The influence of a dominant religion on democracy

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The influence of a dominant religion on democracy

This paper aims at providing answers to the question on the effect of religion on democracy. Using the outline of results presented by numerous authors in their quest to study the influence of religion on democracy, we shall design an exceptional study in conclusion of the effects of religion on democracy. This paper tries to argue out that while the beliefs of a dominant religion would undermine democracy by designing conservative values for all its citizens,religious social behavior could enhance the support for democracy through developing great trust in political institutions.

Do religious beliefspromote or hinder democracy and the attitudes of a country’s citizens towards democracy? To begin with, looking at Adorno et al (1950) approach to this question, he designs the theory of authoritarian personality. In his study, he suggests a psychoanalytical relationship undemocratic attitudes and religiosity. Together with many other scholars, Adorno argues that religiosity has the power to challenge democratic socialization and values. A larger percentage of his research is developed in contrast to the belief that democracy and religion are in a causal positive relationship and have developed its focus on religious extremism challenges and loyalties faced by democratic institutions. His study reveals that religion is the result of the rise of non-democratic norms and political intolerance and this belief is supported by (Driessen 56). Smith (35) in an attempt to point out the effects of a dominant religion in democracy concludes that religion as well as religious institutions consider itself of a higher superior power to other societal groups and thus its beliefs would hinder the global implementation of civil rights.

In addition, Ben-Nun Bloom&Arikan(380) study reveals a positive relationship between religiosity and democratic values and norms. In another different study by Ben-Nun Bloom &Arikan(250), the evidence in their research revealed that religious institutions held a greater potential in fighting for a country’s democracy with a deliberate intention of ensuring all citizens have their rights. It is through religious activities that countries enjoy the development of civil norms and skills and the provision of religious basis for social movements.In another different debate by Ben-Nun Bloom &Arikan(1), church attendance was found to have an effect of increased electoral turnout, protest activism, party membership and support of democracy(DeLauro 14).

Most theoretical scholars in the same manner have noted the political inconsistency of religion (Wolfe 45; Green 80; Jamal 100; Evans 140). With this they mean that a dominant religion in a country could be either a contributor to the success and development of democratic skills or the reason for undemocratic values. This contraction can be found in the reconciliation of religion as a multifaceted aspect. The literatures in these developments look at religion from three different angles of behavior, belonging and belief. The behavior aspect is developed from the component of religion as a social practice, attendance in places of worship and involvement and participation in religious communities. Belonging on the other hand looks at the denominational affiliation of an individual which identifies with a specific denomination where one in and private religious practices like sacred texting and prayer. The belief aspect acts as an umbrella to the aspect ofunderstanding the relationship between man and divinity.Looking fully at the American societies, these researches argues that certain religion believes such as the existence of God, belief in life after death, belief in heaven and God as well as social gathering at places of worship among other religious activities have a conflicting consequences on democratic norms and attitudes.

As an individual performing my own research, first I think that religion beliefs and thewhole concept of religion would hinder the ability of a country to be democratized. Why? This is because religious beliefs have a positive association with conservative traditional values and for this connection religious beliefs would then have a negative relationship with openness to democratic values. On the other side, democracy has a positive relationship with openness to change, universalism, equality, independent thoughts and natural rights but would have a negative relationship to security, conformity and tradition. This understanding brings about ainherent conflict and systematic value in democratic value systems and religion. Additionally, social gatherings in places of worship would lead to development of norms and civil skills and political efficiency which would later have a positive outcome on party membership, electoral turnout and participation in civic movements which holds a greater potential for deliberating on democracy (Layman 252). Social religious institutions are created for active minority groups which would benefit from a democratized framework and the support of a democratic government.

Bruce (10) study on the influence of religion on democracy identified how Protestantism affected politics in Western Europe. He says that religion created an arena for individualism, notions of civil liberty and tolerance. Compared to other religions, Protestantism permitted an increased degree of non-conformity and individualism which allowed more freedom in political structures and religion in itself. The religious institutions in Western Europe atthat time became a reflection of a society with an equal voice which led to an ultimate spread of fundamental beliefs needed to drive democracy(Gibson 160).

Meyer (1) on the other hand looked at the influence of Pentecostalism in the political structure in Ghana and provided us with an interplay connection between politics and religion with reference to the issues of morality. In Ghana, the citizens applied religion in a manner to explain what actually occurs in politics and to maintain religion numbers in influencing and claiming the power to cure political sorcery. When the citizens saw political results taking a religious turn, this made political results more understandable to day to day citizens.In Ghana’s scenario, religion has a positive influence in democracy by creating a specific amount of political power which was needed in democracy.

Very many authors who have tried to gain an understanding of the influence of religion on democracy, different authors arrivedifferent conclusions on the same basing on the different values they place on religion as well as politics. Together, all these studies confirm that the many dimensions in religion have a different cause and effect on democratic attitudes among other psychological mechanisms in the society. While religion and its beliefs have been pointed out to undermine democracy because of its basis in conservative valuesit is evident that religious social behavior have in the past fostered engagement in politics thus creating an environment that is needed for democracy.This research has pointed out that it is not the religion nor the behaviors and beliefs in religion that affect democracy  but the values of believes that are taught to individuals that hinder democracy.

Works Cited;

Adorno, Theordor, Frenkel-Brunswik, Else., Levinson, Daniel. and Sanford, Nevitte. The Authoritarian Personality. New York: Harper & Row, 1950.

Ben-Nun Bloom, Pazit and Arikan, Gizem Priming Religious Belief and Religious Social Behavior Affects Support for Democracy. International Journal of Public Opinion Research. 2015.

Ben-Nun Bloom, Pazit and Arikan, Gizem. The Differential Effect of Religious Belief and Religious Social Behavior on Opinion and Ambivalence in Democratic Attitudes. Political Behavior, 2012;34(2):249-276.

Ben-Nun Bloom, Pazit and Arikan, Gizem. Religion and Democratic Attitudes: A Cross-National Test of the Mediating Mechanisms.British Journal of Political Science.2013; 43(2):375-397.

Bruce, Steve. Did Protestantism Create Democracy, in Anderson, J. (Ed.) Religion, Democracy andDemocratization, New York, NY: Routledge, 2006.

Driessen, Michael. Religion, State, and Democracy: Analyzing Two Dimensions of Church-StateArrangements.Politics and Religion, vol. 3, no. 1 (April 2010): 55-80.

Evans, Bette Novit. The constitutions of religious pluralism in the United States.Religion and Democracy in the United States: Danger or Opportunity?, edited by Alan Wolfe and Ira Katznelson, Princeton University Press, 2010, pp. 114–144.

Gibson, James L. The political consequences of religiosity: Does Religion Always Cause Political Intolerance?Religion and Democracy in the United States: Danger or Opportunity?, edited by Alan Wolfe and Ira Katznelson, Princeton University Press, 2010, pp. 147–175.

Green, John C. Religious diversity and American democracy: A View from the Polls.Religion and Democracy in the United States: Danger or Opportunity?, edited by Alan Wolfe and Ira Katznelson, Princeton University Press, 2010, pp. 46–88.

Hirschl, Thomas, Booth, James & Glenna, Leland. The Link Between Voter Choice and Religious Identity in Contemporary Society: Bringing Classical Theory Back In. Social Science Quarterly, 2009; 90(4), 941.

Jamal, Amaney. Muslim Americans: Enriching or Depleting American Democracy?Religion and Democracy in the United States: Danger or Opportunity?, edited by Alan Wolfe and Ira Katznelson, Princeton University Press, 2010, pp. 89–113.

Layman, Geoffrey C. Religion and party activists: A ‘Perfect Storm’ of Polarization or a Recipe for Pragmatism?Religion and Democracy in the United States: Danger or Opportunity?, edited by Alan Wolfe and Ira Katznelson, Princeton University Press, 2010, pp. 212–252,

Meyer, Brigit. The Power of Money.Witchcraft and Socery(2012). 29

Sherkat, Darren. Religion and Survey Non-Response Bias: Toward Explaining the Moral Voter Gap between Surveys and Voting. Sociology Of Religion, 2007; 68(1), 83-95.p. 94

Wolfe, Alan, et al., editors. Political science, democracy, and religion.Religion and Democracy in the United States: Danger or Opportunity?, Princeton University Press, 2010, pp. 19–45.

 

 

LIVED EXPERIENCE REPORT

INTRODUCTION

(Treloar & Rhodes, The Lived Experience of Hepatitis C and its Treatment Among Injecting Drug Users: Qualitative Synthesis, 2009), defines HCV as a liver disease caused by hepatitis C virus. Hepatitis C virus is blood-borne. In the initial stages, hepatitis C doesn’t have noticeable symptoms but after several years the liver is damaged, and symptoms start occurring. There is a loss of appetite, fatigue, nausea, jaundice, and stomach pain. The incubation period for hepatitis C disease is two weeks to six months. The first case of hepatitis C was reported in the 1970s. Currently, over 200 million people are infected with hepatitis C, and this constitutes to 3.3% of the world’s population which is a rise from 143 million people in 2015 (Kaslow, Stanberry, & Duc, 2014). Its occurrence is mostly in Central and East Asia and Africa. In 2015, about 167,000 people died from liver cancer and 326,000 from cirrhosis due to hepatitis C. In the journal (Sgorbini, O’Brien, & Jackson, 2009) it is unclear how 15%-25% of the people infected can clear the virus from their bodies without treatment. Once daily pill which is known as Zepatier was approved in January 2016 and its effectiveness is approximately 100%. There is no vaccine for Hepatitis C.

DISCUSSION

Aboriginal people, especially in Australia, face various challenges when living with hepatitis C. Discovery of Hepatitis raises stigma and shame about how the virus was transmitted. Stigma plays a role when the victims try to disclose their status to the community, family, or health workers at diagnosis. Stigma makes individuals unable to seek health (Treloar, et al., 2016). Shame makes the victims to be cut off from communal and family duties leading to loneliness and being cut from normal activities. Low income and poverty also affect aboriginal community prevalence and response to hepatitis C. It is estimated that the lifetime medical care of a person living with HCV cost around $46 600.The cost is extremely high for uneducated indigenous people. Many of the aboriginals acquire the HCV through sharing of needles drug injection which is a common practice among the aboriginal people in Australia. It is estimated that over half (57.5%) of those living with hepatitis C in Australia acquired the disease through injecting the drug (Hopwood, Treloar, & Bryant, 2006). It is also evident that most of the Aboriginal people are not aware of the existence of the HCV disease. The Aboriginal people suffering from HCV also are unwilling to seek medical treatment. The unwillingness is brought by high competition in the attempt of accessing health facilities in the treatment of HCV. They also have limited knowledge of HCV and the available treatment. Additionally, the aboriginal people may be not psychologically ready to go through relatively arduous nature of Hepatitis C treatment. Aboriginal people living with HCV have shown poor communication especially during diagnosis of the disease. Those diagnosed at organizational setting tend to have poorer communication compared to those attended by family doctors (LauraE.Dowsett, StephanieCoward, DianeL.Lorenzetti, GailMacKean, & FionaClement, 2017). Poor communication is as a result psychological side effects such as mood swing or irritability.

Healthcare experiences and challenges of stigma on HCV patients.

