedback systems creates problems as they do not accept the evaluations as accurate. Perceived favoritism is a problem in merit compensation systems due to the subjective nature of the performance evaluation process.

Your choice Essay Example | Topics and Well Written Essays - 750 words

Your choice - Essay Example To serve the best interests of the people, it is seen as a necessary requirement to have the people actively involved in the running of the system (Shafritz, 2006). This paper will review the importance of a strong and effective public administration system in society. In order for there to be organization and order in a society, there must be the existence of an organized system that helps run the society. Respect for law demands that all those that want to be involved in the running of the administration need to understand it. This is in order for them to understand the principles behind such governance. Understanding this helps them, not only to understand being governed, but it also helps those governing, how to govern. Public administration offers people a forum to be heard and attention is given to their needs (Shafritz, 2006). According to Woodrow Wilson, he believed that public administration that was put in place failed. He believed that public administration and the government that were in place were two separate entities. There was the belief that there was to be a distinction from politics and administration. This is all in line with the case of The Blast in Centralia No. 5. It is difficult for any system of governance to create a system that is safe for everyone whilst it has leadership problems. This is next to impossible. A system has to be morally upright in order for it to function as it should. Without the internal order, it is not possible for it to govern external affairs. The need to re-establish government services around the area of administration is particularly vital (Stillman, 2009). Government services enable society to be served without much tussle. It is their job to represent the people on a much higher level. Public administration has a crucial part to play in the creation, and implementation of goals in a society. These goals and objectives help in the alleviation of poverty and the creation of employment.

Tourism Issue Research Exercise and Essay Essay Example for Free

Tourism Issue Research Exercise and Essay Essay 1.0Introduction 1.1 Introduction to essay Tourism has increasingly grown as the economy develops well and the level of living style of human being improves, especially in China. (Jordon Ken, 2001)The dramatically growth of tourism has brought several benefits such as enhancing local economic development and the reduction of unemployment rate. (Philip D. Brian R., 1995) However, it is still questionable that whether it is absolutely profitable if the number of tourists continue to rise. The objectives of this essay are to emphasize the negative impacts of tourism to a Chinese destination. This essay is going to cover how the boosting tourism is affecting the quality of water and air in China. 1.2 Introduction to articlelu This article is discussing about the sudden influx of tourists throughout China during China’s National Day golden week and the negative environmental impacts that it caused. 2.0 Main arguments discussion 2.1 The general fact of tourism Over time, there is a significant growth in tourism all over the world. With reference to appendix A, it is significantly shown that the number of international tourist arrivals doubled from 435 millions to 940 millions from 1990 to 2010. Distinctively in the South Asia region, the numbers rose from 3.2 millions to 11.1 millions in the span of ten years, this relatively attracts a higher number of tourists among the strongest growing areas in 2010. As reported in UNWTO Tourism Highlight (2011), the position of china in tourism indicators moves up in both arrivals and receipts, reaching to the third position and the forth place out of the top ten, respectively. 2.2 The factors involving an increase in tourism It is evident that nowadays, more and more people prefer to choose China as their holiday destination, showing an obvious demand for tourism. It is  notable that there was a 20.8% growth of foreign tourists’ (about 85.4 million tourists) arrivals after the Beijing Olympics and Shanghai Expo. (China Daily, 2009) However, there are several crucial reasons that push people to go out to an unfamiliar place and pull them to China, listed below are the push and pull factors respectively. 