International Trade: How to Save on Detention Charges

Detention charges are charges charged by the Shipping line on per container per day basis for holding containers for more time. You can assume detention charges on containers as the rent of containers. These charges in slabs are low for the initial 4-5 days and thereafter they increase exponentially. 

During the import, documentation, handling, customs clearance, destuffing in the warehouse may take some time, and containers may attract detention charge. Depending upon your relation and volume of trade with the shipping line, the shipping line may provide you some detention free days for customs clearance and de-stuffing of containers, and return of containers.  

In case you do not have bargain power with the shipping line, you may have to provide bond /charges to the shipping line for obtaining some detention free days. In some cases, the exporter may be requested to provide some detention free days at disport for clearance and return of cargo. Extra- detention free days at discharge port provided by exporters also come at some cost that you may have to bear, however that may be lower than what you would have to pay. The simple reason for a low-cost pre-paid detention-free period from load port is due to the fact that the exporter may have a large volume of trade with the shipping line and may thus be in a position to negotiate. The extra detention free days are mentioned in Bill of Lading.

Pros and Cons of detention free days obtained through exporter vs arranged by the importer at disport

Detention arranged
by Exporter	by Importer
Pros - Could be cheaper	Pros - You pay for the number of days those are actually used
Cons - Cost is included in CIF - You never know , how many days could be required at disport	Cons - Rate could be higher

For more on International Trade : Guide to Import Export for Beginners

Book Review: Teach Yourself Coding Indicators in PineScript

 PineScript is a TradingView Platform Programming script, designed for the development of custom indicators in TradingView Platform. The e-Book and paperback book - " Teach Yourself Coding Indicators in PineScript" are available on Amazon in its various markets.

This book is intended for beginners with no or little knowledge of computer programming. In case you are an experienced programmer, I would suggest you go through the PineScript manual available on the TV website as you will find that the content is more targeted towards beginners with no prior programming experience.

The author of the book has about 20 years of experience in programming and has the patience to teach hard concepts with simple examples. This man can really teach any beginner. The author is also an instructor at Udemy for the course "Creating trade strategies & backtesting using PineScript" wherein also the author has earned a reputation and good reviews from his students.

In any case, learning PineScript will profit you when you start to apply programming skills gained to real problems. You will be able to take full advantage of the TradingView Platform by understanding the concepts and logic behind the trade scripts of other pine programmers.

The book starts with basic concepts like variables and their types which have been explained neatly with nice examples and are intended for learners with no programming skills. The codes are put in separate boxes and each code is followed by the result and then line by line explanation. The book has separate chapters on errors generated while compilation of script. The solution to identify errors and to correct them is also provided in the book. The book has codes with neat explanations for identification of doji, plotting moving average crossover, plotting of zigzag indicator, identifying BAT harmonic pattern, and plotting of other indicators.

The only drawback in the paperback book is that it is not colored and sometimes I had to really struggle to understand charts printed in the book. The e-book has been priced at USD 2.99 and the paperback book has been priced at USD 6.36.

I recommend this book to all serious learners who want to apply technicals to charts. By using this book and learning codes, you will also be able to by-pass the limitation put on by TradingView on the maximum number of indicators that a user may use in a basic free version of TradingView.

https://www.udemy.com/course/creating-trade-strategies-backtesting-using-pinescript/?referralCode=5B2F9FCFE94D15B472E3

https://www.amazon.com/dp/B08JM2XHZZ

International Trade: Variance in price after contracting

 During the 2008–09 crisis prices of almost all commodities fall unprecedently. This resulted in the failure of many contracts. Liquidated damages are since on actual losses and not on notional losses, the same also could not be recovered by the injured party.

Prices of many commodities are fairly available on exchanges and publication Many commodities are traded in future or spot exchanges. Some of the commodities like coal, bunker fuel have an index. Prices of Crude palm is published regularly by the Malaysian Palm Oil Council (MPOC). The buyer is always aware of the international price before entering any contract. Say I want to buy coal from Indonesia then, I already have coal prices of New Castle, Argus, and Platts publications in my hand before the negotiation.

Often prices quoted by the supplier are compared with the index prices to have a fair idea of prices. Say, the supplier is offering a discount of USD 2 over-index price or the supplier is asking USD 7 above index prices. In case of long term contracts or contracts where supplies are expected to be distributed over long period, it is suggested to have “variable price” in place of fixed price in the contract.

Case Situation: A Thermal Power Plant needs steam coal at the rate of 50,000 MT per month for the next year. 50,000 MT is approx one vessel per month. In case a single contract with a fixed price is signed between buyer and seller and there is movement in price, either supplier or Buyer, one of the two will be at loss. A possible solution could be to re — negotiate the price at the end of every month and sign a separate contract for each vessel monthly. The second option is feasible and can save buyers and sellers from possible fluctuation in prices. However, there would be always uncertainty associated with supplies. Suppose in a month, the contract could not be finalized due to non-agreement of prices and another supplier quotes below the price offer made by the established supplier. Supplier and buyer both in this case have risk. Supplier in the absence of firm order would not source and keep material ready for shipment and buyer in the absence of firm supplier is at the risk of production loss at the thermal power plant.

The possible solution to the problem was developed by the Indian Thermal Power Plant procurement department in 2008–09, the price of steam coal was linked to the index price. For import from Indonesia, Argus Indonesian Index is adopted as a basis and for import from other countries, a combination of two to three indices is taken. For example for 5800 KCal coal, the index adopted by some thermal power plant is 50:25:25 of three indices Richard Bay API4 for 6000 Kcal/Kg NCV, Newcastle Export Index (NEX) for 6700 Kcal/Kg GAD and Global Coal New Castle (GCNEW C) for 6000 Kcal/Kg NCV.