Patients suffering from hepatitis C suffer discrimination even from the health care officers. Due to this, they face numerous physical challenges such as weight loss. Body weakening is also evident with the patient being forced to take certain food. Patients become isolated. Isolations limit the contact with people who could offer physical assistance, and the recovery of the patients becomes next to impossible. Doctors find it challenging to offer medical assistance to this kind of people as they are aggressive and some have physical body weaknesses. Due to stigma and lack of attention, people suffering from chronic hepatitis C feel judged or shunned. Most of the time the doctors and nurses concentrate more in attending HCV patient illness and ignoring the guidance and emotional support towards the patients hence making them feel less valued or cared upon (CarlaTreloar, JakeRance, & MarkusBackmund, 2014).

Low income and poverty

Aboriginal people are poor making it hard for them to have blood nutrition during the sickness period. Their body becomes weak and prone to other diseases. Their families are also encouraged to shun away from them. Research has found that most of the Aboriginal patients opt to commit suicide due to poverty and hardship in controlling the disease (Galanti, 2014). The patients also shy away from seeking medical attention from developed centers in fear of high charges.

Drug injection

Drug abuse is rampant among the aboriginal Australians. Apart from alcoholism due to depression, they also abuse drug through injection. The victims seek solace through drug abuse as they see it as means of managing stress. Through injection, they expose themselves to other blood transmitted diseases like NHIV increasing the chances of weakening the body more (Kaslow, Stanberry, & Duc, 2014).

Challenges and effects of unwillingness to seek treatment

Due to the unwillingness of seeking medical care by Aboriginal patients, hepatitis C develop quickly in their body becoming hard to control. The patients are faced with the dangers of acquiring the liver disease. The disease becomes chronic before the patients seek medical attention. The patients have reported and shown to be emotionally affected once the disease reaches late stages. The patients become depressed and unable to follow their normal schedule. The hepatitis C patients sometimes feel worthlessness and guilt especially if they acquired the virus through avoidable circumstance. They also suffer from disturbed sleep patterns and changes in psychomotor activity. Depressed patients lack the ability to concentrate or make a decision, and they also suffer from fatigue or body loss as a result of thoughts (McGovern, 2015).

Poor communication with people and health officers.

During diagnosis, the patients tend to hold information about how they acquired the virus. Health officers find it hard to assist this kind of patients. Some of the patients also hold information from their friend and relatives. This kind of patients mostly develops psychosocial problems, where some become mentally ill. The disease overcome them, and they end up being affected by numerous health problems, and they face a danger of early death (Brener, et al., 2016).

CONCLUSION

Through the article, it is evident that the patients living with Hepatitis C often feel unsupported in their care, stigmatized, and discriminated in relationships and at workplaces. They are continuously trying to cope with psychological, physical and personal symptoms of the illness. It is of great value to encourage the patients to live in healthy lifestyle such as engaging in body exercise. Exercise is key in reducing depression and anxiety which are as a result of hepatitis C. It is also necessary to treat all the patients equal, especially the aboriginal people, to make them appreciated. Equal treatment will strengthen their desire to seek medical attention. They should also be educated on the existence of the disease to increase the number of people who seek early medical attention. As a nurse, I am more motivated to undertake psychology courses to improve in the way of handling the patients of hepatitis especially those who have undergone through stigmatization and self-blame towards getting infected with the virus. It is necessary also to be more patient with the patients and encouraging them as they go through the process of medication in the hospitals. I am motivated to encourage fellow nurses to come up with the hospital to hospital mentor program where we will enlighten the young nurses on the need to take care of the patients as a way to make those suffering from the chronical disease to feel appreciated. Accumulation of hopefulness about the successful diagnosis of HCV, the patient, naturally and automatically improves on the emotional scale due to the reduction of negative thoughts and ends up getting away from depression (McGovern, 2015).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REFERENCES

Brener, L., Wilson, H., Jackson, L. C., Johnson, P., Saunders, V., & Treloar, C. (2016). Experiences of diagnosis, care, and treatment among Aboriginal people living with hepatitis. Indigenous Health, 62.

CarlaTreloar, JakeRance, & MarkusBackmund. (2014). Understanding Barriers to Hepatitis C Virus Care and Stigmatization From a Social Perspective. Supplement Article, 52.

Galanti, G.-A. (2014). Caring for Patients from Different Cultures. London: University of Pennsylvania Press.

Hopwood, M., Treloar, C., & Bryant, J. (2006). Drugs: education, prevention, and policy. Hepatitis C and injecting-related discrimination in New South Wales, Australia, 61-75.

Kaslow, R. A., Stanberry, L. R., & Duc, J. W. (2014). Viral Infections of Humans: Epidemiology and Control. London: Springer.

LauraE.Dowsett, StephanieCoward, DianeL.Lorenzetti, GailMacKean, & FionaClement. (2017). Canadian Journal of Gastroenterology and Hepatology. Living with Hepatitis C Virus: A Systematic Review and Narrative Synthesis of Qualitative Literature, 11.

McGovern, B. (2015). Care of the Patient with Hepatitis C Virus Infection, An Issue of Infectious Disease Clinics. Chicago: Elsevier Health Sciences.

Sgorbini, M., O’Brien, L., & Jackson, D. (2009). Living with hepatitis C and treatment: the personal experiences of patients. Patients Perspective, 2282.

Treloar, C., & Rhodes, T. (2009). The Lived Experience of Hepatitis C and its Treatment Among Injecting Drug Users: Qualitative Synthesis. Qualitative Health Research, 1321-1334.

Treloar, C., Jackson, L. C., Gray, R., Newland, J., Wilson, H., Saunders, V., . . . Brener, L. (2016). Multiple stigmas, shame, and historical trauma compound the experience of Aboriginal Australians living with Hepatitis C. Health Sociology Review, 23.

 

LIVED EXPERIENCE REPORT

INTRODUCTION

(Chen & Morgan, 2006), defines HCV as a disease caused by hepatitis C virus and which mostly affects the liver. Hepatitis C virus is blood-borne. In the initial stages, hepatitis C doesn’t have noticeable symptoms but after several years the liver is damaged, and symptoms start occurring. There is a loss of appetite, fatigue, nausea, jaundice, and stomach pain. The incubation period for hepatitis C disease is two weeks to six months. The first case of hepatitis C was reported in the 1970s. Currently, over 200 million people are infected with hepatitis C, and this constitutes to 3.3% of the world’s population which is a rise from 143 million people in 2015 (Chung & Baumert, 2014). Its occurrence is mostly in Central and East Asia and Africa. In 2015, about 167,000 people died from liver cancer and 326,000 from cirrhosis due to hepatitis C. In the journal (Sgorbini, O’Brien, & Jackson, 2009) it is unclear how 15%-25% of the people infected can clear the virus from their bodies without treatment. Once daily pill which is known as Zepatier was approved in January 2016 and its effectiveness is approximately 100%. There is no vaccine for Hepatitis C.

DISCUSSION

Aboriginal people, especially in Australia, face various challenges when living with hepatitis C. Discovery of Hepatitis raises stigma and shame about how the virus was transmitted. Stigma plays a role when the victims try to disclose their status to the community, family, or health workers at diagnosis. Stigma makes individuals unable to seek health (Treloar, et al., 2016). Shame makes the victims to be cut off from communal and family duties leading to loneliness and being cut from normal activities. Most of the Hepatitis C patients prefer not to seek medical attention due to the fear of the side effects. Medical is also expensive, and most of the aboriginal people can’t afford.  The unwillingness is brought by high competition in the attempt of accessing health facilities in the treatment of HCV. Additionally, the aboriginal people may be not psychologically ready to go through relatively arduous nature of Hepatitis C treatment (Westbrook & Dusheiko, 2016).  As a result of stigma, regrets, and the symptoms of the disease, the patients living with Hepatitis C become disrupted from the normal activities in life. They tend to behave differently with more of seeking isolation. Diagnosis of the patients with the hepatitis is a challenge as the symptom of the infection are not evident in early stages. The medication process is also long with the chances of taking multiple drugs due to a side effect of Hepatitis C. Aboriginal people living with HCV have shown poor communication especially during diagnosis of the disease. Those diagnosed at organizational setting tend to have poorer communication compared to those attended by family doctors (LauraE.Dowsett, StephanieCoward, DianeL.Lorenzetti, GailMacKean, & FionaClement, 2017). Poor communication is as a result psychological side effects such as mood swing or irritability.

Healthcare experiences and challenges of stigma on HCV patients.

Patients suffering from hepatitis C suffer discrimination even from the health care officers (Olson, Gardenier, & Jacobson, 2015). Due to this, they face numerous physical challenges such as weight loss. Body weakening is also evident with the patient being forced to take certain food. Patients become isolated. Isolations limit the contact with people who could offer physical assistance, and the recovery of the patients becomes next to impossible. Doctors find it challenging to offer medical assistance to this kind of people as they are aggressive and some have physical body weaknesses. Due to stigma and lack of attention, people suffering from chronic hepatitis C feel judged or shunned. Most of the time the doctors and nurses concentrate more in attending HCV patient illness and ignoring the guidance and emotional support towards the patients hence making them feel less valued or cared upon (CarlaTreloar, JakeRance, & MarkusBackmund, 2014).

Preference of care

Most of the patients prefer not to seek medical attention due to fear of discrimination. Hepatitis C treatment is also expensive and unaffordable to many aboriginal patients. Currently, sofosbuvir is sold at $1000 per day, and when it is combined with ledipasvir, its price becomes $1125 per day. The high cost makes some Hepatitis C patient use up to $150,000 during the treatment process (Chhatwal, Kanwal, Roberts, & Dunn, 2015). The scarcity of medical facilities also makes the patients unwilling to seek medical care.

Disruption of life

Once one discovers they have been infected with Hepatitis C virus, they tend to change their normal activities. They become depressed. Depression is accompanied by overwhelming sadness and recurrent thought of death which may lead to suicidal attempts. The hepatitis C patients sometimes feel worthlessness and guilt especially if they acquired the virus through avoidable circumstance. Due to negative thought, some turn to drug abuse and alcoholism. They also suffer from disturbed sleep patterns and changes in psychomotor activity (Webster, 2015).

Impact of diagnosis

Once the patients discover they are infected with Hepatitis C virus, they get shocked, and fear of death start ringing in their heads. This is facilitated by the lack of knowledge of the existence of the disease by many patients. Patients try to think now they got infected. Most of the married patient fear that they would infect their loved ones (Castro, Perazzo, Grinsztejn, Veloso, & Hyde, 2015). The patients struggle to come to terms that they are infected. The patient also has a fear of the treatment process, and it increases once they are told to avoid certain eating cultures such as greasy foods (Foster, Sulkowski, Karayiannis, & Thursz, 2015).

Poor communication with people and health officers.

During diagnosis, the patients tend to hold information about how they acquired the virus. Health officers find it hard to assist this kind of patients. Some of the patients also hold information from their friend and relatives. This kind of patients mostly develops psychosocial problems, where some become mentally ill. The disease overcome them, and they end up being affected by numerous health problems, and they face a danger of early death (Brener, et al., 2016).