2.2.1 Push factors There are several factors involved in influencing the increment of tourism, such as economic expansion, social changes, demographic aspects and technological developments. (Weaver, D. B., Oppermann, M. 2000) Being rich and affluent allows most people to be able to achieve a better sense of purchase power. The availability of greater discretionary household income gains various choices rather than just spending on basic living requirement;( Agarwal and Yochum,1999) Moreover, nowadays people tend to travel overseas during their vacation, in order to escape their busy work schedules. Households have also become smaller, so family members can spend less in bringing up children, thus having more money for leisure activities. In addition, the advancement in technology makes it easier for travelers to reach their destination. To sum up, all these factors boost the demand of tourism. (Weaver, D. B., Oppermann, M. 2000) 2.2.2 Pull factors Referring to Appendix B, Asian tourists make up the majority of China’s tourism market due to their geographical advantage. For example, Japan is the biggest tourist-source market for China as both countries are situated near from each other. It is also cheaper for the Japanese to travel to China as it is relatively cheaper than to other countries. Besides, the 5000-year history of China is always attracting tourists all over the world. In addition, the complement of airline systems and expansion of high speed train are more comfortable, continence and efficient. The quality of service has also grown together with the influx of tourists. (Jeffrey, 2008) 3.0 The negative impacts of tourism to environment However, it is questionable whether it is absolutely good if the number of tourist constantly grow yearly. According to this article, it was a common  phenomenon that china was overly congested with people during the Chinese National Day. 20,000 tourists could not find a hotel to settle down in Pu Tuo mountain (a famous mountain in china); During the same period of time, San Ya beach was described to be a dump because 50 tons rubbish was abandoned along the coast, while vehicles were held up on the expressway, which looked like they were parking in car parks. (Lei, 2012) These events are apparently showing a sign that when the sheer number of tourists is overload for a destination, it will lead to a decline in both socio-cultural and natural environment. However, only natural environment will be discussed about thought focusing on two main pollutions that exit during the rapid development of tourism. They are water pollution and air pollution, respectively. 3.1 Water pollution With the boosting tourism, more water resources are developed to attract travelers. Those people who enjoy the natural attractions of beauty and peacefulness like to boat along the waterways and enjoy the scenery.(Jeffrey, 2008) Thus, an increase of water transports like motorboats, will in turn cause oil emissions which would pollute the water ways.( Jeffrey, 2008 ) Moreover, the rubbish dump by travelers is harmful to the quality of water. Furthermore, hotels resorts built along waterways or coastlines will produce a big amount of sewage as well. These series of events would be obviously harmful to local water system during the holiday and would certainly cost a loss in the economy. For example, a number of 360 million yuan(US $43 million) was invested to clean up the Lijiang River by government. (People’s Daily, 2000) 3.2 Air pollution Nowadays, with advanced technology, majority of people prefer to take air transport to their preferred destinations. Refer to Appendix C, half of the total (51%) tourists chose to travel by air in 2010, while the road transport rank at the second popular choice of all mode of transports. All vehicle transport create exhaust fumes. (Simpson et al., 2008) Air pollution caused by tourist transportation has spread to the whole human being living environment, especially from carbon dioxide production because of the usage  of transportation energy. (Majbritt, 2010) In fact, the air in China, especially in the city area, is suffering from heavy pollution. (Gregory C. Chow, 2008) Amongst 20 worst-air-cities around the world, 16 of them belongs to China. (Jeffrey, 2008) 4.0 Conclusion In conclusion, the negative impacts of tourism to Chinese environment such as water pollution and air pollution have been explained above. These are the consequences that booming tourism has to pay. Thus, it is worth noting that