Some things which caught our eye recently...with some links to how our programmes can help make sense of the business world.

Good results from UK Exporters, but risks abound

The latest trade figures show that British exports to countries outside of the EU has reached record levels - £10.75 bn in June this year. Exporters benefited from growth in the US and Chinese markets. But this is a fragile state of affairs as the US economy is particularly uncertain at the moment.

So there are business risks in the export markets, but exporting in itself can add significant risks and costs to a business, wherever you export to. There are a host of risks associated with non-payment and currency fluctutation, together with demanding documentation requirements. We provide a range of short training courses aimed at minimising and managing these risks and costs, so that exporters can get on with the business of exporting and generating sales. Have a look at our Trade Finance page for a taste of what we offer.

Skype: what do I get for $100m?

Skype has just announced plans to list on the stock exchange Nasdaq. Despite difficult conditions, and a spate of unspectacular flotations in the US so far this year, this is expected to raise over $100m. But what do you actually get when you invest in a company like Skype?

In 2005, Ebay paid $2.6bn for Skype, despite it only having revenues of £7m - a multiple of 371 times annual turnover. Ebay certainly overpaid, but the point is that it is the future potential that Ebay paid for (perhaps forecast revenues of $200m per annum). But of that $2.6bn price tag, only $300m was on actual, tangible assets - the rest of the $2.3bn was for intangible assets - goodwill. But virtually every acquisition involves paying over the book value of the net tangible assets.

Two things of interest spring to mind - how do you value a company, and how important are the intangible assets? Firstly, our programme Company Valuations provides an introduction to the many different ways of valuing companies, and draws on a range of recent examples to illustrate this. Secondly, many businesses should be actively trying to manage the intangible assets of their business (brand, knowledge, relationships, people, processes) just as much as the intangible assets. One of our business simulations, Tango, does exactly that - helps people understand the nature of intangible assets, and how to manage them to create value for the organisation. Click on the links above for more information.

BP pay-off: scandal or sound business practice?

A lot has been said about the proposed £11.8m pay-off for Tony Hayward in the aftermath of BP's oil spillage. Many are asking how this can happen when £50 billion has been wiped off the value of the company's shares. But the case of Tony Hayward is certainly not the first or the last case of apparent injustice in the relationship between shareholders and business executives. it is a theme we explore in a number of our programmes - such as . commercial awareness.

Ocado to deliver on stock market?

You’ll have probably seen Ocado vans out and about on your travels as they make their Waitrose deliveries.  Like most people you probably also thought that Ocado was part of the John Lewis / Waitrose empire.  Whilst Ocado delivers Waitrose-branded products (as well as other brands) the online service is an independent business.  Ocado recently confirmed that it will float on the London Stock Exchange with the aim of raising £200m.  Shares will be offered to institutional investors, employees and customers who have spent £300 or more so far this year. Ocado, which was set up in 2002, has never made a profit but they did recently announce a 30% rise in sales, compared with the previous year, in the 24 weeks to 16 May 2010.

Why might shares in a loss making business be an attractive investment?  How will the money raised impact the balance sheet?  These are some of the issues explored on our finance training and business simulation programmes.

Selling beer at minus £6 a case

Controversy surrounds the World Cup promotions by some supermarkets, including Tesco and ASDA, to reduce the price of some of their range of beers to less than the amount of duty payable. The Licensed Victuallers Association are quick to point out that pubs and clubs cannot compete when the supermarkets could be losing £6 a case from this offer. The supermarkets can cross-subsidise the cost reductions with many other lines but the options for the licensed trade are much more limited.This is a bold strategic move, but one which requires a real understanding of the competitive landscape, buying behaviours, and business costs. For a better understanding of the business issues here, have a look at business strategy, business simulations, and business costs.

Then decide where you will drink your beer this summer.

007 or 000?

MGM have canned the latest planned Bond film due to uncertainties over the studio's future and financial instability. But many of the costs have already been spent or "sunk" - including paying for the franchise. The last 007 movie, Quantum of Solace, cost $200m to make and generated revenues of $586m, so it clearly seems a profitable opportunity.However, the sheer scale of the costs of the film - which are virtually all spent long before any revenue is received - puts immense pressures on corporate cash flow, and coupled with the uncertainty over the size of future revenue streams, makes any project like this high risk. Our programmes on capital investment appraisal help to understand the issues behind making long term capital investment decisions, whether they be in films, oil & gas, transport, manufacturing or elsewhere.

Pepsi - The Healthy Option?