CONCLUSION

Through the article, it is evident that the patients living with Hepatitis C often feel unsupported in their care, stigmatized, discriminated in relationships and at workplaces. They are continuously trying to cope with psychological, physical and personal symptoms of the illness. It is of great value to encourage the patients to live in healthy lifestyle such as engaging in body exercise. Exercise is key in reducing depression and anxiety which are as a result of hepatitis C. It is also necessary to treat all the patients equal, especially the aboriginal people, to make them appreciated. Equal treatment will strengthen their desire to seek medical attention. They should also be educated on the existence of the disease to increase the number of people who seek early medical attention. As a nurse, I am more motivated to undertake psychology courses to improve in the way of handling the patients of hepatitis especially those who have undergone through stigmatization and self-blame towards getting infected with the virus. It is necessary also to be more patient with the patients and encouraging them as they go through the process of medication in the hospitals. I am motivated to encourage fellow nurses to come up with the hospital to hospital mentor program where we will enlighten the young nurses on the need to take care of the patients as a way to make those suffering from the chronical disease to feel appreciated. Accumulation of hopefulness about the successful diagnosis of HCV, the patient, naturally and automatically improves on the emotional scale due to the reduction of negative thoughts and ends up getting away from depression.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REFERENCES

Australia. Parliament. Senate. (2014). Parliamentary Debates (Hansard).: Senate. London: Commonwealth Government Printer.

Brener, L., Wilson, H., Jackson, L. C., Johnson, P., Saunders, V., & Treloar, C. (2016). Experiences of diagnosis, care, and treatment among Aboriginal people living with hepatitis. Indigenous Health, 62.

CarlaTreloar, JakeRance, & MarkusBackmund. (2014). Understanding Barriers to Hepatitis C Virus Care and Stigmatization From a Social Perspective. Supplement Article, 52.

Castro, R., Perazzo, H., Grinsztejn, B., Veloso, V. G., & Hyde, C. (2015). Chronic Hepatitis C: An Overview of Evidence on Epidemiology and Management from a Brazilian Perspective. International Journal of Hepatology, 10.

Chen, S. L., & Morgan, T. R. (2006). The Natural History of Hepatitis C Virus (HCV) Infection. International Journal of Medical Sciences, 47-52.

Chhatwal, J., Kanwal, F., Roberts, M. S., & Dunn, M. A. (2015). Cost-Effectiveness and Budget Impact of Hepatitis C Virus Treatment With Sofosbuvir and Ledipasvir in the United States. HHH Public Access, 17.

Chung, R. T., & Baumert, a. T. (2014). Curing Chronic Hepatitis C — The Arc of a Medical Triumph. The Hew England Journal of Medicine, 1576-1578.

Foster, G., Sulkowski, M., Karayiannis, P., & Thursz, M. (2015). Journal of Viral Hepatitis. Introducing the new services site, 1365-2893.

Hopwood, M., Treloar, C., & Bryant, J. (2006). Drugs: education, prevention, and policy. Hepatitis C and injecting-related discrimination in New South Wales, Australia, 61-75.

LauraE.Dowsett, StephanieCoward, DianeL.Lorenzetti, GailMacKean, & FionaClement. (2017). Canadian Journal of Gastroenterology and Hepatology. Living with Hepatitis C Virus: A Systematic Review and Narrative Synthesis of Qualitative Literature, 11.

Olson, M. C., Gardenier, D., & Jacobson, I. M. (2015). The Revolution of Hepatitis C Treatments: Review for Nurse Practitioners. The Journal for Nurse Practitioners, 116-123.

Sgorbini, M., O’Brien, L., & Jackson, D. (2009). Living with hepatitis C and treatment: the personal experiences of patients. Patients Perspective, 2282.

Treloar, C., & Rhodes, T. (2009). The Lived Experience of Hepatitis C and its Treatment Among Injecting Drug Users: Qualitative Synthesis. Qualitative Health Research, 1321-1334.

Treloar, C., Jackson, L. C., Gray, R., Newland, J., Wilson, H., Saunders, V., . . . Brener, L. (2016). Multiple stigmas, shame, and historical trauma compound the experience of Aboriginal Australians living with Hepatitis C. Health Sociology Review, 23.

Webster, D. P. (2015). Hepatitis C. The Lancent, 1124-1135.

Westbrook, R. H., & Dusheiko, G. (2016). Journal of Hepatology. Natural history of hepatitis C, S58-S68.

 

 

Applied Financial Management

Various companies are affected by the financial statements they prepare to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following rates are looked at: Gross profit margin, operating profit ratio margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is an imperative ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the company. With proper management, Visa Inc. can realize long-term growth and profitability. The efficient management ensures the employees are motivated to ensure they provide best services to the customers. It also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring resources are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

  Visa Inc  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=7165/10998

      =65.1%

=7209/11543

    =62.5%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =13880,000,000/11300

=1,228,319

12702,000,000/9500

1,337,053

=11778,000,000/9500

=1,239,789

 

=11578,000,000/9500

=1,129,789

 

 

=11378,000,000/9500

=1,039,789

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7788/25750

=29.6%

=7543/25750

=28.4%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =24809,000,000/54800

=452,719

 

=25543,000,000/53,500

=477,439

 

=25750,000,000/62,800

=410,031

 

=25850,000,000/62,800

=412,031

 

 

=25450,000,000/64,650

=408,042

 

 

 

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the company can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking the greater part of its revenue leaving it with little-operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed expenses such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, and employment of new skilled staff who can come up with innovative ways of production. This would help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

The other profitability ratio is the net profit margin. This measure is crucial to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenditure. A company with higher net profit margins has greater ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the company’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they are assured of profits.

 

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

Return on capital employed is also a paramount profitability ratio that has to be evaluated in any particular company. This rate is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the dismal performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term rate which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into an excellent financial performance of the company. Specifically, for every $4 invested, the business was able to generate 26.6% interest. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the $ invested with the $ earning 8.9% which comparatively is still lower to that of Visa Inc. and as a result investors would still prefer investing in Visa Inc. due to its higher ROCE. Looking at Asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar that was spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their capital would generate more funds for the company.

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by corporations to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since an operation that cannot meet this requirement is considered as a highly risky business which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both societies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is Efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the ratios used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of cash that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is, therefore, a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio to compete favorably with its competitor.

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These rates help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. Foremost, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn low amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing debts to the total shareholder equity. In the case of the high rate of debt to capital, the company will be exposed to high insolvency risk, and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in a sound financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire money from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

The beta factor is a criterion used by many investors in the process of making the decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

Dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the company as well as its shareholder’s wealth maximization. Higher dividend payout results into the business not having enough funds to expand its operation.

In the general stock market, many players have different interest. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)
2011 0.26 1.72 2011 1.32 51
2012 0.30 1.85 2012 1.26 57
2013 0.33 1.90 2013 1.16 63
2014 0.40 2.15 2014 0.71 86
2015 0.48 2.58 2015 0.62 124
           

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)

 

 

2011 0.65 4.64 2011 0.76 16%
2012 0.76 4.96 2012 0.88 17%
2013 0.89 5.05 2013 0.98 18%
2014 1.01 5.39 2014 1.09 19%
2015 1.13 5.50 2015 1.62 21%

 

Financial statements used were as follows:

American express statement of comprehensive income

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31
Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Other Revenue, Total
Total Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Cost of Revenue, Total 8,484.00 8,122.00 7,666.00 7,666.00 6,890.00
Gross Profit 24,809.00 26,543.00 25,750.00 25,550.00 25,450.00
Selling/General/Admin. Expenses, Total 13,034.00 14,613.00 14,619.00 14,619.00 14,530.00
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 692.00 -261.00 278.00 278.00 278.00
Other Operating Expenses, Total 3,101.00 3,395.00 2,912.00 2,912.00 2,912.00
Total Operating Expense 25,355.00 25,674.00 25,528.00 25,439.00 25,420.00
Operating Income 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Income After Tax 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Preferred Dividends
Income Available to Common Excl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Income Available to Common Incl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

     
Dilution Adjustment ﷐        0.00                     –                      –                      –                     –
Diluted Weighted Average Shares 1,003.00 1,051.00 1,089.00 1,108.00 1,298.00
Diluted EPS Excluding Extraordinary Items 5.05 5.56 4.88 4.98 5.05
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 1.13 1.01 0.89 0.68 0.54
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 5.50 5.39 5.05 4.98 4.75

 

American Express balance sheet

In Millions of USD (except for per share items) As of 2015-12-31 As of 2014-12-31 As of 2013-12-31 As of 2012-12-31 As of 2011-12-31
Cash & Equivalents                      –                  –                –
Short Term Investments                  –               –
Cash and Short Term Investments 2,935.00 2,628.00 2,212.00 2,089.00 1,845.00
Accounts Receivable – Trade, Net 58,663.00 44,386.00 43,777.00 43,234.00 43,008.00
Receivables – Other
Total Receivables, Net 61,687.00 47,000.00 47,185.00 47,185.00 46,988.00
Total Inventory
Prepaid Expenses 851.00 1,626.00 1,998.00 2,134.00 2,367.00
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total – Gross 10,909.00 10,208.00 9,853.00 9,687.00 9,245.00
Accumulated Depreciation, Total -6,801.00 -6,270.00 -5,978.00 -5,654.00 -5,387.00
Goodwill, Net 2,749.00 3,024.00 3,198.00 3,298.00 3,367.00
Intangibles, Net 796.00 854.00 817.00 797.00 778.00
Long Term Investments 23,586.00 24,091.00 22,290.00 22,386.00 22,109.00
Other Long-Term Assets, Total 2,708.00 2,494.00 2,929.00 2,856.00 2,734.00
Total Assets 161,184.00 159,103.00 153,375.00 150,375.00 147,375.00
Accounts Payable 11,822.00 11,300.00 10,615.00 9,615.00 9,515.00
Accrued Expenses
Notes Payable/Short-Term Debt 60,218.00 48,298.00 47,226.00 46,226.00 45,226.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total
Total Current Liabilities
Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Capital Lease Obligations
Total Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Total Debt 108,279.00 106,253.00 102,556.00 98,556.00 94,556.00
Deferred Income Tax
Minority Interest
Other Liabilities, Total 20,410.00 20,877.00 20,708.00 20,608.00 20,508.00
Total Liabilities 140,511.00 138,430.00 133,879.00 132,879.00 131,879.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total 194.00 205.00 213.00 213.00 215.00
Additional Paid-In Capital 13,348.00 12,874.00 12,202.00 12,102.00 11,702.00
Retained Earnings (Accumulated Deficit) 9,665.00 9,513.00 8,507.00 8,407.00 8,207.00
Treasury Stock – Common
Other Equity, Total -2,592.00 -2,015.00 -1,489.00 -1,356.00 -1,234.00
Total Equity 20,673.00 20,673.00 19,496.00 19,296.00 19,096.00
Total Liabilities & Shareholders’ Equity 161,184.00 159,103.00 153,375.00 151,375.00 147,375.00

 

Shares Outs – Common Stock Primary Issue  

 

 

 

 

Total Common Shares Outstanding        969.00      1023.00    1064.00     1089.00   1123.00

 

