What you need to know about preferred stock?

Preferred stock, also know as preferred or preference shares is one of the main types of stock besides common shares. It is considered that preferred stock is a hybrid security that combines properties of debt (fixed dividends) and equity (potential to raise in price). They are distinct from common shares because they don’t have voting rights but have higher claim on company’s assets and earnings. Terms of preferred stock are described in issuing document; they can be issued under any set of terms that is compliant to laws and regulations.

Preference in dividends is what distinguish preferred from common stock. Board of directors makes decision whether or not company will pay dividends to its shareholders. Dividends are specified as percentage of the par value or as a fixed amount. Common shareholders can receive dividends only if preferred shareholders are already paid in full if board decides to pay them dividends in the first place. This makes them similar to bonds but they don’t have same level of guarantees. If company is not operating well and choose not to pay dividends it is not in default. Almost all dividends are fixed but they can be set in terms of a benchmark interest rate. This means that preferred stock offers more predictable income and they are rated by major credit agencies. In comparison to bonds credit ratings are lower because guarantees for preference shares are lower. One more difference is that preferred dividends are payed after tax profits and bonds are paid before.

Dividend payments makes preferred shares less risky than common stock suitable for risk-averse investors. Although many individual investors purchase preference shares via online brokers, institutions are the most common purchaser because certain tax advantages offered to them. In case of bankruptcy they have higher senior position to common shareholders but junior to bondholders. Being less sensitive to company loss they trade within few dollars of the issue price which makes them non volatile type of security. On the other hand preferred shareholders will not participate in company success like common stockholders.

Although preferred shareholder don’t have voting rights some companies can use them against hostile takeover through shareholders right plan giving shareholders right to buy shares at a discount if one shareholder buys certain percentage of shares, diluting his ownership. They can also assign high liquidation value to preferred stock which must be redeemed in the event of change of control. Callability is another characteristic of preferred shares, meaning that the issuer can purchase them back after a certain date at stated value. If company decides not to exercise this option shares can continue to trade. They are also convertible, they can be exchanged for a set number of common shares under certain circumstances but not vice versa. Whether this is profitable or not for an investors depends on the current price of common shares.

When it comes to dividends there are more than one type of preferred stock. Cumulative dividends enables shareholder to receive all missed dividend payments. Only after all dividends in arrears are payed to preferred shareholders, common stockholders can be paid. Non-cumulative preference shares don’t have the same option, they will not accumulate if they are not paid on time. Participating preferred stock offers stockholder opportunity to receive extra dividends based on predetermined conditions.

Investor should carefully take into consideration both advantages and disadvantages when looking to invest. If you are looking to relatively low risk investment you should consider preferred stock. In case you have any doubts our consultants will be glad to answer your questions.

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What is the purpose of interim management?

Public companies often have two tier corporate organisation which consist of board of directors who protect shareholders interest and senior management who is responsible for day-to day operations and profitability of the company, including chief executive officer (CEO), chief operation officer (COO) and chief financial officer (CFO). When management is doing a good job business operations should run smoothly but as you probably know that is not always the case. In time of turmoil company can seek professional help in form of consultancy or more often by hiring an interim management whose job is to manage a company during a transition or crisis.

Interim management is modern troubleshooting management techniques that started in the mid to late 1970s gaining a momentum during the decades to come. Even though it bears similarity with management consultancy, interim management can deliver more effective solution in less time. In simple terms interim management offers you an opportunity to hire highly skilled and experienced executive who can manage a company during a hard times and produce solutions that will leave noticeable impact on your business. In time of crises timing is important so if you can’t find anyone suitable within the company or if you can’t find anyone on such a short notice interim management is the perfect solution.He or she can be appointed faster, speeding the process in that way and getting to what is really important, conducting and complete business related assignments.

Interim management bears many benefits that makes it a popular solution. usually operating on a senior management brings  experience and knowledge that makes them highly productive, maximizing probability of success. Their abilities should be the only criteria when choosing the right person in a role of interim management. Having someone new taking care of business that can five you a fresh outside perspective is always a good thing. By doing a good job, effectively solving problem and cutting cost interim manager builds a reputation for himself so you can be sure that it is in your and his best interest to help company transitions during rough times. Being interim management not only advisory role but engagement in implementation, being fully responsible for the outcome. Working with your team under your control interim manager will add value by delivering solutions that come through deep understanding of your company’s objectives.

Assignments for interim management can vary in scope and requirements depending on a situation, from crisis management, sudden departure or change in management to IPO’s, mergers and acquisitions;number of possible situation is endless. Carrying out the implementation, analysis and implementation depends on the situation. In case reverse takeover when old management steps out completely and there is certain time to get the affairs in order and make company current Mina Mar Group steps in as an interim management “cleaning” the company, doing all late filings making sure that everything that will make company up to date and make it profitable again is done. After the assignment is done and objectives are reached new management can step in. But we don’t stop there, we are always available to provide you with insight and guidance that come from our 20 year experience in the business. Contact us – MinaMarGroup.com

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Due Diligence – basics

Due diligence is defined as investigation or audit that reasonable business and person undertakes before potential investment or before entering an agreement to confirm all facts. Most investor are doing research before buying a security but due diligence can be done by a seller who investigates buyer’s capability to complete the purchase. After the Securities Act of 1933 due diligence become common practice in United States when brokers and dealers became responsible for disclosing all relevant information about securities they were selling or they will otherwise be accountable and liable for prosecution. This put brokers into sensitive position where they could be unfairly prosecuted. In response creators of the Act set rule that says if broker performed due diligence when investigating companies whose securities they are going to sell and disclose that information to the public they are not held accountable.