A synthetic index is created by blending all the three indices and FOB price offered by the supplier is compared to this synthetic index. Say the price is at a premium of 2% to this index and the same is finalized for a contract of one year. The FOB price shall also fluctuate and shall always remain at 2% premium of this synthetic index. The payment is made by calculating the synthetic index rate on the date of Bill of Lading based on the three weekly publications.

Why three indices ?

During 2008–09, the Indonesian coal index was at a nascent stage. The market in Australia and Africa were more organized. However, the coal sought by the power plant was of different specification and was normally sourced from Indonesia only. These three indexes were selected because they have developed market, robust data reporting, and the oldest. The three were mixed in different ratios to arrive at a synthetic index so that the index price is comparable with the Indonesian coal price.

For more on International Trade : Guide to Import Export for Beginners

International Trade: Liquidated Damages and Dispute

 Liquidated Damages are damages in the form of an amount that both parties agree to as compensation to the injured party in the event of a breach of contract. The clauses for Liquidated Damages are generally included in the contract and non-insertion of such a clause in the contract may render the injured party in a weak position in the event of a breach of the agreement.

In case of an import contract, the buyer may like to have liquidated claused for the delay in shipment or non-supply of material by the supplier. In the case of delay, the penalty on delay on a shipment is made in terms of USD per MT per day. More is the delay more is the penalty. However, to be legally correct, the buyer is also required to put a maximum number of days that may be allowed for the delay and after which the buyer has the right to terminate the contract and seek compensation from the supplier.

In this article, we will examine various facts on these penalties and their legal tenability.

Force Majeure and Liquidated Damages

Force Majeure conditions can help in avoiding Liquidated Damages. As soon as force Majeure conditions appear, the supplier must at least inform the buyer of its occurrence. In case, despite the occurrence of Force Majeure condition, Supplier fails to inform Buyer of its occurrence, the same cannot be entertained at a later date at the stage of legal argument.

Case Situation: Vessel while loading broke down and due to intervening holidays of X’mas and new year could not be repaired and was delayed. The supplier communicated the reason for the delay to the buyer, however, the Buyer claimed 3 days liquidated damages @USD 2 per MT for 19000 MT of grains. As per the contract, a letter from the Chamber of Commerce was required for claiming relief under Force Majeure. The supplier was not able to obtain this certificate as the situation though out of control of the supplier, was restricted only to their vessel.

What is your opinion on the above case ? In my opinion, on the production of documents from the port authority or master of the ship, relief should have been provided to the supplier. Blindly sticking to the Force Majeure clause by the buyer in their favor resulted in arbitration between the two parties, where they settled the case amicably. Force Majeure clause or any other clause cannot be complete in itself. They only provide intent to resolve disputes or provide general guidelines. What if, there would have been a Liquidation clause in the contract and no Force Majeure clause. In all such cases, the International court would have taken “intent” of the party and would have interpreted the law accordingly. I have seen in my career that in most of the cases, Shipping Lines get the benefit of any ambiguity as ships are machines and breakdowns cannot be predicted. The intention of the shipmaster was not to stop the ship and neither the intention of the supplier was to delay or not to supply. These parties have not gained anything from the delay and hence waiver should be provided in such cases.

Recovery of Losses for non-shipment

In the event of non-shipment, the Buyer has the right to claim for losses. Now let's take an example.

Case Situation: Supplier failed to Supply 1000 MT grain to the buyer as per the shipment schedule. The buyer claimed Liquidated Damages from the supplier by calculating the difference between the market price at the time of contractual arrival date and its purchase cost. Of course, the purchase cost (CIF) was below the market price at disport.

The above damages have been calculated and claimed on the assumption that the material would have been sold on the date of arrival. Thus, this loss is a notional loss and not the actual loss. The above claim of damages cannot be made and if made the same cannot sustain as per international Contract Law.

The claim for damages can only be made, if the actual purchase was done by the buyer at a price higher than the price of the initial purchase and the quantum of such loss can be different between the prices of two purchases.

For more on International Trade : Guide to Import Export for Beginners

Chapter-1 Defining Marketing for 21 Century - class notes

Marketing Definition:
American Management Association: Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services to create exchanges that satisfy individual and organizational goals.

Kotler: We see marketing management as the art and science of choosing target markets getting, keeping and growing customers through creating, delivering and communicating superior customer value.

Exchange and Transaction : Exchange is a process of negotiation / agreement of obtaining a desired product by offering something in return eg. money and in barter system it could be something else. When exchange agreement is completed transaction takes place. Transaction is

a value creating process as both the parties are better off.

Marketing involves marketing of 10 types of entities:

• Goods like eggs, steel, cars.
• Services like airlines, hotels, barbers
• Experiences like Walt Disney world’s magic kingdom, at planet Hollywood. We can say that "services + " items are experiential marketing.
• Events like Olympics, trade shows, sports events
• Persons: celebrity marketing is a business. Each celebrity has to make herself / himself sellable. Celebrities market themselves to become brand ambassador. Eg. Madonna and Amitabh bacchan
• Places like cities, states, nations to attract tourists, factories, company headquarters, and new residents, like we use Bangalore for outsourcing Brazil for tourism.
• Properties like real state owners market properties.
• Organizations thru’ Corporate identity ads like by using tag line ‘Lets make things better’, “We also make steel”.
• Information like thru encyclopedias, CDs and visit the internet for information. This is information marketing usually done by educational institute.
• Ideas like don’t drink and drive, NGO and Govt marketing also popularly known as social marketing.