American Express Cash flow

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31          
Net Income/Starting Line 5,163.00 5,885.00 5,359.00 5,059.00 4,859.00          
Depreciation/Depletion 1,043.00 1,012.00 1,020.00 1,027.00 1,017.00          
Amortization          
Deferred Taxes 506.00 -941.00 -283.00 -281.00 -273.00          
Non-Cash Items 2,222.00 2,334.00 2,460.00 2,360.00 2,220.00          
Changes in Working Capital 2,038.00 2,700.00 -9.00 -9.00 -8.00          
Cash from Operating Activities 10,972.00 10,990.00 8,547.00 7,547.00 6,547.00          
Capital Expenditures -1,341.00 -1,195.00 -1,006.00 -985.00 -945.00          
Other Investing Cash Flow Items, Total -6,852.00 -6,772.00 -6,263.00 -6,063.00 -5,963.00          
Cash from Investing Activities -8,193.00 -7,967.00 -7,269.00 -7,069.00 -6,969.00          
Financing Cash Flow Items 10,878.00 2,459.00 1,195.00 1,095.00 995.00          
Total Cash Dividends Paid -1,172.00 -1,041.00 -939.00 -919.00 -879.00          
Issuance (Retirement) of Stock, Net -3,446.00 -3,285.00 -3,222.00 -3,122.00 -3,022.00          
Issuance (Retirement) of Debt, Net -8,289.00 1,878.00 -925.00 -905.00 -895.00          
Cash from Financing Activities -2,029.00 11.00 -3,891.00 -3,791.00 -3,691.00          
Foreign Exchange Effects -276.00 -232.00 -151.00 -141.00 -139.00          
Net Change in Cash 474.00 2,802.00 -2,764.00 -2,664.00 -2,564.00          
Cash Interest Paid, Supplemental 1,600.00 1,700.00 2,000.00 2,000.00 1,900.00          
Cash Taxes Paid, Supplemental 3,400.00 2,500.00 2,000.00 1,900.00 1,700.00          

 

Visa Inc. income statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Other Revenue, Total
Total Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total 3,834.00 3,610.00 4,139.00 4,039.00 4,139.00
Research & Development
Depreciation/Amortization 494.00 435.00 397.00 387.00 377.00
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 14.00 453.00 18.00 17.00 15.00
Other Operating Expenses, Total 474.00 507.00
Total Operating Expense 4,816.00 5,005.00 4,554.00 4,654.00 4,354.00
Operating Income 9,064.00 7,697.00 7,224.00 7,024.00 6924.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -69.00 27.00 -4.00 -4.00 -4.00
Income Before Tax 8,995.00 7,724.00 7,257.00 7,157.00 7,157.00
Income After Tax 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Minority Interest 0.00 0.00 0.00 0.00
Equity In Affiliates
Net Income Before Extra. Items 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Preferred Dividends
Income Available to Common Excl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Income Available to Common Incl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

 

 

 

Dilution Adjustment 15.00 17.00 19.00 21.00 23.00
Diluted Weighted Average Shares 2,457.00 2,524.00 2,624.00 2,687.00 2,753.00
Diluted EPS Excluding Extraordinary Items 2.58 2.15 1.90 1.80 1.65
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 0.48 0.40 0.33 0.28 0.21
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 2.58 2.28 1.90 1.80 1.60

 

Balance sheet Visa Inc.

In Millions of USD (except for per share items) As of 2015-09-30 As of 2014-09-30 As of 2013-09-30 As of 2012-09-30 As of 2011-09-30
Cash & Equivalents 3,518.00 1,971.00 2,186.00 2,086.00 2,386.00
Short Term Investments 2,497.00 1,979.00 2,069.00 2,169.00 2,269.00
Cash and Short Term Investments 6,015.00 3,950.00 4,255.00 4,355.00 4,455.00
Accounts Receivable – Trade, Net 847.00 822.00 761.00 751.00 731.00
Receivables – Other
Total Receivables, Net 1,332.00 1,699.00 1,702.00 1,802.00 1,902.00
Total Inventory
Prepaid Expenses 137.00 103.00 111.00 121.00 131.00
Other Current Assets, Total 2,537.00 3,810.00 1,754.00 1,854.00 1,954.00
Total Current Assets 10,021.00 9,562.00 7,822.00 7,622.00 7,422.00
Property/Plant/Equipment, Total – Gross 4,283.00 3,915.00 3,439.00 3,039.00 2,939.00
Accumulated Depreciation, Total -2,395.00 -2,023.00 -1,707.00 -1,607.00 -1,507.00
Goodwill, Net 11,825.00 11,753.00 11,681.00 11,581.00 11,481.00
Intangibles, Net 11,361.00 11,411.00 11,351.00 11,251.00 11,451.00
Long Term Investments 3,429.00 3,050.00 2,790.00 2,690.00 2,490.00
Other Long Term Assets, Total 216.00 304.00 327.00 337.00 347.00
  39,367.00 38,569.00 35,956.00 33,956.00 30,956.00
Accounts Payable 127.00 147.00 184.00 195.00 204.00
Accrued Expenses 2,121.00 2,303.00 936.00 956.00 976.00
Notes Payable/Short-Term Debt 0.00 0.00 0.00 0.00 0.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total 3,107.00 3,556.00 3,215.00 3,315.00 3,015.00
Total Current Liabilities 5,355.00 6,006.00 4,335.00 4,535.00 4,735.00
Long Term Debt 0.00
Capital Lease Obligations
Total Long Term Debt 0.00 0.00 0.00 0.00 0.00
Total Debt 0.00 0.00 0.00 0.00 0.00
Deferred Income Tax 3,273.00 4,145.00 4,149.00 4,049.00 4,078.00
Minority Interest
Other Liabilities, Total 897.00 1,005.00 602.00 672.00 656.00
Total Liabilities 9,525.00 11,156.00 9,086.00 8,986.00 8786.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total
Additional Paid-In Capital 18,073.00 18,299.00 18,875.00 19,875.00 19,975.00
Retained Earnings (Accumulated Deficit) 11,843.00 9,131.00 7,974.00 6,874.00 6,574.00
Treasury Stock – Common

 

Other Equity, Total -162.00 -86.00 -61.00 -59.00 -52.00
Total Equity 29,842.00 27,413.00 26,870.00 25,870.00 24,870.00
Total Liabilities & Shareholders’ Equity 39,367.00 38,569.00 35,956.00 34,956.00 33,956.00
Shares Outs – Common Stock Primary Issue
Total Common Shares Outstanding 2,433.83 2,471.83 2,543.83 2,643.83 2,743.83

 

Visa Inc. Cash flow statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Net Income/Starting Line 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Depreciation/Depletion 494.00 435.00 397.00 367.00 337.00
Amortization
Deferred Taxes 195.00 -580.00 1,527.00 157.00 143.00
Non-Cash Items 3,112.00 3,164.00 2,479.00 2,379.00 2,179.00
Changes in Working Capital -3,545.00 -1,252.00 -6,361.00 -6,261.00 -6,161.00
Cash from Operating Activities 6,584.00 7,205.00 3,022.00 2,922.00 2722.00
Capital Expenditures -414.00 -553.00 -471.00 -461.00 -441.00
Other Investing Cash Flow Items, Total -1,021.00 -388.00 -693.00 -673.00 -643.00
Cash from Investing Activities -1,435.00 -941.00 -1,164.00 -1,064.00 -964.00
Financing Cash Flow Items 402.00 -1,445.00 4,381.00 4,281.00 4,181.00
Total Cash Dividends Paid -1,177.00 -1,006.00 -864.00 -764.00 -664.00
Issuance (Retirement) of Stock, Net -2,828.00 -4,027.00 -5,257.00 -5,457.00 -5,757.00
Issuance (Retirement) of Debt, Net 0.00 0.00 -6.00 -6.00 -6.00
Cash from Financing Activities -3,603.00 -6,478.00 -1,746.00 -1,846.00 -1,946.00
Foreign Exchange Effects 1.00 -1.00 0.00 0.00 0.00
Net Change in Cash 1,547.00 -215.00 112.00 162.00 182.00
Cash Interest Paid, Supplemental 81.00 62.00 46.00 36.00 26.00
Cash Taxes Paid, Supplemental 2,486.00 2,656.00 595.00 605.00 625.00

 

In the process of carrying out this research, there were difficulties we faced. One of them was that it was cumbersome computing the various financial ratios as they were so many and also time-consuming. Lack of teamwork among the group members was also an issue as we sometimes disagreed on the views we had and who is to be assigned a particular duty.

There are several limitations associated with ratio analysis. First, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average rates instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case where firms are underperforming, it might be concluded that all businesses are doing poor yet particular firms have better performance. This, therefore, makes ratio analysis rather inaccurate in the determination of the performance of firms.

Ratio analysis is also highly affected by inflation particularly balance sheets of various firms. Balance sheets are deemed only to show historical data which majorly is the financial position of the firm at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the firm. Inflation majorly affects the inventory values, depreciation and profit values. When a comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of, but the only problem is that we never seek to find the cause of the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, companies that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

 

 

 

 

 

 

 

 

 

 

References

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Applied Financial Management

Various companies are affected by the financial statements they prepare it to order to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following ratios are looked at: Gross profit margin, operating profit rate margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is an important ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Visa Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the enterprise. With effective management, Visa Inc. can realize long-term growth and profitability. The effective management ensures the employees are motivated to ensure they provide best services to the customers. It also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring funds are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the corporation can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking a greater part of its revenue leaving it with meager operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed costs such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, employment of new skilled staff who can come up with innovative ways of production to help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

 

The other profitability ratio is the net profit margin. This measure is crucial to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenses. A company with higher net profit margins has higher ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the business’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they assured their investments would accrue benefits.

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

 

 

Return on capital employed is also a vital profitability ratio that has to be evaluated in any particular company. This ratio is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the poor performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term ratio which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into a good financial performance of the company. Specifically, for every $4 invested in this company, the business was able to generate 26.6% of the amount. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the $ invested with the $ earning 8.9% which comparatively is still lower to that of Visa Inc. and as a result investors would still prefer investing in Visa Inc. due to its higher ROCE. Looking at Asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar that was spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their fixed assets would generate more funds for the company.

 

 

 

 

 

 

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

 

 

 

 

 

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by corporations to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since a company that cannot meet this obligation is considered as a highly risky firm which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both societies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is Efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the ratios used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of cash that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is therefore a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio in order to compete favorably with its competitor.

 

 

 

 

 

 

 

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These ratios help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. First, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn little amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing debts to the total shareholder equity. In the case of the high rate of debt to capital, the company will be exposed to high insolvency risk, and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in an excellent financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire capital from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

The beta factor is a criterion used by many investors in the process of making a decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

 

 

 

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

The dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the company as well as its shareholder’s wealth maximization. Higher dividend payout results into the business not having enough funds to expand its operation.

