Strategic Corporate Finance of the Blue chip company.

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Requirement

1- Write a repot on "Strategic Corporate Finance D" in 3000 words with 10-12 references

Solution

Introduction

Companies used to indulge in many kinds of activities in order to increase the capital structure. This not only involves the sales but also the investment made by the company in any other company in order to raise the capital. Therefore, the company which will be analyzed for investment is Galaxy Entertainment Group Ltd for the investment by Trimble Plc. The analysis will involve a five-yearperformance of the company. there will be ration analysiswith the help of the financial statement of the company. There will be other considerations like financial strategy, investment strategy capital structure alteration a and many more. There will be another case study analyzed in this paper which involves the share price evaluation of the Bluechip company. there will be a discussion on the changes in share price on the market value of the company. this will involve computation of the P/E ratio of the company. there will be recommendations and a summary of the report at the end. 

Analysis

Corporate governance policy

Galaxy Entertainment Group Ltd is one of the leading global hospitability, gaming and resorts companies.  It has led the corporate governance committee in 2012.The policy aims to raise the shareholders' value and to conquer a high level of integrity, transparency, and accountability. It develops a huge portfolio for the integrated dining, resort, retail and facilities for gaming in Macau. It operates with three major portfolios which arethe Start worldMacau, Galaxy Macau and BROADWAY MACAU. The corporate policy of the company revolves around acting with honesty and higher integrity with the business partners. It obliges the independent third parties and team members in order to deal with the investigation on its business partners (Fracassi and Tate, 2015). It is in practice to ensure that they are full compliance with the CFT policy and AML policy which is approved by the coordination bureau and Macau gaming inspection.  In addition, there are periodic workshops and training for the team members in order to keep them updated with the regular changes in the compliance and regulations. There is a workshop for the new employees hired in order to provide the knowledge about the CFT and AML compliance there is course further know your customer KYC, transaction reporting, due diligence, and junket risk assessment. (Galaxyentertainment, 2019)

Financing strategy

The key strategic decision that the company has to make about the financialreportingin each period. This decision is based on issuing the financial statement for the general public along with the other stakeholders. The company has to focus on several areas that provide the chance to have the best financial reporting among all the firms in the industry. There is a decision taken for the growth and development of the company. this is based on the practice of performing the procurement of the funds for the plans that have been made. Accounting and finance help to assist in these activities as they led the principles which help in the successful procurement of the funds (Larckeret al. 2016). There are several strategies that need to be made which involves selection of the sources of fund. Accounting helps to determine this with the help of assessment tools provided by it. Therefore, it is necessary for the company to underpin the accounting and financial decisions for the business. GEG is involved in meeting the accounting standards and following the regular amendments made in the policy.

Investment strategy

There is both national and internationalinvestmentmade by the company. The national investment isless prone to risks. On the other hand, international investments have a higher exposure to risk. This is being managed by the company with the help of the portfolio made. There is a consideration for the budget before investing in any area. This helps in making the forecast for the company which helps to mitigate the risks. The risks are being identified and proper measures are available for them in advance. However, there is a contingency in forecasting. This is also met by the contingency plan and contingency funds raised by the company (Fracassi,2016). GEG has made a specific investment which involves a major investment in 2015. This was made in Monte-Carlo SBM.  This holds the world operator and renowned owner of iconic hotels. The investment strategy of the company is based on the sustainability and building the future of the Macau and contribution to the local community. It used to utilize the opportunities for international development with the help of the investments.  This includes the area of the Philippines and Japan.

Ratio analysis and interpretation 

The ratios that are necessary to determine prior to the investment have been computed. The profitability ratio of the company indicates that the five-year performance of the company is remarkable as there is a positive trend in the ratio. For example, the gross profit ratio of the company is41 percent for 2017 and 51 percent for 2018. The liquidity ratio of the company also indicates that there is a negative trend in the year 2017 with -38 percent of the current ratio. This means that the operating activities of the company have got hampered. Cash ratio has also the negative trend in 2017 and 2015 which were -40 and -23 percent respectively. The leverage ratio has also been calculated which reflects that the company is less dependent on the debt fund for the procurement of the capital. This allows the investors to invest in the company's there are chances of getting a positive return (Brownet al. 2016). The asset management ratio indicates that the debtor's turnover ratio negatively trends for the year 2016, 2017, 2018 and 2015. There this means that cash collecting is not remarkable for the company. inventory management ratio is also negatively trending which reflects -34 percent for the year 2018 and -7 percent for the year 2016 and -36 percent for 2015. [Referred to appendix 1]

Capital structure alteration 

The capital structure alteration refers to the company policy in raising the fund.  It has been found for the company GEG that it is mostly dependent on the equity fund for the company. the equity fund for the company 2018 is 87384 and the portion of the debt in the same year was 9131. Again, for the year 2017, the equity fund for the company is 46345 which is higher than the debt fund. This is being found as 9622 in front of the equity. The trend for the dependency on the source of fund is the same for all the five years. This involves the better decision of the company towards the capital structure alteration (Bodie, 2015). Financial statementshelp in the decision-making prices for the company. on the contrary, the dependency on the historical cost’s brings drawback in the theory laid down by the financial regulating bodies. There are chances of being indulged in fraud. Apart from this, there is no discussion on the non-financial aspects. This brings the financialthere in the circle of questions. This is because the financialreporting of the company serves the decision-making tool for many stakeholders of the organization. Thus, the alteration in the capital structure made by GEG could subject to personal motives. Therefore, it is required to have proper rules laid down for effective decision making. 