Eight different states of demand:

·Negative demand: if a major part of market dislikes the product and may even pay a price to avoid it – vaccinations, gall bladder operations etc. Marketing task is to analyse why the market dislikes the product and whether a marketing program can change beliefs and attitudes.

·No Demand: Target consumers may be unaware of or uninterested in the product. Ex. College students may not be interested in foreign language courses. Marketing should look for ways to benefit others with their product and of course thus sell their product

·Latent demand: Market feels strong needs for some products like harmless cigarettes. Marketer needs to measure size of this market and develop such goods

·Declining demand: Market for product declines. Then marketer need to know the causes and rectify

·Irregular demand: Demand of many products and services are seasonal. Marketer needs to devise ways called synchro-marketing like flexible pricing, promotions and other incentives

·Full demand: sometimes full demand is there. Marketing task is to maintain current level of demand in face of changing consumer preferences and increasing competition.

·Overfull demand: sometimes demand is higher than what organization can handle. Then marketing task, called de-marketing is required. like thru raising prices and reducing promotion and service. Selective marketing is reducing demand from some parts, say not so profitable, of the market

• Unwholesome demand: Unwholesome products will attract organized efforts to discourage consumption. Like unselling campaigns against cigarettes, alcohol, handguns. Marketing can use fear messages like “it is harmful tohealth”.

Types of markets

·Consumer market: mass consumer goods and services such as soft drinks, toothpaste, air travel etc. Normally B 2 C market

·Business Markets: Companies selling business goods and services face weel trained and well informed professional buyers. They buy goods for their utility or to to make or resell a product to others. Normally B 2 B markets

·Global markets: goods and services for global marketplace . They have to decide which country to enter , how to enter, has to have a fit the cultural practices etc.

·Nonprofit and Governmental Markets: goods to nonprofit organizations like churches, universities, governmental agencies need to be priced carefully. They have to follow long government procedures like tender to get this market. The normal process includes technical bid , price bid and
selection of lowest price.

Changes in market places

• More Information : With internet , social networking sites, its more esy to take opinion and information on products.
• Deregulation of market: Developing countries like India has seen deregulation of market . It has opened doors for new products and competition. Better information and transportation facility has globalize the market.
• Disintermediation : Coming up of internet marketing has started giving stiff competition to established businesses eg. Amazon.

For more details you may visit to http://industrialeducation.blogspot.com/2011/06/changing-markets-challenge-and.html

The Production Concept: The production concept is the oldest concept in business. The production concept holds that consumers will prefer products that are widely available and inexpensive.

Managers of production-oriented business concentrate on achieving high production efficiency, low costs and mass distribution. They assume that consumers are primarily interested in product availability and low prices. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than its features. It is also used when a company wants to expand the market.

Some service organizations also operate on the production concept. Many medical and dental
practices are organized on assembly-line principles, as are some government agencies (such as unemployment offices and license bureaus). Although this management orientation ca handle many cases per hour, it is open to charges of impersonal and poor quality service.

The Product Concept:The product concept holds that consumers will favor those products that offer the most quality, performance, or innovative features.

Managers in these organizations focus on making superior products and improving them over
time. They assume that buyers admire well-made products and can appraise quality and performance. However, these managers are sometimes caught up in a love affair with their product and do not realize what the market needs. Management might commit the “better-mousetrap” fallacy, believing that a better mousetrap will lead people to beat a path to its door. Such was the case when WebTV was launched during Christmas 1996 to disappointing results.

The Selling Concept:The selling concept is another common business orientation. The selling concept holds that consumers and businesses, if left alone, will ordinarily not buy enough of the organizations products. The organization must, therefore, undertake an aggressive selling and promotion effort.

This concept one assumes that consumers typically show buying inertia or resistance and must
be coaxed into buying. It also assumes that the company has a whole battery of effective selling and promotion tools to stimulate more buying.

The selling concept is practiced in the non-profit area by fund-raisers, college admission offices, and political parties. A political party vigorously sells its candidates to voters. The candidates’ flaws are concealed from the public because the aim is to make a sale and not worry about post purchase satisfaction. After the election, the new official wants and a lot of selling to
get the public to accept policies the politician or party wants.

THE MARKETING CONCEPT

The marketing concept is a business philosophy that challenges the three business orientations
we just discussed.

The marketing concept holds that the key to achieving its organizational goals consists of the
company being more effective than competitors in creating, delivering, and communicating customer values to its chosen target markets.

The marketing concept rests on four pillars: target market, customer needs, integrated marketing and profitability. The selling concept takes an inside-out perspective. It starts with the factory, focuses on the existing products, and calls for heavy selling and promoting to produce profitable sales. The marketing concept takes an outside-in perspective. It starts with a well-defined market,focuses on customer needs, coordinates all the activities that will affect customers, and produces profits by satisfying customers.

Target market: Companies do best when they select their target markets carefully and prepare tailored marketing programs.

Customer needs:A company can define its target market but fail to correctly understand the customers’ needs.

Understanding customer needs and wants is not always simple. Some customers have needs of
which they are not fully conscious. Or they cannot articulate these needs. Or they use words that require some interpretation.

We can distinguish among five types of needs:

1. Stated needs

2. Real needs

3. Unstated needs

4. Delight needs

5. Secret needs

Responding only to the stated need may shortchange the customer. Consider a woman who enters a hardware store and asks for a sealant to seal glass windowpanes. This customer is stating a solution and not a need. The salesperson may suggest that tape would provide a better solution. The salesperson met the customers need, not her stated solution.

HOLISTIC MARKETING CONCEPT

1. Relationship Marketing: Relationship marketing is building long term customer relationship to increase customer loyalty. It involves collecting information and need of customer and actively looking for solutions for them. It is one- to one marketing and is not always possible to undertake by every firms . Firms those are involved in B2B marketing actively adapt to relationship marketing to build marketing network.