In the common stock market, many players have different interest. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)
2011 0.26 1.72 2011 1.32 51
2012 0.30 1.85 2012 1.26 57
2013 0.33 1.90 2013 1.16 63
2014 0.40 2.15 2014 0.71 86
2015 0.48 2.58 2015 0.62 124
           

 

 

 

 

 

 

 

 

 

 

 

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)

 

 

2011 0.65 4.64 2011 0.76 16%
2012 0.76 4.96 2012 0.88 17%
2013 0.89 5.05 2013 0.98 18%
2014 1.01 5.39 2014 1.09 19%
2015 1.13 5.50 2015 1.62 21%

 

Financial statements used were as follows:

American express statement of comprehensive income

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31
Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Other Revenue, Total
Total Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Cost of Revenue, Total 8,484.00 8,122.00 7,666.00 7,666.00 6,890.00
Gross Profit 24,809.00 26,543.00 25,750.00 25,550.00 25,450.00
Selling/General/Admin. Expenses, Total 13,034.00 14,613.00 14,619.00 14,619.00 14,530.00
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 692.00 -261.00 278.00 278.00 278.00
Other Operating Expenses, Total 3,101.00 3,395.00 2,912.00 2,912.00 2,912.00
Total Operating Expense 25,355.00 25,674.00 25,528.00 25,439.00 25,420.00
Operating Income 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Income After Tax 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Preferred Dividends
Income Available to Common Excl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Income Available to Common Incl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

     
Dilution Adjustment ﷐        0.00                     –                      –                      –                     –
Diluted Weighted Average Shares 1,003.00 1,051.00 1,089.00 1,108.00 1,298.00
Diluted EPS Excluding Extraordinary Items 5.05 5.56 4.88 4.98 5.05
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 1.13 1.01 0.89 0.68 0.54
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 5.50 5.39 5.05 4.98 4.75

 

American Express balance sheet

In Millions of USD (except for per share items) As of 2015-12-31 As of 2014-12-31 As of 2013-12-31 As of 2012-12-31 As of 2011-12-31
Cash & Equivalents                      –                  –                –
Short Term Investments                  –               –
Cash and Short Term Investments 2,935.00 2,628.00 2,212.00 2,089.00 1,845.00
Accounts Receivable – Trade, Net 58,663.00 44,386.00 43,777.00 43,234.00 43,008.00
Receivables – Other
Total Receivables, Net 61,687.00 47,000.00 47,185.00 47,185.00 46,988.00
Total Inventory
Prepaid Expenses 851.00 1,626.00 1,998.00 2,134.00 2,367.00
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total – Gross 10,909.00 10,208.00 9,853.00 9,687.00 9,245.00
Accumulated Depreciation, Total -6,801.00 -6,270.00 -5,978.00 -5,654.00 -5,387.00
Goodwill, Net 2,749.00 3,024.00 3,198.00 3,298.00 3,367.00
Intangibles, Net 796.00 854.00 817.00 797.00 778.00
Long Term Investments 23,586.00 24,091.00 22,290.00 22,386.00 22,109.00
Other Long-Term Assets, Total 2,708.00 2,494.00 2,929.00 2,856.00 2,734.00
Total Assets 161,184.00 159,103.00 153,375.00 150,375.00 147,375.00
Accounts Payable 11,822.00 11,300.00 10,615.00 9,615.00 9,515.00
Accrued Expenses
Notes Payable/Short-Term Debt 60,218.00 48,298.00 47,226.00 46,226.00 45,226.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total
Total Current Liabilities
Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Capital Lease Obligations
Total Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Total Debt 108,279.00 106,253.00 102,556.00 98,556.00 94,556.00
Deferred Income Tax
Minority Interest
Other Liabilities, Total 20,410.00 20,877.00 20,708.00 20,608.00 20,508.00
Total Liabilities 140,511.00 138,430.00 133,879.00 132,879.00 131,879.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total 194.00 205.00 213.00 213.00 215.00
Additional Paid-In Capital 13,348.00 12,874.00 12,202.00 12,102.00 11,702.00
Retained Earnings (Accumulated Deficit) 9,665.00 9,513.00 8,507.00 8,407.00 8,207.00
Treasury Stock – Common
Other Equity, Total -2,592.00 -2,015.00 -1,489.00 -1,356.00 -1,234.00
Total Equity 20,673.00 20,673.00 19,496.00 19,296.00 19,096.00
Total Liabilities & Shareholders’ Equity 161,184.00 159,103.00 153,375.00 151,375.00 147,375.00

 

Shares Outs – Common Stock Primary Issue  

 

 

 

 

Total Common Shares Outstanding        969.00      1023.00    1064.00     1089.00   1123.00

 

American Express Cash flow

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31          
Net Income/Starting Line 5,163.00 5,885.00 5,359.00 5,059.00 4,859.00          
Depreciation/Depletion 1,043.00 1,012.00 1,020.00 1,027.00 1,017.00          
Amortization          
Deferred Taxes 506.00 -941.00 -283.00 -281.00 -273.00          
Non-Cash Items 2,222.00 2,334.00 2,460.00 2,360.00 2,220.00          
Changes in Working Capital 2,038.00 2,700.00 -9.00 -9.00 -8.00          
Cash from Operating Activities 10,972.00 10,990.00 8,547.00 7,547.00 6,547.00          
Capital Expenditures -1,341.00 -1,195.00 -1,006.00 -985.00 -945.00          
Other Investing Cash Flow Items, Total -6,852.00 -6,772.00 -6,263.00 -6,063.00 -5,963.00          
Cash from Investing Activities -8,193.00 -7,967.00 -7,269.00 -7,069.00 -6,969.00          
Financing Cash Flow Items 10,878.00 2,459.00 1,195.00 1,095.00 995.00          
Total Cash Dividends Paid -1,172.00 -1,041.00 -939.00 -919.00 -879.00          
Issuance (Retirement) of Stock, Net -3,446.00 -3,285.00 -3,222.00 -3,122.00 -3,022.00          
Issuance (Retirement) of Debt, Net -8,289.00 1,878.00 -925.00 -905.00 -895.00          
Cash from Financing Activities -2,029.00 11.00 -3,891.00 -3,791.00 -3,691.00          
Foreign Exchange Effects -276.00 -232.00 -151.00 -141.00 -139.00          
Net Change in Cash 474.00 2,802.00 -2,764.00 -2,664.00 -2,564.00          
Cash Interest Paid, Supplemental 1,600.00 1,700.00 2,000.00 2,000.00 1,900.00          
Cash Taxes Paid, Supplemental 3,400.00 2,500.00 2,000.00 1,900.00 1,700.00          

 

Visa Inc. income statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Other Revenue, Total
Total Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total 3,834.00 3,610.00 4,139.00 4,039.00 4,139.00
Research & Development
Depreciation/Amortization 494.00 435.00 397.00 387.00 377.00
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 14.00 453.00 18.00 17.00 15.00
Other Operating Expenses, Total 474.00 507.00
Total Operating Expense 4,816.00 5,005.00 4,554.00 4,654.00 4,354.00
Operating Income 9,064.00 7,697.00 7,224.00 7,024.00 6924.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -69.00 27.00 -4.00 -4.00 -4.00
Income Before Tax 8,995.00 7,724.00 7,257.00 7,157.00 7,157.00
Income After Tax 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Minority Interest 0.00 0.00 0.00 0.00
Equity In Affiliates
Net Income Before Extra. Items 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Preferred Dividends
Income Available to Common Excl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Income Available to Common Incl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

 

 

 

Dilution Adjustment 15.00 17.00 19.00 21.00 23.00
Diluted Weighted Average Shares 2,457.00 2,524.00 2,624.00 2,687.00 2,753.00
Diluted EPS Excluding Extraordinary Items 2.58 2.15 1.90 1.80 1.65
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 0.48 0.40 0.33 0.28 0.21
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 2.58 2.28 1.90 1.80 1.60

 

Balance sheet Visa Inc.

In Millions of USD (except for per share items) As of 2015-09-30 As of 2014-09-30 As of 2013-09-30 As of 2012-09-30 As of 2011-09-30
Cash & Equivalents 3,518.00 1,971.00 2,186.00 2,086.00 2,386.00
Short Term Investments 2,497.00 1,979.00 2,069.00 2,169.00 2,269.00
Cash and Short Term Investments 6,015.00 3,950.00 4,255.00 4,355.00 4,455.00
Accounts Receivable – Trade, Net 847.00 822.00 761.00 751.00 731.00
Receivables – Other
Total Receivables, Net 1,332.00 1,699.00 1,702.00 1,802.00 1,902.00
Total Inventory
Prepaid Expenses 137.00 103.00 111.00 121.00 131.00
Other Current Assets, Total 2,537.00 3,810.00 1,754.00 1,854.00 1,954.00
Total Current Assets 10,021.00 9,562.00 7,822.00 7,622.00 7,422.00
Property/Plant/Equipment, Total – Gross 4,283.00 3,915.00 3,439.00 3,039.00 2,939.00
Accumulated Depreciation, Total -2,395.00 -2,023.00 -1,707.00 -1,607.00 -1,507.00
Goodwill, Net 11,825.00 11,753.00 11,681.00 11,581.00 11,481.00
Intangibles, Net 11,361.00 11,411.00 11,351.00 11,251.00 11,451.00
Long Term Investments 3,429.00 3,050.00 2,790.00 2,690.00 2,490.00
Other Long Term Assets, Total 216.00 304.00 327.00 337.00 347.00
  39,367.00 38,569.00 35,956.00 33,956.00 30,956.00
Accounts Payable 127.00 147.00 184.00 195.00 204.00
Accrued Expenses 2,121.00 2,303.00 936.00 956.00 976.00
Notes Payable/Short-Term Debt 0.00 0.00 0.00 0.00 0.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total 3,107.00 3,556.00 3,215.00 3,315.00 3,015.00
Total Current Liabilities 5,355.00 6,006.00 4,335.00 4,535.00 4,735.00
Long Term Debt 0.00
Capital Lease Obligations
Total Long Term Debt 0.00 0.00 0.00 0.00 0.00
Total Debt 0.00 0.00 0.00 0.00 0.00
Deferred Income Tax 3,273.00 4,145.00 4,149.00 4,049.00 4,078.00
Minority Interest
Other Liabilities, Total 897.00 1,005.00 602.00 672.00 656.00
Total Liabilities 9,525.00 11,156.00 9,086.00 8,986.00 8786.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total
Additional Paid-In Capital 18,073.00 18,299.00 18,875.00 19,875.00 19,975.00
Retained Earnings (Accumulated Deficit) 11,843.00 9,131.00 7,974.00 6,874.00 6,574.00
Treasury Stock – Common

 

Other Equity, Total -162.00 -86.00 -61.00 -59.00 -52.00
Total Equity 29,842.00 27,413.00 26,870.00 25,870.00 24,870.00
Total Liabilities & Shareholders’ Equity 39,367.00 38,569.00 35,956.00 34,956.00 33,956.00
Shares Outs – Common Stock Primary Issue
Total Common Shares Outstanding 2,433.83 2,471.83 2,543.83 2,643.83 2,743.83

 

Visa Inc. Cash flow statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30            
Net Income/Starting Line 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00            
Depreciation/Depletion 494.00 435.00 397.00 367.00 337.00            
Amortization            
Deferred Taxes 195.00 -580.00 1,527.00 157.00 143.00            
Non-Cash Items 3,112.00 3,164.00 2,479.00 2,379.00 2,179.00            
Changes in Working Capital -3,545.00 -1,252.00 -6,361.00 -6,261.00 -6,161.00            
Cash from Operating Activities 6,584.00 7,205.00 3,022.00 2,922.00 2722.00            
Capital Expenditures -414.00 -553.00 -471.00 -461.00 -441.00            
Other Investing Cash Flow Items, Total -1,021.00 -388.00 -693.00 -673.00 -643.00            
Cash from Investing Activities -1,435.00 -941.00 -1,164.00 -1,064.00 -964.00            
Financing Cash Flow Items 402.00 -1,445.00 4,381.00 4,281.00 4,181.00            
Total Cash Dividends Paid -1,177.00 -1,006.00 -864.00 -764.00 -664.00            
Issuance (Retirement) of Stock, Net -2,828.00 -4,027.00 -5,257.00 -5,457.00 -5,757.00            
Issuance (Retirement) of Debt, Net 0.00 0.00 -6.00 -6.00 -6.00            
Cash from Financing Activities -3,603.00 -6,478.00 -1,746.00 -1,846.00 -1,946.00            
Foreign Exchange Effects 1.00 -1.00 0.00 0.00 0.00            
Net Change in Cash 1,547.00 -215.00 112.00 162.00 182.00            
Cash Interest Paid, Supplemental 81.00 62.00 46.00 36.00 26.00            
Cash Taxes Paid, Supplemental 2,486.00 2,656.00 595.00 605.00 625.00            

 

In the process of carrying out this research, there were difficulties we faced. One of them was that it was cumbersome computing the various financial ratios as they were so many and also time-consuming. Lack of teamwork among the group members was also an issue as we sometimes disagreed with the views we had and who are to be assigned a particular duty.