Dividend policy

The dividend policy of the company follows providing a 60 percent return on the investment made by the investors. On the basis of this, the dividend that is disbursed by the company in the year 2017 was HK$0.33 and HK$0.26. these were the special dividends distributed by the company to their shareholders. Again, the company subsequently announced a special dividend in the same year (2017) which includes 0.41 per share.  There was a rise in a 58 percent increase in the dividend from the company as compared to the year 2017. The company is very much determined to provide a special return to the shareholder. This because of theircontribution to the international expansion objectives and development pipeline (Luoet al. 2015). The company used to issue a special dividend to the shareholders along with the common dividend on the shares. This has reflected the dedication of the company in following the interest of its shareholders.

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Merger and acquisition activity

Robert drake is the chief analyst for the company who looks after the merger and acquisition process of the company. The company is deciding to expand in Las Vegas with the help of the merger and acquisition process. The majormergers of the company are DoranHong Kong limited, galaxy casino, K. Wah concrete company limited, galaxy entertainment management and any more. This has helped the company to expand its capital which has helped it in the business growth (Buschet al. 2016). There ae major decision was taken by the financial team of the company in order to raise the fund with other merger and acquisition techniques. This helps the company t reduce the number of competitors for the company. the galaxy casino S.A is the major acquisition of the company. the competitors are provided on a global basis for the firm. There are many decisions made by Robert drake in order to deal with the merger and acquisition techniques of the company.  

A) The share prices

  1. a)  No change in dividend policy:  According to this situation, the company is not determined to change the dividend policy. The dividend policy used to reflect the performance of the company in the market. However, with the increase the retained earnings for the subsequent periods the dividend growth rate will be 5.50 percent. there is a major role played by the dividend in determining the goodwill of the company. Ore the dividend more will be the investors of the company. on the contrary, disbursing dividends brings down the profit of the company. Company has to deliver dividend according to the profit and the debt fund has a fixed rate of interest (Joo and Durri, 2015). According to the announcement of the managing director, it has been decided to keep the retained earning with a ratio of 70 percent. after the calculation of the price for the given information, it has been found that the price will be 18 per share before making the adjustment for the retained earnings. The current year income of the company is found at 85.6. the share price that has been calculated before making the adjustments is 18. This means that investors have to pay 18 for purchasing the one share of the Bluechip. Thus, has been found on the basis of the growth rate that isdetermined by the company after the among the adjustment. It has been found that if the company wants to make more retained earnings for growth and development, the dividend tends to reduce. [Referred to appendix 2]

  2. b) Change in dividend policy:  After the change in the dividend policy, the price that has been computed is 25.2. this means that after the amendments in the ratio of the retained earning the company will able to increase the source of the share. This needs a to be to be done by the business in order to maintain the motive of the retained earnings. This is because an increase in the source will provide more per share return from the investors. As a part of the retained earning the company will able to grow and expand and could provide more return to the shareholders. This will help the company in both the way (Brownet al. 2015). This is because there will be higher returns for the investors and the company will also get the chance to grow and expands. However, there are chancesthat with the increase in the price on the show’s most of the prospective investorsfor the business might not show interest in investing in the business. [Referred to appendix 3]

B) Impact of dividend policy on market value 

The impact of the dividend policy on the market value is that it is likely toincrease the priceof the shares. It could be understood from the company’s proposal toincrease the retained earnings. For example, the company wants to increase its retained earnings for the company. in order to increase the retained earning the company will retain 70 percent of the profit. Thus, after rating the profit there are lees chancesthat the investors would get the desired return on their investment. This brings the company position in the market to a lower level (Chenet al. 2017). This is because the company wants to make more retainedearning it has to reduce the dividend to some extent. After reducing the dividend there are fewer chances that prospective investors would connect to the firm. Thus, the profit of the company will reduce as there will be higher prices of the shares in order to make the maximum return in the shares issued. The growth rate of the divided has been mentioned as 5.50 percent which is not a remarkable return in the shares. There are chances of getting the lees to return on the investors by the shareholders.

Therefore, the plan of the company to change the dividend policy by increasing the retained earnings is not significant. Before making the investment, the price was 18. After making the investment the price has been computed as 25. The price has been raised by 7 per share. this means that there is more price paid by the investors in order to acquire the shares of the company. This will not be found significant among the customers. This is because they want the desired return on the investment that is why they invest in the company. it is required for the business in order to hold a proper dividend policy for the firms. It helps the company to deal with increasing the market share. the capital of the firm also gets benefitted by this practice of the company (Gitmanet al. 2015). 

