Archive for the ‘Grow Page’ Category

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Why are so many companies incorporated in Delaware?

Friday, January 8th, 2010

More than half of the Fortune 500 companies are incorporated in the great, tiny state of Delaware; but how is this possible? Certainly most of these companies are not based in Deleware, but there are a number of reasons why a company would choose to become a corporation there:

  • Delaware is one of the states with the least expensive incorporating fees.
  • Whether you are a shareholder, officer, or director, you do not have to be a resident of Delaware.
  • Just because your company is incorporated in Delaware, that does not mean you actually have to do business in Delaware, and if you don’t do business there, then you do not have to pay the Delaware state corporate taxes.
  • In Delaware, one individual can have all the officer positions and be the only director, which is particularly advantageous to smaller business.

Basically, the laws in Delaware make it cheaper and easier for a company to be legally incorporated there than anywhere else. It is business friendly, plain and simple.

NYSE Interview: Scott Cutler, Head of Listings

Friday, January 8th, 2010

scott-cutler.png Scott Cutler is the Head of Listings at the New York Stock Exchange, which means that when a company wants to go public and get listed on the NYSE, they’ve got to go through him first. We asked him about his work and how he got there, and Scott graciously answered.

TILE: What was your first job?
Scott: I was a paper boy!

TILE: How did you end up where you are today?
Scott: I started working as a corporate securities lawyer doing mergers and acquisitions. After that I transitioned to investment banking, working mainly with technology companies in the early days of the Internet. I joined the NYSE Euronext in April of 2006.

TILE: How does what you do affect the world at large? Why should I care about what you do?
Scott: The NYSE is one of the world’s largest financial markets and focuses on efficient trading and raising money for companies (when you buy stock or invest in a company, you are essentially giving the company money). Publicly traded companies employ over 30 million Americans and their families, that is a BIG deal! The NYSE lists over 2,000 companies in a wide variety of industries and I help manage the process of trading and raising capital.

TILE: Do you see more listings (IPOs on the NYSE) now that the economy has bottomed out?
Scott: There has been a large increase in initial public offerings, which started this past fall and will probably continue into 2010. After the crisis, the need for and ability of companies to raise money is very important.

TILE: What’s the best advice you would give to your teenage self?
Scott: Work hard at everything you do, as each step you take prepares you for another.  Life and a career is like climbing a mountain – go a little higher with each step and don’t look back.

>> TILE brings you exclusive opinions, explanations, and interviews from experts in every industry. To read more, click on Ask the Experts in the TILE Library.

Have a burning question or an expert you’d like to see interviewed? Just Ask TILE!

Who is watching the banks?

Tuesday, December 22nd, 2009

Since banks play such an important role in the economy and in your life (assuming you’re not keeping your money under a mattress), they are are heavily watched by several government agencies.

The government wants your money to be safe and to ensure that any business calling itself a bank subscribes to a very high operation standard – you shouldn’t worry if the local bank on the corner is legit. That being said, there are three main federal organizations along with individual state agencies that regulate banking on both a national and local level.

The main federal organizations focus on different areas, but work together to ensure that the banking system runs smoothly:

  • Comptroller of the Currency – approves new banks, issues banking laws, and makes sure banks are following the law
  • Federal Reserve Board – provides financial services to banks, watches out for risky behavior, and maintains stability of banking system
  • Federal Depositors Insurance Corporation – insures people’s money against any possible bank failures

State agencies act in similar capacities (regulation, enforcement, and oversight), but only for banks within their borders. All in all, these federal and state agencies are carefully monitoring and analyzing every bank to make sure your money is safe.

Who says Facebook is worth $10 billion?

Tuesday, December 22nd, 2009

Valuation, the process of determining how much a corporation is really worth, is always partly objective and partly subjective. There are several different methods commonly used, but there’s going to be some guesswork involved no matter what.

The most common way to value a company is according to its earnings, which are usually calculated according to earnings per share: you simply divide the company’s net profit by the number of shares it has. (You want the earnings per share value because that makes it is a standard measure to reflect each piece of ownership in the company). You can also value a corporation according to its assets – that is, if a company paid off all its debts and added up everything of value it had left, how much money would that amount to? Another technique involves measuring cash flow, or how much money passes through a company in various transactions over the course of a quarter or fiscal year (not counting predetermined expenses like taxes and interest).

Investors compare “like” companies, as defined by industry, growth rates, or geography, based on their Price to Earnings (PE), Price to Cash Flow, or Price to Growth (PEG) ratios. Price to Growth is used for companies like Facebook, that are yet to have earnings! Higher quality companies get higher ratios, or valuations, versus lower quality earnings.  Historically, the average PE within the S&P 500 since 1936 is a PE of about 15.8x.

These are the most basic techniques, but there are many alternative techniques that are used or that some people claim are more effective. And ultimately, no matter which method you use, the “true value” of a company is only something that can ever be approximated; it’s more of an ideal than a calculable number.

Why would a company split its stock?