There are several limitations associated with ratio analysis. First, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average ratios instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case whereby firms are doing poor, it might be concluded that all businesses are doing poor yet particular businesses have a good performance. This, therefore, makes ratio analysis not very accurate in the determination of the performance of firms.

Ratio analysis is also profoundly affected by inflation mainly balance sheets of various companies. Balance sheets are deemed only to show historical data which majorly is the financial position of the firm at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the enterprise. Inflation majorly affects the inventory values, depreciation and profit values. When the comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of but the only problem is that we never seek to find the cause of, the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, businesses that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

 

 

 

 

 

 

 

 

 

 

References

Garrison, R.H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Applied Financial Management

Various companies are affected by the financial statements they prepare to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following rates are analyzed: Gross profit margin, operating profit ratio margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is a critical ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Visa Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the company. With effective management, Visa Inc. can realize long-term growth and profitability. The efficient management ensures the employees are motivated to ensure they provide best services to the customers, and it also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring resources are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the firm can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking a greater part of its revenue leaving it with dismal operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed expenses such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, employment of new skilled staff who can come up with innovative ways of production to help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

 

The other profitability ratio is the net profit margin. This measure is vital to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenditure. A company with higher net profit margins has greater ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the business’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they assured their investments would accrue benefits.

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

 

 

Return on capital employed is also a significant profitability ratio that has to be evaluated in any particular company. This ratio is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the poor performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term ratio which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into an excellent financial performance of the company. Specifically, for every $4 invested in this company, the business was able to generate 26.6% of the amount. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the amounts invested due to its 8.9% interest rate which is still comparatively lower than that of Visa Inc. As a result, investors would still prefer investing in Visa Inc. Looking at the asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their capital would generate more funds for the company.

 

 

 

 

 

 

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

 

 

 

 

 

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by businesses to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since a company that cannot meet this requirement is considered as a highly risky firm which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both companies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the rates used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of money that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is, therefore, a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio to compete favorably with its competitor.

 

 

 

 

 

 

 

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These ratios help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. Foremost, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn lower amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing liabilities to the total shareholder equity. In the case of a high rate of debt to capital, the company will be exposed to high insolvency risk and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in a sound financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire capital from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

A beta factor is a criterion used by many investors in the process of making a decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

 

 

 

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

Dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the enterprise as well as its shareholder’s wealth maximization. Higher dividend payout results in the business not having enough funds to expand its operation.

In the general stock market, many players have different interests. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio  
        DPS/MPS DPS/EPS (%)  
2011 0.26 1.72 2011 1.32 51  
2012 0.30 1.85 2012 1.26 57  
2013 0.33 1.90 2013 1.16 63  
2014 0.40 2.15 2014 0.71 86  
2015 0.48 2.58 2015 0.62 124  
             

 

 

 

 

 

 

 

 

 

 

 

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio  
        DPS/MPS DPS/EPS (%)

 

 

 
2011 0.65 4.64 2011 0.76 16%  
2012 0.76 4.96 2012 0.88 17%  
2013 0.89 5.05 2013 0.98 18%  
2014 1.01 5.39 2014 1.09 19%  
2015 1.13 5.50 2015 1.62 21%  

 

There are several limitations associated with ratio analysis. For starters, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average ratios instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case whereby firms are doing poorly, it might be concluded that all businesses are doing badly yet particular businesses perform well. This, therefore, makes ratio analysis not very accurate in the determination of the performance of firms.

Ratio analysis is also profoundly affected by inflation. Balance sheets are deemed only to show historical data which majorly is the financial position of the enterprise at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the enterprise. Inflation majorly affects the inventory values, depreciation and profit values. When a comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of, but the only problem is that we never seek to find the cause of the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, companies that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

References

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

Limitation of financial analysis

Introduction

Business financial strength is of vital concern to business owners, corporate managers, and lenders. Efficiency and cost control are keys to success to many companies in the current world. It is also very important to understand a company’s financial performance relative to its industry as all companies compete in the market place on a local, regional, national or international stage. When measuring the accomplishment of an organization and the financial performance of a company, the ratio analysis is the most important measurement which reflects their good working strength but again they don’t come without limitations for instance use of financial statements includes accounting, stock market and management related limitations which involves distorting the raw data used to derive financial ratios

The current ratio is the most important liquidity ratio since it measures the relative relationship between the firm’s current assets and current liability. This ratio can ascertain the firm’s ability to meets its short-term obligation by using the most liquid assets of the company. The higher the ratio, the better since this is translated to mean that the company can meet its short-term debt obligations without any difficulty. For instance, the two companies are not badly off in terms of meeting their short-term debt obligation. Visa Inc. is in a position to pay 1.9 times its current obligation hence this is a signal of a going concern business for investors. However, its counterpart American Express is in a position to pay up to 1.7 times of its current liability thereby making it also to be in good financial health. Investors, in this case, will invest more in Visa Inc. whose payment ability is higher than that of American Express but investors do not need to rely on this ratio alone to draw a conclusion.  Calculation of current ratio includes inventory, which may lead to overestimation of the liquidity position in the case of American Express.

At management and investor level, ratio analysis using financial statements can also leave out a number of important aspects of a firm’s success such as key intangibles, like the brand, relationships, skills, and culture. These are primary drivers of success over the longer term even though they are absent from financial statements. For example in the case of that Visa Inc. can effectively generate profit after tax at an increasing rate since it had an increase in net profit after tax of 3.3% since 2013. But the ratios do not tell how the company fared regarding social responsibility or the skills used to achieve the results.

Using ratio analysis to view a company’s financial performance is undermined in that when used alone it can present an overly simplistic view of the company by distilling a great deal of information into a single number or series of numbers. Also, changes in the underlying information ratios can hamper comparisons across time and inconsistencies within, and the industry can also complicate comparisons

Another limitation is that the management of the company to ensure that their operating expenses are lower than their operating profits to avoid sending a bad signal to the market. A higher operating profit shows the healthy financial condition of the company hence manager are said to have ensured that the company makes profits rather than losses. This is achieved using the operating profit margin ratio and while both companies posted impressive figures, for instance, the operating profit of Visa Inc. has been increasing though not at a constant rate since it was 61.3% in 2013, 60.9% in 2014 and 65.3% in 2015. This increase is clear indication that the firm has a sound financial health since its total operating expense is less than 50% while that of American Express has an operating profit margin ratio that has been decreasing from 30.6%, 35.2% and finally to 32%. Using this ratio can be misleading since, such an organization may compromise on growth and long-term investment as it tries to control recurrent expenditures. Investors may not be able to the details of recurrent expenditure foregone to access the management’s expenditure decisions.

Inflation too plays a major role in assessing a company’s financial performance as inflation may have badly distorted a company’s balance sheet. In this case, profits will also be affected thus a ratio analysis of one company over time, or a comparative analysis of companies of different ages must be interpreted with judgment. For example, the operating profit of Visa Inc. has been increasing though not at a constant rate since it was 61.3% in 2013, 60.9% in 2014 and 65.3% in 2015. This increase is clear indication that the firm has a sound financial health since its total operating expense is less that 50%  while, American Express has an operating profit margin ratio that has been decreasing from 30.6%, 35.2% and finally to 32%. This shows that the firms operating expenses covers almost 70% of its total revenue, but these figures do not give the value of inflation aspect of the economy thus unreliable for determinatio

Marketing Communication and Brand Strategy

Introduction

Bruwer and Johnson (2010) define brand strategy as a long-term blueprint for the creation of an efficacious brand in order to realize explicit goals. When a brand strategy is well-defined and implemented, it often affects all sides of the business and is precisely connected to customer emotions, needs and competitive environments. Marketing communication on the other hand refers to all the coordinated promotional messages and media that a business uses to talk to the market with (Armstrong & Kotler, 2012). It is an important and multifaceted part of the company’s marketing endeavours that include advertising on direct mail, radio and television; branding, direct marketing, public relations activities, sponsorships, printed materials, packaging among others. Brand strategy and marketing communication go hand in hand in their effort at ensuring that the business reaches its goals and objectives. While the brand strategy enables a business to choose how to identify itself through marketing, marketing communication reflects this intended image through the various channels of marketing including promotions, colours, and slogans among others. When the brand strategy and the marketing communications are integrated, they unify the message being sent out about the business and make them memorable (Bruwer & Johnson, 2010).

Strength and Weaknesses

SWOT analysis is an important tool used by businesses to identify factors within and without the enterprise that may affect the business’ future performance. In as much as the SWOT analysis is mostly used in management, it can be a great branding and marketing asset. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities and Threats (Robert, 2013). When developing a brand strategy, it is imperative to note the business’ strengths and weaknesses in order to develop marketing communications that alleviate customer fears with regards to the weaknesses and enhance their believe in the strengths that the business possesses.

Some of the strengths of the business include the provision of customer-centric services that are of good quality. Additionally, the business makes use of technology in the provision of the services thus increasing efficiency in service delivery and accuracy in management practises. These strengths set the business apart from the competitors who are providing similar services. However, the major weakness of the business is lack of personnel to handle the ever-growing number of customers. This has resulted in many customers queuing for quite some considerable time before being served. The inadequacy in personnel is occasioned by limited starting capital.

Competitor’s Strengths and Weaknesses

When developing brand strategy and crafting the marketing communication, it is imperative to study the competition and subject the major competitors to a SWOT analysis. This will help in the development of an impactful strategy that is enhanced with targeted communication (Robert, 2013). Competitors in the line of business enjoy the backing of financial resources which ensure that they have all the personnel they need to serve their customers. Additionally, they have the benefit of experience in the line of business and therefore are believed to be far ahead. However, their major drawback is the lack of Information Technology integration in their business operations. Most of their operations are still manual and therefore very inefficient and tedious.