Marketing network not only involves customers but also includes partners like distributors, wholesalers and agents. Marketing network is a asset of company because it creates customer lifetime value.

Changing Markets – Challenge and opportunity for marketers

Gone are the days when consumers had few choices for their requirement. One had to either go through long government processes to grab desired product from foreign supplier or had to get satisfied by whatever they get from indigenous supplier.

Liberalization of many developing countries has broadened choice available to consumers and expectations of consumers have also increased. On one hand more product choice availability has forced marketers to target their consumers more efficiently, on other hand it has enabled consumers to get product of their choice. For example in India we had only one branded noodles i.e. Maggie but with increased competition after liberalization forced even most popular noodles of India to produce different flavors and variety like whole flour based noodles to target more health conscious consumers.

Internet is now frequently sought for obtaining information on product and their comparisons with similar offerings. Social networking sites are becoming tools of taking opinion on product and trend discussion. With faster information delivery consumers are now more aware of product then before. A negative feature of product can now spread in market by means of internet, social networking site. Marketers were previously only highlighting benefits of product while making their offer but now they also have to highlight drawback and limitation of their product otherwise negative marketing may take toll on their product sell. It is not uncommon on social networking sites to have community named after product name, where features of product are discussed. Now product owners have also started to register themselves in such communities to consciously monitor and manage their brands. When brands control is moves in hands of consumers and carried away with sentiments of consumers it become difficult for brand owners to manage their brands .But with increasing advancement in information technology brand management has become more difficult.

If we focus on Indian market we could observe changes in demographical pattern and income pattern. More youths are entering job market and are now earners. Purchasing power and expectation of youths are more then older generation. Youth requires more trendy products and purchase them from malls and supermarkets.

Rural income has also increased and penetration of TV and other communication channels have increased demand of various previously unsought products into rural area. Marketers have got this opportunity to trap this “bottom of pyramid” by offering correct product at reasonable pricing. In India cola firms have targeted them by offering smaller size pack within their pocket limit.

Previously the marketing concept was production based and development of market has made them product based by increasing quality, focusing on consumer needs. There is also change in offerings; consumers need after-sale services, experience attached with product buying and during its use. A new concept of integrated marketing is entering Indian market. Consumers are treated like guests in airlines, after sale services are faster and hassle free, 24 hrs call centers and customization of products are example of it.

With the development of market, Marketers task have become more complicated then ever before. It has provided challenges but has also given opportunity to marketers to continuously work towards improvement of their offering. Marketers have to adopt more holistic approach towards serving larger society by adopting corporate social responsibility and environmental issued in their marketing campaigns.

Excel macro to create ID cards

I have created by first macro with following functions
1. can create bulk ID cards with single click.
2. Data is in excel so it can be easily modified or changes.
3. Gave little flexibility in formatting

I will soon add help files for the macro.
Currently I have put restriction on number of ID card per run as I am not sure about it's stability.

download excel file
http://www.filefactory.com/file/b466b0f/n/student-id-cards.xls

you may reach me at meenaachal at yahoo dot com

Accounting Concepts

Basic Accounting Concepts are:

· Entity Concept

separate from the existence of its owners. Accounts are kept for the entity as distinct from owners.

· Money Measurement Concept

a record is made only of those facts or transactions that can be expressed in monetary terms. The main advantage of money measurement concept is that even a layman is able to understand and appreciate the things stated in terms of money. However, the concept suffers from the following flaws:

a. Money does not have a constant value. The value of money changes because of inflation or deflation in the country.

b. All business assets cannot be measured in money terms. It is very difficult to calculate the value of goodwill or measure the competency or morale of employees.

· Going Concern Concept

business will exist for certain foreseeable future with the specified goal or for specified duration. Thus recording and valuation of long-term assets and liabilities are based on this assumption. Loan repayment are settled on this assumption.

o Business has an indefinite life.

o Assets are depreciated on the basis of their expected life without caring for their current values.

· Cost Concept

recorded in the book" of account at the actual price involved. . irrespective of any change in their market value. Acquisition cost is considered highly objective, reliable, definite and free from bias. the cost concept creates difficulties in its application in the following situations:

(a) Due to price rise, the financial position of a firm depicted on cost concept basis does not reflect true picture.
(b) Financial statements of two or more firms ,are not comparable due to changes in prices.
(c) Depreciation is computed on historical cost. This understates depreciation when current value of an asset is very high. So it becomes necessary to revalue the assets.
(d) This concept implies recording of all assets for which costs have been incurred but the assets like managerial competence, reputation or goodwill of the firm acquired over a period of time are not recorded.
(e) The exception to this concept of valuing assets at cost irrespective of its market value is the valuation of inventories. According to AS-2, inventories should be valued at cost or market price whichever is lower.

· Dual Aspect Concept

Assets = Capital + Liabilities

Every transaction entered into by a firm has two aspects, viz., debit and credit

· Full Disclosure Concept

Are for stakeholder , full information , any change in policy , accounting principles should be followed , proper annexure should be provided.

· Objectivity Concept

all accounting records should be supported by proper documents, e.g., invoices, cash memos, correspondence, agreements etc.

· Accrual Concept

revenue and costs are recognized as they are earned or incurred (and not as money is received or paid). helps in depiction of time financial position of the enterprise.

Accounting concepts related to income measurement are:

· The Time Period Concept (Periodicity Concept)

This concept indicates that the profitability of entity is to be measured periodically. The period for which income is measured is called the accounting period. Eg: for income tax purposes, financial year beginning on 1st April and ending on 31st March. However, for internal reporting the profitability report can be prepared monthly, quarterly or half yearly to facilitate better control and evaluation of performance.