the substantial tourism is calling peremptorily. Increasing tourism does bring a lot of profit for economy, but it is a double-edged sword. If left uncontrolled, tourism can cause both social and environmental problems as seen from China’s case. However, although I believe that the Tourism industry in china reaps more positivity on the whole, although there is no concrete panacea to this issue. Methodology This research essay required gathering relevant facts and information from a vast variety of sources, including book literatures, journals, news articles, specified review and online sources, in order to deliver complete understanding of the main topic – Negative impact of tourism to China’s destination. This research paper focused on gathering crucial data from the most valid and credible sources as reliability and credibility were key concerns. The usage of online journals and articles which were accessible on University Of Newcastle Blackboard were definitely useful in gathering information such as essential Annals of Tourism Research and Studies. In addition to this, Google Scholar played an imperative role in providing relevant information on the topics of Tourism in China as well as statistics on relevant areas. Key words like inbound tourism of china, water pollution were used on Google search engine to obtain further detail figures such as the number of tourism to China in 2010. Other than the methods listed above, the Chinese government reports and UNWTO annual reports were also used to describe and further elaborate changing tourism trend and statistics. The main keyword descriptors used to complete the research include: negative impacts of tourism in China, water pollution and air pollution information Reference: Air Pollution in China. (n.d.). FACTS AND DETAILS. Retrieved April 2, 2013, from factsanddetails.com/china.php?itemid=392catid=10subcatid=66 China Daily. (2009) Tourism in beijing boosts after the olympic games. (2009, 7 29). Cultural China. Retrieved from http://news.cultural-china.com/20090729140321.html Gregory C. Chow (2008): China’s Energy and Environmental Problems and Policies, Asia-Pacific Journal of Accounting and Economics Jeffrey, H. (2008). Facts and details. Retrieved from http://factsanddetails.com/china.php?itemid=392catid=10subcatid=66 Jeffrey, H. (2008). Water pollution in china. Retrieved from http://factsanddetails.com/china.php?itemid=391 Jordon, S., Ken, W. (2001). Causality between trade and tourism: empirical evidence from china. (1st ed., pp. 279-283). Lei, B, (2012). Crowd throughout the great wall during chinas national day. Chong Qin Wan Bao (2012, 10 8). . Retrieved from (http://tour.rednet.cn/c/2012/10/08/2770150.htm) Majbritt, T. (2010). Tourism, transport and environmental pollution. Retrieved from http://www.viewsontourism.info/2010/tourism-transport-and-environmental-pollution/ Philip D. , A., Brian R., P. (1995). An applied general equilibrium analysis of the economic effects of tourism in a quite small, quite open economy. (Vol. 27, pp. 985-994). Simpson, M. C., Gà ¶ssling, S., Scott, D., Hall, C. M. and Gladin, E. 2008. Climate change adaptation and mitigation in the tourism sector: Frameworks, tools and practices, Paris: UNEP, University of Oxford, UNWTO, WMO. Tourism, Transport and Environmental pollution – Views On Tourism. (n.d.).Views On Tourism Knowledge and inspiration to the Bangladeshi tourism sector.. Retrieved February 4, 2013, from http://www.viewsontourism.info/2010/tourism-transport-and-environmental-pollution/ UNWTO. (2011). Travel Biz Monitor: UNWTO Tourism Highlights: 2011 Edition (Part -II). Travel Biz Monitor: India travel news, travel trends, tourism. Retrieved February 3, 2013, from http://www.travelbizmonitor.com/unwto-tourism-highlights2011-edition-part-ii-14272 V.B. Agarwal, G.R. Yochum(1999): Tourist spending and race of visitors, Journal of Travel Research, (pp. 173–176) Weaver, D. B., Oppermann, M. (2000). Tourism management. Brisbane: John Wiley Sons Australia.(pp. 5-68) Wheeler, D., Dasgupta, S. and Wang, H. 2003. â€Å"Chapter 12: Can China Grow and Safeguard Its Environment? The Case of Industrial Pollution†. In How Far Across the River? Chinese Policy Reform at the Millennium, Edited by: Hope, N., Yang, D. T. and Li, M. Y. Stanford: Stanford University Press

FTSEs Capital Structure and Profitability Relationship

FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance. FTSEs Capital Structure and Profitability Relationship FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance.

