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Is committing fraud really worth it?

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In 2015 Volkswagen shocked many of their customers, following the scandal which left at least 36,000 of the vehicles they produced with irregularities in terms of their carbon dioxide emission levels. In order for this to happen, VW had fitted many of their diesel cars with a “defeat device” which was able to detect when the vehicle was being tested for emissions, therefore changing the performance of the car in order to improve final results. However, it didn’t just stop at the 36,000 cars affected, following the scandal all over the world environmental, political and regulatory groups cracked down on the company forcing VW to recall over 12 million of their cars across the globe. Following on from this Volkswagens shares fell by about a third, now this just really isn’t good for business so what is the point? One explanation I learnt whilst in one of my university lectures, which shows reasoning behind why a company would commit fraud, is Donald Cressey’s ‘Fraud Triangle Th...
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BP - Deepwater Horizon

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After watching the ’BP: $30 Billion Blowout’ documentary on the Deepwater horizon explosion in April 2010, I still can’t believe how horrendous a catastrophe had to happen before multinational oil and gas company BP, decided to take a real focus on the safety of their workers. Following what U.S. president Barack Obama described as the worst environmental disaster in America, BP’s chief executive Tony Hayward became the most hated man in America. However, it wasn’t just an environmental disaster, in the months following came a political uproar and financial crisis. But with oil becoming a necessity to the general public, the risk factor to oil and energy companies will rise year on year because as it said in the documentary; “Oil, we can’t live with it, or without it”. Due to the excessive need for oil in this day and age, consumers will turn to the most common ethical rationalizations, one of which being Klein (2016) theory that during childhood we all learned to instinctively ratio...
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Are M&A a good business decision?

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In the world of business companies may make the decision to merge with, or acquire another company. A merger is when two companies will come together through a number of negotiated deals, with each company having a 50/50 share of the merged company, whereas an acquisition is when one company acquires more than 50% of the other company. There are a couple of different types of mergers, these being; vertical, horizontal and conglomerate. In a vertical merger two companies at different stages in their supply chain process will merge in order to gain market power, for example a car manufacturer choosing to acquire a steel company. In a horizontal merger two companies within the same industry will merge due to synergies, for example the two companies would have the ability to combine forces in order to have a greater outcome, as well as this through a horizontal merger due to there being overall growth of the company size, they will able to gain more efficient economies of scale. In...
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The Company Men

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The Company men is a film based on how the recession and severe market plunge resulted in mass job losses, specifically leaving three of the main characters; Bobby Walker, Gene McClary and Phil Woodward redundant. The reasoning behind the mass redundancies at shipping and manufacturing conglomerate, GTX, was to downsize in order to raise their stock prices. One main worry a shareholder would have here is that when the economic climate is facing difficulties, there is a large chance that GTX’s profitability will suffer. As a result of this, shareholders could make the decision not to invest In GTX due to concerns of whether or not they are making a large enough profit, in turn meaning that their share price will fall. This then explains why GTX would downsize, as having a lower amount to pay out for company salaries will increase their profitability and this therefore shows shareholders that their main aim is to maximise shareholder wealth. One theoretical concept that could a...
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Are Dividend's really relevant?

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A dividend is a sum of money that comes from excess earnings, which a company pays their shareholders annually through two different payments, these being; the Interim payment, which comes after their interim results are published and a Final payment, which comes after the year has ended. Whilst it is not a legal requirement for companies to pay dividends, a lot of companies will make the choice to pay them in order to keep their shareholders interested. However, a company does have the ability to lower their dividend at any time, which can often be linked to a company’s level of investment, for example; when a company decides to invest, the first question that will be asked is; how will we finance this investment? Which is the exact same question that is asked when a company decides to offer a dividend to shareholders. As a result of this, due to shareholder power, companies will tend to offer a higher dividend which in turn means that there will be a lower amount of investment from s...
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Netflix's Capital Structure

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All companies will have a capital structure, each different from the next. A capital structure is the combination of sources of capital that a company uses and the different costs, rewards and risks associated with each source of capital. For example, debt finance has lower levels of risk, therefore it is cheaper to obtain, whereas, equity finance has higher levels of risk and therefore is more expensive due to high returns being demanded by shareholders. When it comes to the financing of a company, the most common question will probably be; What is the optimal capital structure? Though, it is very difficult for companies to decide what the optimal capital structure is, due to a high number of differing opinions. One way in which a company is able to find an optimal capital structure is through the use of their Weighted Average Cost of Capital (WACC), as during this calculation it is clear to see that when a larger amount of debt finance is used, a companies WACC will be lower du...
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The collapse of Carillion

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On the 15 th January 2018 one of the largest UK construction companies; Carillion, was placed into compulsory liquidation, but what was the cause of their eventual demise? To put it simply, phoney profits and ever mounting debts. As a company Carillion issued ordinary shares through the use of the London stock Exchange, which benefitted them as it meant that the capital did not have to be repaid. However, when it came to financing their projects they heavily relied on debt finance, and with the government choosing to outsource work to private companies with the lowest bids, Carillion chose to hide their financial troubles, opting to use calculations that made their projects look profitable. As Carillion started to drown due to their ever-mounting levels of debt, the best idea for them in my opinion would have been to lower dividends to shareholders to help them to stay afloat, as in order for a company to have growth prospects, the amount of returns paid to their investors...
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