· The Revenue Recognition (Realization) Concept

According to this concept, revenue is considered as being earned on the date on which it is realized. In case of sale of goods or service, revenue will be recognised when the seller of goods has transferred to the buyer the property in goods and no significant uncertainty exists regarding the sales price.

· The Matching Concept

Cost of goods sold and operating expenses incurred during the current financial period are recognized as expenses of the current financial period and will be matched with the revenue of the current period. Incomes received in advance or relating to earlier periods must not be taken into account. Similarly, expenses paid in advance are also to be ignored while computing the income of current accounting period.

· The Materiality Concept

Materiality is 'the characteristic attaching to a statement, fact or item whereby its disclosure or the method of giving it expression would be likely to influence the judgment of a reasonable person.' Financial statements should disclose all material items, that might influence the decisions of the user of the financial statements. Thus when the event is material, it should be disclosed. But if the item or event is immaterial, it may not be disclosed.

· The Consistency Concept

Accountancy principles generally allow more than one method of describing identical operating situations. Eq: st. line depreciation or exponential depreciation method. It is for this reason that the consistency principle requires that the basis of income measurement and preparation of financial statements should remain consistent for intra-firm and inter-firm comparison

· The Conservatism (Prudence) Concept

This requires understating rather than overstating revenue (income) and expense amounts that have a degree of uncertainty. The rule is to recognize revenue when it is reasonably certain and recognize expenses as soon as they are reasonably possible. The reasons for accounting in this manner are so that financial statements do not overstate the company’s financial position. Accounting chooses to err on the side of caution and protect investors from inflated or overly positive results.

1. Inventories are valued at lower of cost or market price.

2. Providing for doubtful debts and discount allowed to debtors but ignoring the probable discount received from creditor till the time final payments are made.

3. All the fixed assets are valued on historical costs irrespective of their market price except in the case of revaluation of business.

4. Preference of written down value method over straight-line method of depreciation, since the earlier one, provides for more depreciation in the initial years of use.

5. Valuing Joint Life Insurance Policy at its surrender value irrespective of amount of installments paid.

Chapter 3. Attitudes and Job satisfaction

Organizational Behavior (Twelfth Edition ) By Stephen P. Robbins and Timothy A. Judge.

Attitude has three components
1. Cognition [think]
2. Affect [Feel]
3. Behavior [React]

Theory of cogitative dissonance by Leon Festinger
Align attitude to behavior = CONSISTENT
Attitude inconsistent with behavior = Cogitative dissonance (i.e. working against your own will ) high reward accompanying high dissonance tends to reduce the tension inherent in the dissonance.

Self – perception theory: you will tend to infer your attitude from your behavior. When your attitudes have been established for a while and are well defined those attitudes are likely to guide your behavior.

Major Job attitudes
1. Job satisfaction : ‘+’ ive feeling about job
2. Job Involvement : perceived performance level important to self worth, meaningfulness of their job. High level of job involvement is positively related to organizational citizenship.

3. Organizational commitment
3.1- Affective commitment : due to emotional attachment
3.2- Continuance commitment : due to monetary benefit
3.3- Normative Commitment : due to moral and ethical reasons
4.Perceived organizational support

Job Satisfaction measurement
1. Single Global rating method – asking direct single question
2. Summation of job facets – asking various questions and assigning weights to each question and adding them up to arrive at score.

Impact of dissatisfied employees on the workplace
EXIT- VOICE – LOYALITY-NEGLECT framework

Active

Exit Voice (work for change)

Destructive_________________________Constructive

Neglect Loyalty (wait for things to improve)

Passive

Chapter 1. What is Organizational Behavior

Who is manager ?
- get things done by people
- make decisions
- allocate resources
- direct them to attain goal

Function of manager?
- planning
- organizing
- leading
- controlling

Skills required by managers? (As identified by Robert katz)
- Technical skills – ability to apply knowledge or expertise
- Human skills – ability to work with people , motivate and understand them
- Conceptual skills – mental ability to analyze and diagnose complex situations

Henry Mintzberg model of managerial roles
- total 10 tasks are performed
- total 3 categories

Role
1. Interpersonal role
a. figure head – symbolic head
b. Leader – provide motivation and direction
c. Liaison – maintain outside contact

2. Informational role
d. Monitor – serve as nerve centre for information
e. Disseminator- transmit external information to organization
f. Spokesperson – transfer organizational information to outside

3. Decisional role
g. Entrepreneur – search for opportunity and initiate projects
h. Disturbance handler – Responsible for corrective action
i. Negotiator – represent organization at major negotiations.


Effective Vs Successful managers studied by Fred Luthans
Effective manager spend more time in communication and least time in networking while successful managers in terms of promotion spend more time in networking.

Challenges and opportunities
- Increased foreign assignments
- Shifting of jobs to low cost labor countries
- People with different culture
- People with diversity
- Managing people during war and terror
- Improving customer service
- Improving people skills
- Coping with temporariness
- Improving ethical behavior

Organizational parameters
Independent variables have effect on dependent variable. Study of independent variable provide basis for study of dependent variables.
1. dependent
i. Productivity
ii. Turnover – people leaving organization
iii. Absenteeism
iv. Deviant workplace behavior
v. Org. citizenship behavior
vi. Job Satisfaction

2 Independent
vii. Individual level variable
viii. Group level variables
ix. Org. level variables

Back Tesing application for equity trading

I was searching for some software where i could use privious tick data for backtesting my trading skills. Software available in market are either costly or required some basic level of programming.