Plagiarism Essay -- Education Writing Essays

Plagiarism When we have an idea or insight, rarely is it the first time it has ever occurred to an individual. Furthermore, what we learn through formal education, dialogue, and reading (for those who pay attention) becomes an integral part of our thought--we assimilate the ideas of others. Thus, what we may think and say is not necessarily of our own origin, but rather it is a conglomeration of the ideas of others in conjunction with our own native thoughts and understanding--such is human nature. However, there is a fundamental difference between this assimilation of idea and thought through socialization/education versus plagiarism. Plagiarism is defined, as the knowing act of stealing another's ideas and passing those ideas on as your own with the intent to deceive. It is theft of intellectual property which is owned and has value. Plagiarism is to steal and lie while assimilation is the process of educating the mind to gain knowledge from a vast variety of sources. Even though there is sig nificant difference between the legal and moral dealings of plagiarism, there is overlap between the is and ought. Socrates and Confucius, we have read, would agree that assimilation is necessary for education and for being moral, but, as I will show, consider that plagiarism is immoral. To understand Socrates view on plagiarism, we must first understand the basis for what he considers moral. Morality, Socrates believes, is that which induces happiness and is in our best, long-term interest and that to live unpleasantly is immoral or evil (Plato 1956, pg.56). Furthermore, Socrates believes that we only are immoral out of ignorance for what is in our long-term best interest. Hence, immorality is due to a lack of knowledge. Thus, while ... ...own its scholars. Plagiarism has become so widespread and tolerated, that it is almost too much work to eradicate. The result is sending a message to students that plagiarism is an issue of cleverness (who can avoid being caught) rather than morality. For this, I am saddened that higher standards of thought and morality are not enforced for the good of the scholar and society. References Plato. Translated by Martin Ostwasl, Edited and Introduced by Gregory Vlastos. 1956. Protagoras. Upper Saddle River, New Jersey: Prentice Hall Confucius. Translated by Arthur Waley. 1989. The Analects of Confucius. New York: Vintage Books- Divison of Random House, Inc. King James Version, The Holy Bible. Kant, Immanuel. Translated by James W. Ellington. 1993. Grounding for the Metaphysics of Morals3rd Edition. Indianapolis, Indiana: Hackett Publishing Company, Inc.

Messaging in 2.0 World

IntroductionIt has become apparent that all sectors of the economy are depending on the technology development for the organizational growth and for their general economic growth. Jennewein (2005) has argued that in the business sector of the current century, the requirements are different from the past century. This is because in the 20th century, the business enterprises depended on physical aspects such as land and machines for business success.This has however changed and the 21st century businesses are depending on intangible assets such as knowledge and know how of its employees, as well as intellectual property rights. This has forced companies if they are to succeed in any business endeavor to create and update new technological competencies and replace all obsolete technologies and products within the organization.Technology has also improved the mode of providing education system to both the learners and the teachers, especially in the library use. The use of technology in libraries has a backdated history as in early eighties as has been argued by Grosch (1995), that,the decade of the eighties would bring systems technology and new electronic forms of access to smaller library through the microcomputer. A more global view of automated library systems would emerge. Communications and linking of users to library systems remotely with gateways to arrays of locally available databases were becoming a brighter possibility. Finally library automation and application of the computer to bibliographic activities would become a natural phenomena since parent organization also were evolving to a more global information systems strategy, (pp.49).Messaging in a 2.0 worldLearning and teaching is supposed to be fun and enjoyed to the student and the teacher. There are different ways that education can be made easy and enjoyable. One of the ways is by undertaking technologically changes that can make the learning and teaching process to be easy.   Technology makes availability and use of learning materials easily accessed and to go with the current economic requirements.Technology changes have been continuously making the learning and teaching process easier for the student and the tutor. Materials can be easily accessed and shared among the different users of such materials. For instance, the new web 2.0 sites slideshare enables people to share presentations on slideshows.It is also possible to use the system to â€Å"upload PowerPoint, open office, keynote or PDF presentation, tag them into your blog or website, browse others’ presentations and comment on individual slides†, (Stephens 2007 pg 61). This has increased knowledge sharing as one can be able to know immediately what others feel about the work they’ve done, and where there is need of improvement.These kinds of changes in technology have made information not to