Tuesday, December 22nd, 2009

A company’s value is basically spread out among its shares; the more shares there are, the smaller the percentage of the company each one is worth. Think of it as a simple equation: value of one stock = value of the company ÷ number of shares. So if a company wants to try to manipulate the price of its stock, it has to change some part of this equation. You can’t change the value of your company at will, of course; that depends on your market performance. But companies can change the number of shares they offer, and hence the price per share, by using stock splits and reverse stock splits.

Stock splits are just what they sound like – splitting a single stock into multiple stocks. The most common stock splits are 2-for-1 and 3-for-2. A reverse stock split is also just what it sounds like – in, say, a 1-for-5 split, every five shares become one. Because a company can’t just suddenly generate value, a stock split means stock prices also split: for example, in a 2-for-1 split, each share becomes worth half of its original price. As a shareholder, you don’t have to worry about stock splits because the company will make sure the value of your holdings doesn’t change – if the stock goes through a 2-for-1 split, your shares just double, so you still have the same amount of money.

If the value doesn’t change, why bother fooling around with the number of stocks? If a company is doing very well, a single stock can grow to be worth a huge amount of money. You can’t buy a fraction of a share, and if you have to shell out a huge amount of money just to buy a single share, you probably won’t bother. So splitting the stock makes the price of each individual share go down, and more investors can afford to buy. A reverse stock split happens when a company’s stock prices are low; when the number of shares decrease, the price of a share increases, and the company’s stock appears more attractive to investors.

Goldman Sachs Pays Highest Officers In Stock

Friday, December 11th, 2009

Goldman Sachs, the famous and most profitable Wall Street investment bank, will pay its top 30 executives in stock bonuses instead of cash bonuses this year.

  • Paying the executives in stock is meant to reduce public anger over large profits and the $5 billion that has been set aside for employee compensation in the wake of the financial crisis this year.
  • Paying the executive bonuses in stock means that employees cannot reap the benefits of that money for at least five years.
  • The internal reason for paying out stock is to encourage future performance by the whole company – not just focused reward for one particular year.

Facts & Figures

  • Goldman set aside $5.38 billion dollars this year for compensation for its 31,000 employees
  • The average employee at Goldman will earn roughly $700,000 in 2009
  • Compensation and bonuses are at an all-time high for Goldman Sachs

Best Quote

“We believe our compensation policies are the strongest in our industry and ensure that compensation accurately reflects the firm’s performance and incentivize behavior that is in the public’s and our shareholders’ best interests.” -  Lloyd Blankfein, Chairman and Chief Executive at Goldman Sachs

Margin is…

Monday, December 7th, 2009

Margin is the difference between the market value of a stock and the loan a broker makes to cover the purchase of that stock. When someone buys a stock “on margin,” they pay for a certain percentage of the purchase and their brokerage “covers” the rest.

The NYSE is…

Monday, December 7th, 2009

The NYSE (or, the New York Stock Exchange) it is the largest and oldest stock exchange in the United States, dating all the way back to 1792. At the NYSE, the transaction of stocks are conducted on a large trading floor, where buyers and sellers agree on prices to make deals.

Stocks, Bonds, Diamonds?

Tuesday, December 1st, 2009

A pink diamond sold for a record amount in Hong Kong to… an anonymous bidder.

  • A 5 carat pink diamond, the size of a chickpea, set in a silver ring was auctioned off for a record $10.8 million.
  • The diamond was sold to an unidentified individual. Christie’s International (which held the auction) would not confirm if he or she was Chinese. This unidentified person beat out Chinese millionaire and successful stock investor Liu Yiqian and his wife Wang Wei.
  • Many items that were sold in the auction sold for prices greater than their value due to a drive in Chinese buying and the growing interest in jewelery among the Chinese.

Facts & Figures

  • This pink diamond sale beats out the previous record of $10.5 million for a 7.03 carat blue diamond.
  • A cushion-shaped 16.65 carat sapphire set by Van Cleef & Arpels sold for just under $2.4 million.
  • Total sales at the Christie’s auction came to just under $48 million.

Best Quote

“Some prices were crazy, way above what one would pay even at a jewelry store. There’s a lot of mainland Chinese buying; either they didn’t know what the items are worth or they wanted them so badly that price didn’t matter.” – Donald May, Hong Kong-based Gem Dealer

Stop Crying, It’s Hurting Your Portfolio

Wednesday, November 25th, 2009
If investors just trusted classic investing strategies instead of getting so emotional, their portfolios would be much better off…
  • A new study found investors are making two big mistakes: 1) they get too emotional about their investments and make hasty decisions, and 2) they assume recent performance dictates future performance.
  • The study also explained that the most classic investment strategies – asset allocation and portfolio rebalancing – would help investors avoid these mistakes.

Facts & Figures

  • Over the past 2 years, a basic portfolio with conservative asset allocation and annual rebalancing dropped by only 3.5% compared to a 30% S&P drop during the same time.
  • During a boom, a basic portfolio with conservative asset allocation and annual rebalancing returned 8.3%, not so much less than 9.7% for the S&P.

Best Quote

“People spend all their time looking at the trees and not the forest. It’s the forest that’s important, and that’s asset allocation.” – Gary P. Brinson, Chicago-based Asset Manager

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