Not only prospective investors perform due diligence but also broker dealers, fund managers, equity research analysts and companies that seek acquisition. While investors do due diligence voluntary, broker dealers are obliged to do it as stated in Securities Act of 1933. When companies plans to offers securities, before issuing final prospectus underwriter, issuing company and other parties involved such as accountants and attorneys will gather to discuss whether due diligence is exercised according to state and federal laws.

Performance of due diligence may vary depending on the security that is being researched. When doing DD it should take into consideration risk tolerance and investment goals of investor. However there are some questions that you need to answer in order to gain as much relevant information that you could. First thing you should check total value of the company because it is a good indication of stock’s volatility, diversity of investor base and size of target market. Size of the company, it’s stock price and revenues determine where the stock is going to trade. This brings us to “number research” meaning it is crucial that you do extensive financial research including revenue, profit, margin trends, ratios, financial metrics and balance sheet. Monitoring trends in revenues, operating expenses, profit margins and return on the equity is important part of the research process. Together with combination of various ratios and metrics it should be tracked over several quarters or years if possible. Balance sheet provides you information about company’s assets, liabilities and cash available; showing is company capable to pay short term expenses and debts. All the parameters should be compared with competitors in the same industry and get a bigger picture. This way it s easy to determine if company is a leader in the field and what is the size and growing potential of the industry.

Stock price movement should be analyzed, both short term and long term as well as correlation between stock price movement and profit. Pay attention to number of shares outstanding and any plans for future issuing of shares and subsequent dilution. When it comes to company’s management you should check their experience and area of expertise and how much shares they hold. If they have high ownership it is a good sign because it means they have vested interest in the company’s and stock performance.

In the end it is important to be aware of company specific and industry wide risks and how that fits in your investment style and amount of risk you are willing to take.

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The benefits of crowdfunding

Crowdfunding continues to grow globally. Total crowdfunding raised worldwide from 2014 to 2016 is $2.1 billion while in 2016 in US total crowdfunding raised was $738.9 billion. The crowdfunding industry is projected to grow over $300 billion by 2025. North America remains the largest crowdfunding market, having raised $17.1 billion in 2017. Asia with fast growing market is catching up with $10.54 billion raised the same year, while the Europe is in the third place with $6.48 billion.

Crowdfunding can be used as a free marketing tool. Crowdfunding platforms make new projects easily discoverable giving exposure to a lot of new people on the platform. In addition, most platforms incorporate social media making it easier to share and spread the message via Facebook, twitter and other platforms. Also, media often picks up on the popular projects, providing them with more publicity.

People with limited resources can test their product by using the crowdfunding platform to do pre-sale and market research. Platform will help with pre-sale by providing an insight on how big is the demand for the product. That insight is collect from number of people that back the project and their comments. Potential customers can give a valuable feedback on the ways to improve the product which can mitigate the risk of going into the market.

Special thing about crowdfunding that not all supporters want to make a quick buck. It attracts loyal customers and patrons who want to be a part of a great idea by supporting it from the very beginning. Having people united by a belief in the same product can elicit great things in business. in order to find people that are willing to fund your project be sure to spread the word to various investors and don’t be afraid to make some changes on the way to meet the demands. It is normal to see your project involve as more people get involved.

Attracting that early contributors is important because they can help drive more people to your crowdfunding project. You can use type of reward crowdfunding where some rewards can be offered to early backers which will encourage them to inform more people about the project and in that way minimize the risk of project failing.

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Mergers and Acquisitions

Mergers and acquisitions (M&A) are defined as a combination of companies. When two companies combine together to form one company, it is termed as Merger of companies. While acquisitions are where one company is taken over by the company.

  • In the case of Merger, the acquired company ends to exist and becomes part of the acquiring company.
  • In the case of Acquisition, the acquiring company takes over the majority stake in the acquired company, and the acquiring company continues to be In existence. In short one in acquisition one business/organization buys the other business/organization.

Definition:

Merger – When two companies combines together to form one company, it is termed as merger of companies. The two companies end to exist and new company is formed.

Acquisition – In case of acquisition, the acquiring company takes over the majority stake in the acquired company, and acquiring company continues to be in existence.

Companies:

Merger – The companies of same size are combines together.

Acquisition – The larger companies acquires smaller companies.

Challenges:

Merger – The two companies of the same size combine to increase their potential strength and financial profits along with breaking the trade barriers.