Creating a Brand Image

Brand image is today regarded as the determinant of a business’s future. Regardless of the industry, a rock solid brand will stand out among the competition and attract the attention of the customers. Ajay ( 2005) argues that a multidisciplinary approach that makes use of owned, earned and paid media is the most effective way of creating a brand image. For this business, the brand image will be built through an outstanding logo, environmentally-friendly packaging, social media and corporate social responsibility.  In order to develop a strong brand image for this business, there is need to identify the target audience to which the marketing communications will be addressed, clearly define the business goals and the brand persona before developing the key messaging (Stuart, 2001). The target audience include the middle class working mothers and the business’ priority objective is provision of satisfactory services that will generate revenue and build brand loyalty among customers. The business’ brand persona development process will be guided by simplicity and relevance.

Maintaining Brand Image

Once a strong foundation for the brand image is created, there is need to maintain this image in the minds of the target customers. To build a loyal customer following that is able to generate leads, there is need to engage in promotional activities. Public Relations which may include CSR activities and press conference, content and social media are three important tactics that will be used to maintain the brand image (Armstrong & Kotler, 2012).

Public Relations will be used to distribute key company messages to all news outlets and online platforms and establishing the business as a thought leader in the line of business thus improving the brand image and creating awareness among target customers. Empty public relations does not, however, hold the customers long enough as they get bored or realize that they are being played and move on. That is why the business will purpose to develop quality content on the area of business that will not only convince the target customer but also educate them. Social media will be a key tool for engaging customers and assessing the customer response to the various services provided by the business.

Advertising Strategy and Objectives

An advertising strategy refers to a plan that the business intends to use in order to reach and convince the target customer to buy the services being offered. There are five advertising strategies that this business intends to use in order to reach the target audience. The major objectives of these strategies will be to raise brand awareness among the target customers and to realise a rise in revenue from sales (Ajay, 2005).

The first strategy is targeting the audience. This therefore calls for the identification of the target market and the key audience within that market that influences buying decisions. These are the people the advertising strategy should target. Secondly, there is need to measure and track the advertising. This can be achieved by look at the leads and sales generated by each advertising (Bruwer & Johnson, 2010). This strategy will prevent the business from spending on advertising that does not have returns for the business. Thirdly, there is need to know when to advertise. The services being offered by the business targets working mothers. It is therefore prudent to run the advertisement on Television during or after the primetime news since that is the time the target audience has access to the television. The fourth strategy is the need to brand well since this will keep the brand image in the minds of the audience. This can be achieved through standard packaging and an outstanding logo. Lastly, there is need to show up in the right places. Since working mums are the target market for the services, it is important that the advertising is displayed in places where they frequent.

Conclusion

Brand strategy and marketing communication are the backbone of any business. An effective brand strategy that is accompanied with explicit marketing communications will ensure that the business gets to and aptly convinces the target market into using the services offered by the business. This business will heavily rely on the band strategy and the integrated marketing communication in order to reach its sales targets every year.

 

 

 

                                                              

 

 

 

 

 

 

 

 

 

 

 

 

 

References List

Ajay, K. (2005). Marketing Led: Sales Driven: How Successful Businesses Use the Power of Marketing Plans and Sales Execution to Win in the Marketplace. Chicago: Trafford Publishing.

Armstrong, G., & Kotler, P. (2012). Marketing new mymarketinglab with pearson etext access card: An introduction. Place of publication not identified: Prentice Hall.

Bruwer, J., & Johnson, R. (2010). Place-based marketing and regional branding strategy perspectives in the California wine industry. Journal of Consumer Marketing, 27(1), 5-16.

Robert, M. (2013). Marketing to Moviegoers: A Handbook of Strategies and Tactics, Third Edition. FL: SIU Press.

Stuart, C. (2001). Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. London: Greenwood Publishing Group.

 

Supply chain

Introduction

In recent years there has been a shift in competition among companies such that the focus is not on individual companies but on the supply chain performance. Supply chain performance is defined as the extra supply chain’s activities intended to meet the requirements of the end customer including the availability of products, on-time delivery and the other entire significant inventory and activities in the supply chain to ensure delivery of the performance in a responsive way. The performance management specialists are mandated with these tasks. However, there are several challenges that they face in delivery of the supply chain performance including changes in the socio-environmental changes around business operations, frequencies of emerging technologies, increased complexity in supply chain and relationships with supplier and changing consumer preferences and behavior.

This essay will critically analyze an article by Robert G.  Eccles and George Serrafeim. The title of the article is; ‘The performance frontier: Innovating for a sustainable strategy’. Robert G. Eccles is a professor at Harvard Business School whereas George Serafeim is an associate professor at Harvard Business School. The authors are right in indicating that despite the fact that many companies have initiated sustainability programs, these programs fail because they are not equivalent to sustainability strategy. As indicated in the article, companies may, however, benefit if they focus strategically on the most significant things to the shareholders and develop innovations in the supply chain.

Summary of the Article

Most companies have various sustainability programs which the often launch with the hope that they will receive a financial reward, even when the programs launched are irrelevant to their strategies and operations. The problem with such sustainability programs is that it fails to understand the interconnectedness of financial performance and issues of environment Social and governance (ESG) of the organization. Improvement of one results in increased cost of the other. However, organizations don’t have to face this dilemma since it is possible to boost both the financial performance and ECG performance simultaneously. To achieve these organizations should strategically focus on the issues that are most relevant to shareholder value as they develop significant innovations in process, products, and business models that address those issues.

To develop an innovation program that also forms a sustainability strategy four basic initiatives should be considered. First, the organization should be able to identify the material ESG issue. The second, step is to quantify how the financial performance and the ESG relate. Third, the organizations should get involved in the innovation of products, processes and business models and lastly the company’s innovation should be communicated to the stakeholders. The Sustainability Accounting Standards Board has developed maps that provide ranks of 43 materiality issues for 88 industries. These maps can give valuable guidance to organizations. In addition, companies can also benefit from the broad initiatives that are currently undertaken by three companies including CLP Group, Dow Chemical, and Natura. These companies have demonstrated the kind of innovations that have the capacity to push performances into new realms.

Literature Review

Supply chain refers to the vertical sequence of transactions of sequences which add value to the end consumer (Silvestre, 2016).  Given the fact that satisfaction of the end final consumers is relevant to most organizational efforts have been made to enhance the supply chain performance and management which helps to achieve sustainability (Masoumik et al, 2014). According to Silvestre (2016), sustainability is the Triple Bottom Line (TBL) concerns of the business including the need for simultaneous assessment on matters to do with finance, environment, and social aspects.

Throughout the 1980s, the term supply chain management (SCM) was used to describe material flow between organizations. Consequently, it was initially understood as an extension of logistic, a synonym of logistics or activities and processes which are related to business integration which indicate something that was beyond logistic (Pereira de Carvalho, & Barbieri, 2012). Since the 1980’s many types of research have been done and the term SCM has been defined in different ways. Despite the many definitions, the primary goal of supply chain management is to allow organizations to realize more profit throughout the supply chain (Rota, Reynold & Zanasi, 2012). Achieving this goal has however been difficult since the self-interest of individual stakeholders in the supply chain has to be adjacent to those of the supply chain as a whole. Also, there are other external factors comprising of the social, environmental and governances aspect that impend the goal of (SCM).

Silvius & Schipper (2014) indicate that many companies are integrating sustainability programs in various stages of the supply chain including marketing, annual reports, corporate communication and in various activities. Sustainability can be linked to projects in that projects acts as the instruments of change within an organization. As such, sustainability can only be achieved through a thorough strategic planning by the project managers before it is integrated into the projects (Silvius, & Schipper, 2014). Otherwise, the changes made may be detrimental to the organization even after making huge monetary investments in the project.

There are various strategic management theories that can be applied by organization to enhance sustainable development with the organization. This theory include resources based theories, survival theories, contingency theories, human resource based theories and agency theories (Parker, Parsons, & Isharyanto, 2015). All of these theories focus on a specific element of the supply chain and indicates how it can be used to achieve competitive advantage. Also, gaining a competitive advantage is not enough for organizations since they have to also work towards sustaining the competitive advantage so that they can have a sustained performance.

Sustainability strategies should also be able to assess and forecast some of the risks that the organization is likely to face in the event of launching a given sustainability program. The relevance of risk assessment is to allow organizations to be able to strategize on ways in which they will cope with the uncertainties resulting from the sustainability projects. According to Silvius & Schipper (2014), organizations can achieve more if they accept that uncertainties brought about by changes in sustainable projects are inescapable and therefore ways of coping should be identified. Other factors that are likely to enhance the success of sustainability programs include normative competencies, systemic thinking competencies, interpersonal competencies, strategic competencies and anticipatory competencies.

Systemic thinking competencies are the ability to recognize the relationship between key elements in the supply chain and the basic causes of complex sustainability. It also encompasses both the internal and external factors that may influence sustainability such as governance, economic, sociological, technological and geographic factors that affect the sustainability program either directly or indirectly. Anticipatory competence enables the management of an organization to project the outcomes of an invented sustainability program. Normative competencies are the understanding of the different concept of justice, equity, integrity, ethics and socio-ecological factors affecting the sustainability project. Interpersonal competencies are the capacity for the management to motivate employees and encourage research and problem-solving techniques. All of these competencies are relevant in the sustainability of an organizational project.

One of the companies that have been able to use a sustainability strategy to in enhancing innovation is Natura. Natura has been able to maintain a high innovation power while at the same time remaining committed to sustainability. To attain this, the company had to do a strategic analysis of key elements of the supply chain and then use the knowledge to identify gaps that needed improvement through innovation. Just as Natura, the administrations of companies that have been able to attain sustainable developments are likely to be directly involved in project management. Also, most companies with high sustainability have well established long-term processes for engagement with key stakeholders (Eccles, Ioannou & Serafeim, 2014). In addition, high sustainability companies outperform their rivals by far in the long-term both in terms of accounting performance and the stock market.

Critical Analysis

Many companies are integrating sustainability programs in their supply chain through getting involved in such things as waste reduction, reduced carbon emission and use of technology to enhance operational efficiency within the organization. In as much as such programs are beneficial, it can result in companies spending a significant amount of money on sustainability programs while lowering their profit. This is due to the fact that adopting sustainability programs is not the same as having a sustainability strategy. Sustainability strategy requires long-term planning since involves assessment and analysis of each component in the supply chain.

Forming sustainability strategy demands that organizations not only develop various sustainability programs but also increase the value of the shareholders. The sustainability strategy should also be quantifiable so that the company can know if they are making progress. The measurement of performance in sustainability strategy can be done through order book analysis, profitability, and time and managerial analysis (Sillanpää, 2015). Before fully adopting a program in an organization project managers should test if the programs will have a quantifiable benefit to the organization. The measurement indicators can be used during the trial stage and only after quantification can the organization fully adopt the program.

It is also significant for the management to identify all the stakeholders involved in the supply chain activity and their relations to achieve a sustainable strategy. The degree of complexity in the supply chain should also be assessed and the potentials for future changes.  The general supply chain model shows that the supply chain usually changes over time (Janvier-James, 2012). Also, the general systems theory of supply chain management holds that the more complex the supply chain for an organization is the lesser its capacity to be compatible with the changing environments becomes. Basing on this principle it is advisable for organizations to have a well-defined supply change. Organizations can achieve this through establishing a long-term relationship with the suppliers, employees, and customers.