be seen as a container of value but the knowledge alongside the changes. Knowledge, like all the oth er sectors keeps on changing and people have to keep pace with the changing technology so as to ensure they are not left behind in development or, in competitive advantage in businesses.Twitter messaging is a means of the current technology being used widely. To understand how twitter functions, think of it â€Å"like a personal IM account that can be shared with everyone. Once you have a twitter account set up, you can send short IM, SMS or web-based messages to twitter†, (King, 2007).Therefore, twitter can be defined as a system that allows users to update messages containing up to a maximum of 140 characters to the twitter website via SMS, Instant Messaging or e-mails. The updates will be displayed to the profile pages of the user and instantly delivered to the other end user who has signed up to receive them.Uses of messaging 2.0 world in libraries.The web 2.0 technology is becoming more useful in the library use. It is widely used especially in communicating in conferenc es, keeping up with the development in the filed and promoting library services.Ruby on rail technology is one of the of the twitter technology that can be used to keep track of the library employees. According to Williams (2006), â€Å"Ruby on rails is an open source web development framework that allows you to rapidly develop data-driven applications using ruby programming language†. An application in this context refers to web applications such as Basecamp and flickr. Ruby rails programming can be used in many computer applications including Basecamp, blogging platforms (e.g. Mephisto) and twitter.Twitter is the most interesting of the Ruby Rails as it enables one to keep track of the colleagues whenever they are by the use of SMS text messaging, Instant Messaging or the web by posting updates (Williams, 2006). To use the twitter to track a person, the cell phone is set to use the twitter and an SMS is send to the twitter short code, containing the updates, the message wil l be automatically posted to the twitter site. With this, it will be possible to spread the contacts cell phones so as to see what those in the contact phone are doing.  This kind of technology is being used in libraries to trace down the employees of the library in an organization. It will be possible to know if the employees are at their workstations or not, and the exact work they are doing. There are many new methods of communication that comes up on a daily basis in the organization due to technological changes. It is therefore important that the organization chooses the method that is more suitable and appropriate to the organization.In library organizations messaging technology allows the employees to set up twitter accounts and share their information. The workers can be able to locate coworkers Instant Messaging name. It can also help employees to know exactly the working hours of their colleagues and thus be able to relay any information or seek any urgent information at that particular time. While working with this system, it is possible that the patron might also stumble on the employee’s information while browsing and thus send reference question to the employee’s site.Another means that the SMS can be used in libraries is through referencing. The first SMS referencing mode was started at the South Eastern Louisiana University by Mr. Hill in 2005, (LibranInBlack. Net, 2005).The reference uses the Altarama referencing system. The system operates between 8 am – 9 pm, as this is the period that the librarians are around to answer questions from the clients. The SMS/text messaging referencing systems of the South Eastern Louisiana University is limited to 160 characters. The SMS that is send to the librarian reaches the end as an e-mail and then when the librarian answers the email, it gets to the other end user as an SMS. Because the librarian is only required to use short answers, it will not create problems related to typing especially to those who have a poor typing speed. This will ensure that the replies are not delayed because of the typing problem.The Altarama referencing system has got unique text messaging numbers set bundles of text messages. For the email on the librarian side, the system allows the products to run seamlessly with MS outlook. The Library number is always the sender, hence the email message will stand out in the inbox of the recipient.   If the recipient is using outlook, it is possible to reply directly through email. â€Å"If not, you [the recipient] need to use whatever e-mail program you are using and manually respond (copying and pasting in the ‘to’ field)†, (LibranInBlack. Net, 2005).The South Eastern Louisiana University referencing system tried as much as possible to limit the characters to 160. Responses can be sent in multiple messages but the librarians’ try as much as possible to have only one message. This is because the system gives the m room to do this by automatically abbreviating some words, such as, for -4, too-2.The system also helps to keep the exact time that the transaction took place and the number of the transactions without keeping the actual messages of the transactions that took place. The library systems only accepts text messaging and not images. Therefore, incase a person sends an image message, the library will indicate error message.The synchronous messaging system in the libraries allows real- time communication between individuals. â€Å"Librarians