Acquisitions – The two companies of different sizes come together to conquer the challenges of decline of business.

Agreement:

Merger – A buyout agreement is known as a merger when both owners mutually decide to combine their business in the best interest of their firms.

Acquisition – A buyout agreement is known as an acquisition when the agreement is aggressive, or when the target firm is unwilling to be bought.

How Can Mergers & Acquisitions Take Place?

– by purchasing assets
– by purchasing common shares-
– by exchange of shares for assets
– by exchanging shares for shares

Types of Mergers

–   Horizontal Mergers
Horizontal mergers happen when one company merges or takes over another company that has similar products and services, which means that both the companies are in the same industry.
–  Vertical Mergers
In the vertical merger, there is a combination of two companies that are in the same business of producing the same goods and services, but the only difference is the stage of production at which they are operating are different.

–   Concentric Mergers
Concentric mergers are between firms that serve the same customers in a particular industry, but the products and services offered are different.

–   Conglomerate Mergers
When two companies that operate in a completely different industry merger together to form a new company it is known as a conglomerate merger.

Reasons for M&A

–   Mergers and Acquisitions (M&A) improves the quality of companies performance by reducing the redundant cost of operations
–   Removes Excess capacity
–   Accelerate growth
–   Acquire skills and technology

 

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How to create positive corporate image

An undeniable fact of business life as we enter the 21st century is that market became a highly competitive place with a complex business climate so companies need to do effective and cost efficient job of marketing themselves than ever before. Corporate image describes the manner in which a company, its activities, product and services are persevered by public. In order to stay relevant many businesses actively strive to create and communicate positive corporate image to their customers, shareholder, potential investors and general public.

If you ignore the importance of corporate image in order to avoid associated costs it will end costing you more in the long run. Some of the negative consequences are high employee turnover, lack of or losing important customers or drop in stock value. Contrary to popular belief many of the tools for creating corporate image are time tested and require only a commitment and energy. While expensive advertising campaigns will certainly help with awareness of your business there are other tools that can also raise awareness while building credibility and competitive distinction. Hiring a good investor awareness and strategist company you will be able in no time to increase your market presence and build positive corporate image. Some of the methods that you can use are:

  • Make sure that you have clear customer focused message that will set you apart from competition as well as unique reason why they should do business with you and then put that message everywhere, on your business cards, thank you cards, brochures, etc.
  • Cultivate relationship with media sources, using carefully written material, containing solid information accompanied by visuals. You can sponsor targeted TV shows and appear in them if appropriate. Public speaking can only help you when reaching audience.
  • Internet is another platform that can be used to create awareness and good corporate image. Promote yourself trough e-mail signatures, articles, web sites and discussion group. This way you can really reach wide base of customers. It is not a bad idea to create contests and awards as a means to build goodwill and name recognition.
  • You can organize and promote newsworthy events but also get involved with community service and where is that possible make more than financial commitment. Often environmental and social image of firms are affecting customers decision to purchase products or services from particular company.
  • The more you communicate the company identity to audience important to the firm the more you will experience benefits that come with good awareness of your business and positive corporate image. If investors know about and they are conscious of your company and aware of your products and services chance that they will invest in your business are higher. Good corporate image will very likely rise motivation among employees, attract new customers and retain the old ones. Customers always remember extraordinary service and they will reward you with loyalty.

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Why companies split stock?

Stock split or forward stock split is a corporate action where board of directors decides to issue more shares by dividing existing outstanding shares into multiple shares defined by the predetermined ratio. Most common ratios are 2 for 1 or 3 for one where investors for every share they own get two or three shares respectively. Likewise, price will be divided accordingly. If for example you originally owned 100 shares, each worth $15 in 2 for 2 split you will receive 200 shares each worth $7.5 and in situation where 3 for 1 split is done it will be 300 shares with $5 price per share. As you can see no real value is added and market capitalization is the same just like with reverse stock split.

Companies do this for various reasons. Some stock price can reach astonishing level and company’s official might want to lower the price to make it more appealing to small retail investors. Some argue that there is a psychological effect which makes owning more stock at a lower price more satisfying than owning a smaller number of shares with higher price. Stock exchanges have standardized number of shares as a trading unit and it is usually a 100 shares so it will be easier for small investor to buy one hundred shares at a lower price. Higher number of shares results in greater liquidity because of course there is a bigger float and popular trading price will almost certainly renew interest in the stock. This is shown through narrow bid – ask spread which reflect supply and demand for certain company’s shares. After stock split price decreases but it can be followed by an increase because of the interest of small investor who now perceive stock as more affordable and boost demand in that way.

Popular media service provider company Netflix has split stock twice since it started trading publicly in 2002. Company’s success has been followed by dramatic increase in price which company lowered by doing two for one stock split in 2004 leaving share price to $40. A little more than ten years later Netflix undergoes seven for one stock split lowering share price from $700 to $100. Other companies like Apple, Amazon and Berkshire Hathaway also undergone stock split mostly to expand shareholders base and make their stock more affordable to average investor.

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