I have developed this basic application in VB6 (source code is available for developers for modification - leave a message with your email address).

I have used yahoo finacne to download stock data ( intra day tick data was not available ). You can load the file by clicking file and load data.

initial cash balance provided is 10,00,000. Click on next tick for next tick data.

I would be updating this application by providing volume graph just below the price graph and will try to put some moving averages.

you are free to provide suggestions for the application.

link for downloading the application

http://www.filefactory.com/file/b0f95cg/n/backtesting.zip

Corporate Finance: A Focused Approach

Download book and solution manual

Corporate Finance: A Focused Approach -1st Edition
+Solution manual of chapter 1,2,3,4,5,6,7,8,9,10,11,13,17
Michael C. Ehrhardt , Eugene F. Brigham
South-Western College Pub


Password to open solution of chapter 11: ayonbd2000
Download book+solution from mihd

HBS Case: Jaguar PLC

HBS 9-290-005: Jaguar plc, 1984

Jaguar PLC, 1984 Harvard Business Review

Objectives

• To discuss operating exposure to real exchange rate changes
• To discuss various alternatives for managing such exposure
• This case setting is the privatization of Jaguar in 1984
• To value the shares being offered for sale as a function of expected exchange rate

Questions
1. Consider Jaguar’s exchange rate exposures. To which currencies is Jaguar exposed? What are the sources of these exposures? How would the company be affected by a 25% decline in the value of the dollar?

2. How should Jaguar’s shares be priced? Estimate the likely value of Jaguar’s equity in the following scenarios:

• no change in the real exchange rate between the dollar and the pound
• a 25% drop in the real value of the dollar against the pound
• a 10% rise in the real value of the dollar against the pound
• Create other scenarios of your own. In doing so, consider reasonable changes in price, volume, and other variables that may change as a direct or indirect result of exchange rate changes
  

3.Quantify Jaguar’s exposure in 1984 to the real dollar/sterling exchange rate. How large is it compared to Jaguar’s sales? Assets? Equity value?

4. Should Jaguar attempt to hedge its dollar exposure? Why or why not? What methods are available for hedging this exposure? What are the costs and benefits of each?

Background-dramatic turnaround from 1980 to 1983

• An increase in labor productivity
• Cost cuts
• An increase in volume to move the company past its breakeven production volume
• Sales volume increased by 13 thousand vehicles from 1980-1983.
• Nearly all of this improvement occurred in the U.S. market

What is the most important factor contributing to this increase in U.S. sales volume?
- Was it due to the appreciation of the dollar during this period (see Exh 7), rather than to the efforts of John Egan?
- Perhaps because of strong dollar
- But, both Jaguar and German competitors did not cut dollar prices in the US
- Instead, the followings contribute to sales volume increase rather than price cuts
1. Improvements in product quality
2. U.S distribution
3. Customer service


Q. Why did export volume to some countries such as West Germany and the rest of Europe actually declined from 1980 to 1983?
-It was not because of reduced European demand, but rather of Jaguar’s decision to allocate production to the more profitable U.S. market

Q. Which currencies affect Jaguar’s operating exposure?

• $/pound
• DM/$
• Daimler-Benz – Jaguar’s competitor
• Best: $/pound and DM/$ fall
• Worst: $/pound and DM/$ rise
• If we sell our products in the US but outsource from our home country, we will raise dollar prices after a weakening of the $ against home currency.
  

- A general rise in the value of sterling against all currencies is more harmful to Jaguar than a general weakening of the dollar agianst all currencies.


Valuation

• Base case
• A 25% depreciation of the $ against the pound, with no changes in $ prices or U.S. unit volume
• A 25% depreciation of the $, to which Jaguar responds with a 10% increase in $ prices  Reduce U.S. unit volume
• A 10% dollar appreciation with no price or volume changes

1. Base case
- There are three types of distinctions
1. dollars vs. pounds
2. volume changes vs. price changes
3. fixed vs. variable costs
 We divide Jaguar’s world into 2 markets, the U.S. and the rest of the world assumed to be a sterling market
 Thus, the analysis may ultimately understate $ exposure, because markets such as Australia and Canada might be more $-like than pound-like.

What is a discount rate for sterling cash flows?
- No beta is provided because there are no public shares as yet.
- Betas for other auto producers are either not available or are for very large full line producers such as G.M. and Ford,and are measured with respect to different equity markets.

Taxes
- Jaguar’s financial statements for 1980-83 show negligible taxes, but you may expect that Jaguar will soon exhaust its unutilized tax credits and carry-forwards.
- Dollar price increases in the U.S. equal to U.S. inflation, assumed to be 3% per year.
- Sterling inflation is 5% per year
- Rest-of-world sterling prices increase at this rate

Assumption
 The exchange rate starts at $1.350/pound in 1984 (given in the case)
 Declines at a rate of 2% per year (according to PPP)
 This is not what the market expect.
 Exh. 8 shows the dollar at a forward discount to the pound, despite lower U.S. inflation
 COGS –variable cost increasing at the sterling rate of inflation.
 Depreciation – fixed
 R&D, distribution, and administration - increased with sterling inflation
 Some portion of distribution costs is variable
 Some portion of COGS, other than depreciation, is fixed.
 2. 25% depreciation in $ against pound PPP holds there after. Thus there is no change in the sterling discount rate
 Assume Jaguar makes no change in its dollar prices in response to the shock Its scope for responding is affected by actions of other competitors.
 If the sterling value of the dollar drops, not its mark value, then Jaguar may have difficulty raising dollar prices because its German competitors are less likely to.
 The effect of this simple change is quite dramatic.
 The value of the CF is reduced from 515 million pound to 119 million pound a reduction of 77%

How to respond?