Indra Nooyi, Chair and CEO of PepsiCo wants her firm to be “seen as one of the defining companies of the first half of the 21st century” arguing that Pepsi should be part of the solution to the global obesity problem.Nooyi has introduced a series of targets to boost the healthiness of the Pepsi range of products.  By 2015, they will reduce the salt content in some of their leading brands by 25%.  Furthermore, by 2020, Pepsi are aiming to reduce the amount of added sugar in its drinks by 25% and the amount of saturated fats in certain snacks by 15%.Clearly Pepsi have had a good look around their marketplace and are responding to different strategic challenges.  So, if Pepsi need to review their strategy then surely we should all be looking at where we want to take our businesses.  But how?  Well one of our programmes or would be a good place to start! Perhaps Strategic Awareness or one of our business simulations...

The cost of a volcano

It is being reported that the affected Airlines have lost about £1.1 billion as a result of the travel chaos and plane free skies as a consequence of the unpronounceable Icelandic volcano. The head of the International Air Transport Association calculates that at the height of the disruption, airlines were losing £260 million a day.  Mr Bisignani said that the final bill to the industry included costs of providing accommodation to stranded customers, feeding them and laying on other modes of transport, such as buses to either get people home, or nearer to home. “We’ve seen a week without revenue but that has not stopped the costs,” he said.

So, how exactly do the costs impact a business?  Just how long can a business survive without any income flowing in?  These are just some of the questions we explore on our Understanding Business Costs course, click here to read more.

Bank shares for sale: at what price?

It has recently been reported that the US government is preparing to sell its 27% stake in Citigroup during 2010.  The US Treasury says 7.7 billion shares in the bailed-out bank are to be sold. At Citigroup's opening share price of $4.39 on 29th March 2010, the Treasury's stake is valued just over $33bn, making it $8bn profit, as the shares were acquired for $25bn as part of the $700bn Troubled Asset Relief Program.A sale of these proportions would mark another stage in the re-building of confidence in the financial markets in general and Wall Street's recovery from recession in particular.But who will buy these shares?  At what price? And what is the effect on the bank's balance sheet? Like any market there is a need for buyers and sellers, both taking a view that the price represents good value.Our finance courses explore the balance sheet impact of share sales, the ‘risk vs reward’ question asked by investors and why confidence plays a part in share price performance.

Pumping up the costs

The price of oil has hit an 18-month high leading to speculation that UK petrol prices will pass the record levels seen in the summer of 2008. Rising oil prices are likely to hit the wallets of British drivers already suffering from a weaker pound pushing up wholesale petrol costs.  Although the Chancellor has phased in the introduction of the “green” duty rise, 1p a litre was added on April 1, with a further 1p rise to come in October.So if your supplier puts up the cost of your raw materials how easy is it for you to pass this on by way of a price rise to your customers?  What would be the impact on your sales and profits if you put up your prices – or even reduced them?  How well do you understand margins and their relationship with overall profitability?These are some of the themes we explore on our finance courses and business simulations. Pay us an on-line visit or call for an informal chat about how we can help your workers make better financially informed decisions.

In administration: what does this mean?

Rail maintenance company Jarvis has called in administrators as the cash dried up and lenders refused to offer the company further credit.  With Jarvis’ creditors no longer prepared to offer it the money it needed to continue as a going concern the company said it had no option but to enter administration, and trading in its shares on the London Stock Exchange have been suspended. Following negotiations with the company's secured lenders, it has today become clear that sufficient support will not be extended to the company to enable it to continue trading as a going concern. As a consequence, the directors now have no option but to take steps... to place the company, and certain of its subsidiaries, into administration." But how can the support of lenders and creditors be so important to a business that withdrawal of that support leads to insolvency?  Cash is, as ever, King – our finance training programmes put this into context and explore these implications.

Share buy-backs: good or bad indicators?

Pepsi have just announced it intends to buy back $15 billion of its own shares over the next 3 years. But why, and what does this say about the wider economic situation? Share buy-backs generally happen when a company has too much cash and cannot put it to more productive use, and so it returns money to the shareholders, who can gain the same return on a lower level of investment (boosting return on equity and often the share price). This move (and Pepsi is only one of many) is seen by many as a good indicator - that companies no longer feel the need to hoard cash to protect against the downturn. Others however see this as something more pessimistic, and with long lasting effects. Perhaps companies undertaking buy-backs really cannot see any productive growth opportunities in the short term, and so are returning capital to their shareholders.These are some of the themes we explore in courses like Financial Analysis and Financial Strategy.

Archived news stories