Principles of Finance Essay Example | Topics and Well Written Essays - 1000 words

Principles of Finance - Essay Example Together, they help promote stability and balance in the behavior of governments and financial institutions through surveillance, financial, and technical assistance. Based on the summary in Table 1, $282.978 trillion was raised in Japan, the U.K., and the U.S. from 2001 to 2006 from IPOs, debt offerings, and mergers and acquisition activities throughout the world. Of this, the U.S. accounted for 26%, while the U.K. had 9.7% and Japan only 2.3%. The declines from 2001 to 2003 resulted from the dotcom bubble explosion and corporate scandals in the late 1990s until 2001, affecting investor confidence and the ability of firms to raise funds. However, the increasing amounts since then signify a steady recovery that continues to hold. The U.K. issues more equity than either the U.S. or Japan, the U.S. issues more debt securities than the other two countries and that in these three countries debt issues are greater than equity issues by an overwhelming factor of almost 280-to-1. What could explain these findings Figures 1 and 2 (IMF, 2006; BIS, 2006) show that most debt issues are from corporations, and that Japanese (101.7% debt-to-equity) and European (69.6% debt-to-equity) corporations have more debt than U.S. companies (43.1% debt-to-equity). This explains why Japan and the U.K. issued lower amounts of debt compared to the U.S. during the period. Second, debt yields are lower in Japan compared to the U.S. and the U.K., and while equity yields are higher in the U.S. than in the U.K. and Japan, debt returns (5 to 11%) are higher than equity returns (-33% to almost 0%) in all three countries, and interest rates are declining. This means debt is more attractive to issuers and investors than equities. For investors, debt returns are higher, so they would rather lend their funds. For companies, debt is also cheaper since the trend for interest rates is flat to declining. Therefore, investors and corporations both prefer debt over equity. Q2: Vodafone plc Case Analysis Vodafone plc (2006: 2-3) is a London-based telecommunications company with total turnover of 29.4 billion, assets of 127 billion, and over 170 million customers worldwide, making it the biggest telecoms firm in the world. With debt of 20.1 billion and stockholders' equity of 86.9 billion, it has a debt-to-equity ratio of 23%. Net debt is 17.3 billion after taking out cash and cash equivalents. Vodafone raises funds in various currencies by issuing debt securities because it has a good financial network in London, the world's financial center. The company's policy (Vodafone, 2006: 41) is to maintain the currency of debt and interest charges in proportion with expected future principal multi-currency cashflows, which explains why 113% of its net debt is in currencies other than sterling: 73% of debt is in Euro, 21% in Yen, 14% in US Dollars, and 5% in other