Other scenerios
 25% Depreciation in $ and raise $ price 10%
The value of FCF is 258 million pound compared to 119 if we don’t raise price.

 10% Appreciation in $
33% increase in FCF and 38% increase in equity value compared to the base case

Potential exposure to the Yen

 Honda, Toyota, and Nissan are expected to enter the U.S. luxury car market before the decade is out.
 None has yet entered in 1984.
 Yen/pound - the Japanese producers may enter the U.K. and European markets
 Yen/$ - The pace and progress of the Japanese entry into the U.S. market.


If yen appreciates against $, how will it affect the profit of U.S. luxury car?
 Will be less profitable for the Japanese companies
 This is even more true in less expensive segments of the U.S. market, in which the Japanese firms already compete.
 Thus, this appreciation of yen will hasten the move upscale by Honda, Toyota, and Nissan to the detriment of Jaguar and the German companies.
 It might reduce the profit of U.S. luxury car.

How to estimate exposures?
 There is a distinction between the exposure of firm value and the exposure of equity value.

 What is exposure?
It is how home currency firm value change with respect to the 1% change of home/FX exchange rate.Thus, it is foreign currency unit.

 Exchange rate change may not be permanent
 It may take only 1-2 years
 This exposure is based on unexpected change.
 If the exchange rate rises in 1985, the stock market may regard it as a deviation from PPP, but not as a surprise.
 Exchange rate +/-1%  Cash flow change +/- 50 million pound 50*$1.35/pound = $67.5 million

 Overestimated number

Why is 67.5 million an overestimate of exposure?
 It takes no account of Jaguar’s ability to blunt the exposure with operating responses:
$ appreciate -> Raise $ price -> Decrease sales volume
 It assumes that exchange rate change is permanent
 In the volatile rate environment of the 1980s, a given real exchange rate shock might have both permanent and

temporary parts
 Exposure to a temporary change occurs during a year or 2, rather than the PV of all future dollar CF


It assumes that the exchange rate change is unexpected.

 The expected scenario is not the base case, but rather one in which PPP is not expected to hold.
 If the exchange rate rises in 1985, the stock market may regard it as a deviation from PPP.

Why do we tend to overestimate exposure?
 It is not a surprise.
 The MV of Jaguar assets (and equity) has already been discounted for some expected drop in the value of the $
 That’s why Jaguar’s equity value drops to 200 from 450 million
 Info about expected future exchange rates is available from the term structure in the forward market
 The case does not provide the term structure of FW market except in Exh 8.
 If available, it would be another way to construct the projected exchange rates

Should we hedge?
 Although Jaguar’s exposure is much less than $24 billion, it is still large
 Quite possibly larger than equity value or asset value

Pros of hedging
 Reduced volatility increases firm value
 By reducing contracting costs
 Firms can hedge more cheaply than investors
 Because of lower transaction costs and better information
 Investor can hedge for themselves if they want to
 A hedging program may be expensive
 Difficult to control
 Set up potentially perverse incentives
 Ultimately ineffective



Cons-Derivatives
1. The are nominal contracts that only work well when nominal exchange rate changes are highly correlated with real

changes.
 This has been the case for most major exchange rates for most of the 1980s.
2. They can significantly distort reported financial results
3. Except for LT debt, they are not easily obtained for terms much beyond 24 months.
4. Jaguar’s exposure is so large that any effective hedge would be large compared to the rest of the firm


 Jaguar’s CFO remarked that, for LT US$ debt functioned as an effective hedge,…
 Jaguar would have to issue a huge amount (over US$1 billion), convert the proceeds to pound, and sit on the cash.
 He felt this would intolerably distort Jaguar’s financial reports.
 Use real hedges:
 Sourcing policies
 Manufacturing locations
 Selling locations
 John Eagan stated the importance of quality
 Use of real hedges made the company successful so far in the 1980s.

What happened
 At the end of July 1984, 177.88 million Jaguar shares (of a total 180 million shares) were offered.
 At a price of 165 pence per share
 Implied a market cap of 297 million pound.
 The offer was oversubscribed
 The shares traded up about 7% upon being first listed on Aug 10.
 Selling $ forward 50-75% of the next 12 months
 It would not nearly hedge all of Jaguar’s exposure, but would give the manager some time to respond to dramatic

currency swings.
 $ rose for a short time after the share offering in July 1984, reaching $1.159/pound at the end of 1984; it did not peak

until the first Q of 1985.
 $ began to fall in Feb 1985
 In the spring of 1985, Jaguar executives felt that forward rates were attractive and pushed their rolling hedge out 24

months instead of 12 effectively locking in sterling rates through the spring of 1997
 This proved quite prescient, as the dollar’s slide accelerated, until by the end of 1987.
 Jaguar’s management was roundly praised
 DM/pound was fairly stable
 In 1988-89, some of the forward contracts lost money as the dollar recovered
 Many employees were dissatisfied  Labor negotiations were more difficult
 Unable to hedge its exposure effectively
 Jaguar remained competitive through improvements in its dealer network and production efficiencies
 Capital expenditures were tripled from 1983-1987 to modernize manufacturing capacity and lower costs.
 Ford acquired Jaguar at the end of October 1989 in buying the entire company for 1.6 billion pound (about $2.5 billion)

Estimated Exchange Rate Risk	90.0
	Value	Risk as a % value
Q1 1984 Sales	143.3	15.7%
1984 Sales Annualized	573.2	15.7%
1983 Sales	472.6	19.0%
Fixed Assets	119.0	75.6%
Current Assets	130.5	69.0%
Total Assets	249.5	36.1%
Equity	125.0	72.0%