The other principle of the general supply chain theory is that larger systems require more resources to support the system (Janvier-James, 2012). This principle is relevant in adopting a sustainability strategy that will enhance innovation and at the same time improve the firms’ performance of ESGs. Organizations can weigh the sustainability program that they wish to adopt and analyze how large the system is. For instance, they can assess the number of employees that will be required to maintain the program, the cost of maintenance and the implications that the innovation has on other systems.  Only those programs that are small and can be accommodated within the organization without straining other systems should be adopted. This will enable the organization not to be strained financially and at the same time adopt a sustainable strategy.

As indicated by Eccles & Serafeim (2013) identification of the material key issues is significant for organizations that wish to achieve a sustainable strategy that will improve on the ESG issues and at the same time enhance organizational profit. The materiality of various sustainability issues often varies systematically across industries and firms (Khan, Serafeim & Yoon, 2016). Consequently, many organizations are currently focusing on discriminating between the immaterial ESG issues and the material ESG issues. If significant discrimination is achieved then it can help in exploiting differences in materiality across issues of sustainability it can be used in testing the potential performance of the sustainability strategy that an organization wishes to invest in. Organizations can use the Sustainability Accounting Standards Board (SASB) to classify sustainability programs as either immaterial or material prior to implementing their plans in the organization. As stated by Khan, Serafeim & Yoon (2016) organizations that have strong ratings of material sustainability are likely to perform well in future.

Quantifying the material ESG issues financially is significant in enhancing a sustainable program. The financials quantification of the ESG issues can help and organization to decide the ESG issue to improve on (Calik & Bardudeen, 2016). The issues that demand relatively less finance will be less strenuous to the organization hence it can be adopted. Quantification will also help with ranking the ESG issues that the organization can prioritize based on the significance of that ESG issue and the capital that they are willing to spend on the sustainability strategy. Identification of the ESG issues will enable organizations to know their competitive advantage in comparison to rival companies. This can help the organization to better position itself so as to gain better competitive advantage.

In order to realize improvement, the company should have innovation on process, business models and products. The benchmarking done to compare the firm’s position to that of competing companies is significant as it indicates the ESG issues that the company should prioritize on. An innovation that complements the ESG issue can then be adopted so as to realize a profit and also have a sustainable program. Innovation and creativity in the company can come from employees if they are given a good platform to present their ideas. The organization should offer an enabling environment for the employees to feel that their input is appreciated (Eccles Perkins & Serafeim, 2012). Information system technology can also be used to create a platform for various employees to contribute their ideas and sharpen each other’s creativity. Although ideas from all employees should be considered much focus should be given to employees with knowledge, skills and experience in the mention ESG issue, those that are intrinsically motivated and those with creative personality.

Effective communication to all stakeholders involved in the supply chain is an effective ingredient for sustainability of the ESG and the innovation. At no point should the management of an organization assume that their innovation will be clear to everyone without being communicated. Proper communication will enable different stakeholders to support the sustainability strategy that has been adopted by the company.  Proper communication also ensures that other suppliers understand the values of the organization. The partners, customers and the suppliers of the company can then align their values to that of the organization or at least respect those values. For example, Natura Company has innovated sustainable programs and has ensured that all stakeholders in the supply chain are aware.  The collaboration of the company and other stakeholders in the supply chain is characterized by factors such as reputation, trust, cooperative information system and joint program (Pereira de Carvalho & Barbieri, 2012). They also have established a long-term relationship with the supplier which has enabled the company to have a competitive advantage over its rivals.

Conclusion

This essay has provided a critical review of Eccles et al article on sustainable development. Many organizations find innovation of a sustainable strategy to be difficult even after launching sustainability programs. Adopting a sustainability program for most organizations leads to excessive financial expenditure without any profit. This can be avoided when organizations adopt a sustainable strategy. The strategy should first consider distinguishing between the material ESGs and the immaterial     ESGs. The material ESGs should be selected and then quantified financially. This should be followed by the innovation of business models, products, and process which can then be communicated to the stakeholders. The general supply chain theory and literature has been used to support this procedure in achieving a sustainable strategy.

 

 

 

 

 

 

 

 

 

 

References

Calik, E., & Bardudeen, F. (2016). A Measurement Scale to Evaluate Sustainable Innovation       Performance in Manufacturing Organizations. Procedia CIRP40, 449-454.

DyReyes, J. (2008). Project Manager ADP, Inc (Doctoral dissertation, University of Oregon).

Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard business review91(5), 50-60.

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on          organizational processes and performance. Management Science60(11), 2835-2857.

Eccles, R. G., Perkins, K. M., & Serafeim, G. (2012). How to become a sustainable             company. MIT Sloan Management Review53(4), 43.

Janvier-James, A. M. (2012). A new introduction to supply chains and supply chain   management: Definitions and theories perspective. International Business Research5(1),           194.

Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on     materiality. The Accounting Review91(6), 1697-1724.

Masoumik, S. M., Abdul-Rashid, S. H., Olugu, E. U., & Raja Ghazilla, R. A. (2014). Sustainable     supply chain design: a configurational approach. The Scientific World Journal2014.

Parker, D. W., Parsons, N., & Isharyanto, F. (2015). Inclusion of strategic management theories           to project management. International Journal of Managing Projects in Business8(3),             552-573.

Pereira de Carvalho, A., & Barbieri, J. C. (2012). Innovation and sustainability in the supply chain of a cosmetics company: a case study. Journal of technology management &           innovation7(2), 144-156.

Rota, C., Reynolds, N., & Zanasi, C. (2012). Collaboration and sustainable relationships: Their     contribution to the life cycle analysis in agri-food supply chains. Proceedings in Food System Dynamics, 574-583.

Sillanpää, I. (2015). Empirical study of measuring supply chain performance. Benchmarking: An             International Journal22(2), 290-308.

Silvestre, B. (2016). Sustainable supply chain management: current debate and future directions. Gestão & Produção23(2), 235-249.

Silvius, A. G., & Schipper, R. P. (2014). Sustainability in project management competencies: analyzing the competence gap of project managers. Journal of Human Resource and              Sustainability Studies2014.

Barbara Fritchie

           

The poem is set during the Civil War in Frederick, Maryland and it features an elderly woman called Frietchie, who defied Confederate orders by flaunting a flag in the presence of Stonewall Jackson. It is very tempting to categorize Barbara Frietchie as a historical poem because of its arduous rhythm and persistent rhyming that can be distracting to most people. It is a poem that carries a lot of sentimentality and shameless defense of the Unionists to the contemporary audience. Without a doubt, the piece does not call for any sophisticated examination. It only presumes a communal role of the writer that in the modern era poets hardly ever perform. Barbara Frietchie is actually more than a piece of recitable propaganda. To the contemporary audience of the poem, it is a passionate declaration of the traditionalist virtue of order which dominated the British neoclassical ideas in the mid-eighteenth century.

Whittier uses language and symbolism to create a happier view of the civil war. He uses playful rhymes and several heroic couplets to lighten the mood of the poem and uses the courageous story of an old lady who stood up to confederate troops which bears similarities to many nursery rhymes. In addition, the poem employees the theme of nationalism and freedom as well as American pride where one person can stand up to people who are considered rebels even though they put their life at risk while doing it. In the first few lines, he uses words that describe nature and these include meadow, fruit trees as well as  fruit, gardens, hills, and the natural calm temperatures of that day. When Whittier was choosing Frederick as the name of the town, he ensures that it has a realistic ring to it and this suggests that his view of the civil war is not based on personal experiences in any battle, but it is rather based on glorified narratives of heroics and war.

To get its point across, the poem uses three unique emblems. Unlike other symbols used by most poems, most of which invite creative and often interpretive analysis, the use of emblems produces vivid pictographic images that straightforwardly correspond to a unique abstract principle and one that is particularly useful in teaching. Here, the poet deploys the natural environment itself which is actually the emblem of a universal virtual of social order (Stewart, 2015, 34). For instance, the flag is not only an emblem of the political and social forces referred to as the Union but it is also an emblem of the general universal virtue of order as foreseen by human efforts. In addition, the guns that the rebel forces carry are an emblem of societal disorder. They are seen by the poet as a dangerous declaration of anarchy which in neoclassical perspective, has represented rebellion which is in it a huge threat to peace and order. According to the poet’s perspective, the Civil War was not just an economic, political, cultural or military act; it was also a moral act, particularly a violation of the universal virtue of order.

In terms of the setting, the narrator describes a stunning cool morning in September where meadows were rich and filled with corn that surrounded the spires of Frederick, Maryland. town was besieged by several troops of General Robert E. Lee’s rebel army that was being commanded by Stonewall Jackson. About forty troops entered the town at a time when pears and apples were hanging in plenty on various fruit trees. The troops were very hungry, and they had come to gather food for their counterparts who were starving (Loewy, 2016, 165). The confederate forces invaded the town with their flags arrogantly displayed, and by noon that day, they had managed to pull down other flags.

The poet emphasizes the advanced age of Barbara Frietchie in order to make the reader sympathize with her condition. Her advanced age is impressed on the audience by straightforwardly referring to Barbara as old and also commenting on her gray hair. By letting the reader know that she is old makes her appear fragile and this makes her stance against the rebels even more dramatic. The poem is meant to align the loyalty people have for their country and their flag with the vision of the old generation, while at the same time classifying the rebels as the young generation. He associates Barbara’s action of raising the flag to keeping a memory alive and likens it to the bravery of people like Barbara Frietcher. Whittier’s overall portrayal of patriotism and national pride for the modern American is romanticized using a subtle and soft approach to a situation that in reality would have been much more horrifying.

According to the narrator, Barbara Frietchie took her flag, went to her window, and started yelling at the rebel troops telling them to shoot her if they wanted to, but warned them that they were not to in any way harm the union banner, which she referred to as the country’s flag. In doing this Barbara Frietchie was actually professing her unwavering loyalty to the country as well as insisting that that the country still belonged to the misguided people in the rebel army.

General Stonewall Jackson reacted in a way that showed that deep down in his heart he knew that the old lady was right. According to the poet, Stonewall’s face was reduced to a blush that represented his shame and sadness. His usual nobility was eliminated and for a moment, Stonewall was at the mercy of the old woman’s word or deed. This is evident when the general issued the command that anyone who touched a hair on the old woman’s head would die like a dog (Fine, 2016, 777). He then goes on to tell his troops to march on. Even as the troops marched on through the town’s streets, Barbara’s flag remained visible to everyone and it flew over the heads of the passing troops. They were obeying Stonewall’s order not to hurt the old lady and her banner, which remained raised even at night. The last part of the poem is actually a glowing tribute to Barbara Frietchie’s patriotism as well as General Stonewall’s brave capacity to appreciate and recognize old patriot’s loyalty toward the country she called home. The narrator now describes Frederick as a peaceful town as the war is over. The flag that Barbara honored and loved now erected on her grave, and the town’s patriots have all become stars for their courageous patriotism.

 

 

Work Cited

Fine, David R. “Symbolic Expression and the Rehnquist Court: The Lessons of the Peculiar Passions of Flag Burning.” U. Tol. L. Rev. 22 (2016): 777.

Loewy, Arnold H. “The Flag-Burning Case: Freedom of Speech When We Need It Most.” NCL Rev. 68 (2016): 165.

Stewart, Ralph. ““Barbara Frietchie” and the Civil War.” ANQ: A Quarterly Journal of Short Articles, Notes and Reviews 16.2 (2015): 32-36.