have began employing it to provide ‘chat reference’ services, where patrons can synchronously communicate with librarians much as they would in a face – to – face reference context, (Manness, 2006).Manness argues that Web 2.0 is considered to be consistent with tenet 2.0 as it â€Å"allows for collaboration between the patrons and librarians, it allows a more dynamic experience than the fundamentally static, created-then- consume nature of 1.0 service†.The importance of using this mode of interaction in the successor of the library system has enabled the librarian to adopt the successors of the library web system more quickly and expertly. There have been improvement in the instant messaging that have seen the inclusion of audio and video messaging also becoming increasingly common in the library use.Libraries have started placing â€Å"links to their charts reference service within resources themselves such as at the article level in subscription data bases†, (Manness, 2006). The system has been developed so that the chart reference takes place within the framework of the library system as much as it could have been when dealing with a physical library patron.Library 2.0 has also been designed to offer immediate help to a user whenever it seems that there is a problem in using the library system. This is possible when certain user behaviors are detected in the system. The common behavio r that can indicate the librarian patron that the user needs help in the use of the library service is when a â€Å"user browses through certain materials repeating steps and moving cyclically through a classification scheme or series of resources,† Manness (2006). The use of a synchronous messaging service is useful tool to the patrons in giving the assistance to the library user  Ã‚   whenever in problem of accessing library materials.Librarians have been using the messaging system to promote the service of the library. Library creates several twitter accounts and sends messages to its client’s in various categories informing them of the services offered at the library. Since the message gets to the end use instantly, it becomes an effective tool in carrying out promotional activities compared to the other mode of media communication. Therefore, to be completely in competitive environment like any other business organizations, libraries have got to tactically promo te its services to attract more users of its products. In promotion, libraries have especially benefited through the technology in reaching to their clients in the remote area easily.The new technology of library 2.0 implies that the librarians take the library to where the users are instead of the users going to the library. These sites are also important in that they put the library where the users are, and especially meets the needs of the users who are constantly on the move.There are still increased numbers of libraries world wide adopting the system of the SMS referencing. The Lee Kong Chian Reference Library has adopted the SMS referencing system because of the high penetration of cellular phones in Singapore. The increased number of cellular phones and Internet use has created avenue for increased online chat.â€Å"Trends such as these suggest that SMS could be an ideal way to reach out to a greater pool of potential users of our reference enquiry service†, (Han and S eng, 2007). The use of cellular phone as a tool of obtaining referencing material is advantageous in that it is very portable. This has made it an ideal solution for the Lee Kong Chian Reference Library to use it for posting reference materials for those who have got a tight schedule such that it is not possible for them to visit the library personally to receive any information they need.Apart from the recipient getting immediate information, the users of the web 2.0 world referencing system can be able to maintain their anonymity  Ã‚   while seeking assistance from the libraries. The system is also receiving much advocacy because it can be used or accessed at any time of the day, or within any period, i.e. its operation is 24/7/365ConclusionTechnology in all sectors of the economy enhances service delivery to both service providers and the clients. This technological improvement ensures that the service delivery is offered at the best disposal of both the client and providers.Li braries like any other sectors of the economy have to embrace technological changes and use it positively to increase performance level in the organization. Despite all the obstacles that might be associated with the new technology, in the long run when the system has been fully and nicely implemented it becomes more beneficial to the organization than the sunk costs that might have been brought due to implementing the system.To ensure that the technology receives positive acknowledgement from all stakeholders, Librarians should try to make the system simple and easy to use to both users so as to increase the attitude of the users towards that technology rather than making them shun it away.ReferenceJennewein K. (2005): Intellectual Property Management. The Role Of Technology Brands InThe Appropriation  Ã‚   Of Technological Innovation, Springer, ISBN 3790802808.King D L. (2007). Twitter Explained for Librarians or 10 Ways to Use Twitter, Retrieved on29th Oct 2007 from http://www. davidleeking.com/2007/03/10/twtter-explained-for-librarians-or-10-ways-to-use-twitter/Manness J.M (2006): Library 2.0, Theory: Web 2.0 and its implications for librariesRetrieved on 29th Oct 2007 http://www.webology.org/2006/v3n2/a25.htmlStephens. T. (2007): Trademark 2.0: Defining Your Value in the web 2.0, World Lulu.com,ISBN 061556886.Williams J. (2006). What is Ruby on rails? Retrieved on 29th Oct 2007 fromhttp://www.digital-web.com/articles/ruby_on_rails_for_the_rest_of_us/