On the contrary, it could be said that Bluechip will get befitted by making 70 percent as the art of the retained earnings. This is because with the increase in the price there ate chances of getting the higher fund. This will help to increase the profit of the company and the retained earnings would also increase. Thus, with the increase in retained earnings, there are chances that the company could grow and expand. This will help the company to earn more profit from the other operational area of the business (Ioanno and Serafeim, 2015). thiswill help the company to deal with the increasing requirementof the profit in order to disburse to the several stakeholders of the company. Invests of the company are also likely to get benefited by the higher return after making the amendment in the dividend policy. It might happen that during the planning period the company could be able to disburse the required return. 

However, after the completion of the execution period when there will be time to earn from those growth and development proposal there are chances that the company could recover the previousloses of the investors. Therefore. There is always a better chance to grow and expand with the development plans. It has only one drawback that during the planning period, the company could not offer that much profit to the shareholders (Brownet al. 2015). Thus, after using the funds for the development proposal there are chances that investors could get a lower return. However, son after the start starts makinga profit from that proposal.investorswill be benefited in huge amounts. It might happen that the company could disburse a special dividend to the shareholders. Therefore, it is necessary for the business to adopt a relevant dividend policy. This is because the equity fund is the most vital fund for the companies. It helps to increase the capital without increasing the obligations of the company. There is no compulsory payment fir the investments (Joo and Durri, 2015). Therefore, the company could get hugely benefited by the relevant dividend policy. It is necessary in order to make the interest of the investors in the business.  

Recommendation

Thus, it is recommended to the GEG company to maintain the asset management ratio. This is because the collection from the debtors is not significant for the company. The liquidity ratio of the company also seemed to be fluctuating. There are negative trends in the liquidity ratio for the several periods which includes 2017. The capital structure of the firm seemed to be significant as it is not dependent on the debt fund more to increase the capital structure. There are maximum chances of increasing the profitability for the company for the next consecutive years. However, the company needs to manage its liquidity ratio in order to help with the working capital. This could be done by managing the operating activities of the business. Assets and cash collection need to be significantly handled. Bluechip is recommended to hold on to the retained earning proposal as it will likely to increase the share price. This could lead to losing prospective investors because of the rise in the price of the shares.  

Conclusion

It is recommended to invest in the company as apart from the several trends the profitability position of the company is significant and the company likely to receive greater returns in different periods. After making the assessment for the several periods for the GEG it has been found that the company is significant in disbursing the dividend. There has been a consideration for the special dividend for the investors during 2017. The ration of the dividend payment has been increased to 58 percent for the company. There is also a plan for the higher return on the investment because there is a sound dividend policy in the company. Bluechip proposal to increase the retained earnings by 70 percent in increasing the share price. This could be abandoned as there are chances that might move to the companies by seen lower prices of the shares.  

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Reference list

  • Book 

  • Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

  • Journals 

  • Bodie, Z., 2015. Thoughts on the future: Life-cycle investing in theory and practice. Financial Analysts Journal, 71(1), pp.43-48.

  • Brown, L.D., Call, A.C., Clement, M.B. and Sharp, N.Y., 2015. Inside the “black box” of sell?side financial analysts. Journal of Accounting Research, 53(1), pp.1-47.

  • Brown, L.D., Call, A.C., Clement, M.B. and Sharp, N.Y., 2016. The activities of buy-side analysts and the determinants of their stock recommendations. Journal of Accounting and Economics, 62(1), pp.139-156.

  • Busch, T., Bauer, R. and Orlitzky, M., 2016. Sustainable development and financial markets: Old paths and new avenues. Business & Society, 55(3), pp.303-329.

  • Chen, T., Xie, L. and Zhang, Y., 2017. How does analysts' forecast quality relate to corporate investment efficiency?. Journal of corporate finance, 43, pp.217-240.

  • Fracassi, C., 2016. Corporate finance policies and social networks. Management Science, 63(8), pp.2420-2438.

  • Ioannou, I. and Serafeim, G., 2015. The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics. Strategic Management Journal, 36(7), pp.1053-1081.

  • Joo, B.A. and Durri, K., 2015. Comprehensive review of literature on behavioural finance. Indian Journal of Commerce and Management Studies, 6(2), p.11.

  • Luo, X., Wang, H., Raithel, S. and Zheng, Q., 2015. Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), pp.123-136.

  • Online article 

  • Fracassi, C. and Tate, G., 2015. External networking and internal firm governance. the Journal of finance, 67(1), pp.153-194.

  • Larcker, D.F., So, E.C. and Wang, C.C., 2016. Boardroom centrality and firm performance. Journal of Accounting and Economics, 55(2-3), pp.225-250.

  • Website 

  • Galaxyentertainment, (2019), OUR VISION, available at: https://www.galaxyentertainment.com/uploads/investor/23963050b1f4d1e509eb2dea08edb48c313c035f.pdf, [accessed on 2.07.2019]

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