Reasons for United States Possible Attack on Iran Essay

The topic on the possibility of United States launching a military attack against Iran has dominated much news for several years since the Bush administration and during which some quarters speculated that such an attack would be ordered before the administration left office. As early as 2005, a number of articles had started revealing the imminent plans by Pentagon to order military operations against Iran. While people and the media may speculate and give their opinions about many aspects of the imminent war, the most important issue to understand is the reasons which may spark the attack. It is therefore the objective of this paper to discuss the reasons why US would engage in a military land war with Iran. 2. 0 The Euro-Based Oil Bourse This is one of the major reasons which revolve around the plan by Tehran government in 2005 and 2006 to start competing with the New York Mercantile Exchange (NYMEX), the largest physical commodity futures exchange in the world based in New York and the London based International Petroleum Exchange (IPE) by using the euro-dominated oil trading mechanism (Clark, 2004). The logic behind this is that by using this mechanism in international oil trades, the euro is going to take dominance and establish a firm ground which will serve to overshadow the strength of the U. S dollar in the global oil market. The U. S government therefore considers this a real threat by Tehran government which warrants intervention to protect the dollar from being toppled off from its long term monopoly in the critical international oil market. It is worth noting that lack of an oil pricing standard that is euro-dominated also referred to oil â€Å"marker† in the oil trading industry is one of the technical challenges facing the euro-based trading system in oil transactions. The oil markers currently in operation today are the U. S dollar dominated which include Norway Brent crude, West Texas Intermediate crude, and the UAE Dubai crude. In the spring of 2003, Iran laid down a requirement that all the transactions for its Asian and European oil exports be conducted using the euro currency though the pricing of oil was still predominantly controlled by the dollar. Following an official announcement in 2004 that Iran had intentions to develop an Iranian oil Bourse, it raised the concerns that a stiff competition would ensue between the Iranian oil bourse and the U. S owned NYME and the IPE (Clark, 2004). The macroeconomic implications of such a development would cause a shift in the international commerce in both Middle East and the European Union which is the largest importer of oil from OPEC producers. Consequently, the financial hegemony enjoyed by the IPE and NYMEX would be greatly challenged and thus the U. S is likely to avoid this through military action. 3. 0 The Ambitious Nuclear Program of Iran The Tehran’s nuclear ambition is another possible reason as to why the U. S may launch a land military attack on Iran. This has been seen from the latest series of sanctions on Iran by the Obama administration which mainly targets the Islamic Revolutionary Guards Corps which is the most powerful social, political and economic institution in Iran. The organization also has a large number of companies and banks and therefore makes it an appropriate target for these sanctions (LANDLER & COOPER, 2010). However, the critical thing to focus on with regard to this issue is whether these sanctions have the capacity to compel Iran to halt its nuclear program. If the history of political and economic sanctions against countries is anything to go by, then Iran may not change its course despite the sanctions and this may lead to war. The reason for the sanctions is to â€Å"contain† Tehran which depicts a link which leads from diplomatic pressure to military action (Nadal, 2010). Tehran views this threat as real considering that its two neighbors to the west and to the east have a large number of U. S troops. 4. 0 Conclusion A possible military action on Iran by the US cannot be overlooked since the reasons surrounding this possibility would also have major effects on the economy and the security of the US. Considering the economic problems facing the US, the attempts by Iran to establish the euro-based oil bourse may seem as an attempt to suppress the dollar in the international oil market. The nuclear program also would threaten the security not only of the US but also of the world if it is not either regulated or completely halted. To aver the nuclear weapons development, Washington ought to try and alter the perceptions of threat harbored by Iran against America. References Clark, W. (2004). The Real Reasons Why Iran is the Next Target: The Emerging Euro-denominated International Oil Marker. Retrieved August 20, 2010, from http://www. globalresearch. ca/articles/CLA410A. html LANDLER, M. , & COOPER, H. (2010). U. S. Eyes New Sanctions Over Iran Nuclear Program. Retrieved August 20, 2010, from http://www. nytimes. com/2010/02/10/world/middleeast/10sanctions. html? _r=1 Nadal, A. (2010). Sanctions against Iran and the Next War. Retrieved August 20, 2010, from http://www. campaigniran. org/casmii/index. php? q=node/10518