HBS Case: Threshold Sports

Harvard Business School Case : Threshold Sports
Cycling Market
Europe

* Popular as amateur and professional sports
* Well supported

1. Prestigious Tour de France
2. 1 billion viewers

United States

* Growing in popularity as a professional sport
* Lack of community support and organization
* Growing interest due to cycling icon

1. Greg LeMond
2. Lance Armstrong

S.W.O.T Analysis
Strengths
Management experience

* Cycling
* Event planning
* Contacts
* Over 100 professional cycling events

Current sponsorship agreements

• First Union Series, BMC Software Grand Prix, U.S. PRO Cycling Tour

• Event-staging equipment Acquired for less than 1/3 of the value

Weaknesses

* New Company: 3 months old
* Management has limited experience in finance
* Financing needed for first growth phase
* Identification for potential investors/banks
* No tangible assets

Opportunities

* First movers to emerge in the United States
* To become a household name – “branding”
* Growth potential

Interest by spectators – the next “NASCAR”
Expansion across the U.S.

* Selling more sponsorships
* Expansion of TV coverage
* Developing new revenue streams
* Potential profit growth

31.17% in 2001
15.47% in 2002
Threats

* Risk of competitors gaining the advantage
* Loss of market share
* Being taken over by an umbrella organization
* Cycling does not gain popularity

Lack of investors
Lack of marketing

Growth Plans
* Create financing need for Threshold Sports
– Estimated need of $500,000 for upcoming expenses
– Growth plan consists of emerging European style cycling events into the US market

Issues Facing Valuation

* New firm
* No tangible assets
* Limited comparable companies

Possible Valuation Methods
EBITDA

* EBITDA multiplier for private companies = 6.0
* EBITDA multiplier average for comparable companies based on the industry for fiscal yr 1999 = 17.35
* Comparable company with a positive EBITDA

– Cordiant Communications Group
– 15.09
Valuation based on EBITDA
$14,743,000
P/E Multiples of Comparable Companies
Valuation based on P/E multiple
$32,004,000
Discounted Cash Flow
Key assumptions:
Rf = 6.04%
Βeta = 1.2
Rm = 15.04%
Re = 16.84%
Valuation of Threshold based on DCF method
$4,337,000

Financing
FRICTO Analysis of Debt Financing
Flexibility
– Not flexible, but customizable
Risk
– Risk off-set by a higher interest rate by the bank
– It is a risky loan for the bank
Income
– Structured into the loan, coupon payments, lump sum payment, etc.

FRICTO Analysis of Debt Financing
Control
– Founders can keep control
Timing
– Timing can affect the interest rate, not as important as other 2 options
Other
– Can default on loan, bankruptcy, debt restructuring
Valuation of Debt Financing
Tax shield value = $135,511
Value of Threshold Sports = $4,473,000

FRICTO Analysis of Issuing Common Stock
Flexibility
– Liquid – easy to change ownership

Risk
– Higher Risk for investor
– If company goes bankrupt, common stock holders are behind bond holders in line for assets

Income
– Capital appreciation
– Dividend

Control
– Owner of company with voting rights
– Founders will lose some control
– If they wanted to keep control, they can sell 49% of the company as long as they all vote the same

Timing
– Best to offer stock when company has strong financials and positive outlook, this way they can raise the max. capital

Other
– Financial statement implications, looks better than debt


The added value to the company is the equity received from the stock issue
$4,837,300

FRICTO Analysis of Issuing Convertible Preferred Stock
Flexibility
– Pre-established terms state that it could be converted into common stock
– Preferred stock = 1.5 units of common stock executable at the strike price

Risk
– If company fails preferred stock holders may lose some initial investment
– Increase in interest rate
– Company risk

Income
– 10% dividend on par value that will accrue and be payable on a cumulative and noncumulative basis

Control
– Holders of convertible preferred stock do not have voting rights
– Control remains in the hands of the founders
– If the preferred stock holder wants to sell, first must offer to the company for a buy back and then to existing preferred stockholders

Timing
– Interest rate sensitive; not ideal to offer during increasing interest rates
Other
– Tax disadvantage/No tax shield offered
– Taxed as personal income, not as a business expense

Value of the Preferred stock
– $4,176,000
– Deducted discounted dividend payments from the discounted cash flows

Convertible Preferred Stock
Convertible preferred stock has an embedded option that allows the holder to exchange each preferred share for a specified number of common shares. Convertible preferred is usually callable. This allows the issuers to call the stock and force preferred shareholders to choose between accepting either par value or common shares. This is called a conversion-forcing call.

Option #1

* Find a corporate partner to provide capital in the form of a loan
* For collateral on the loan issue the lending company common stock
* This will provide a tax shield to Threshold Sports and allow them to retain majority control of the company

Option #2

* Issue convertible preferred stock

Recommendation
Convertible preferred stock

attachment : http://www.filefactory.com/file/a0ee91e/n/Threshold_Sports_Exhibits_xls

HBS CASE : Home Depot

Home Depot - Strategic Internal Organization & Financial Analysis
Summary:

Home Depot has many distinctive competencies that it uses to capture the majority of the Do It Yourself market, which represents a $100 billion dollar market. The key Issue is that while Home Depot is satisfying the DIY market they have not yet gained a significant share of a much larger $265 billion dollar, professional market. It has already built a foundation of key competencies that can be used to attract the professional buyers. These competencies include the incorporation of up to date technologies, which aid in its internal and external environment and allows it to gain a competitive edge over its competition. Home Depot’s ability to supply extensive product lines, and provide services and support for those products, also enables it to differentiate itself from many of its competitors.

Internal Organization Analysis

Strategy and Direction

The company started off with plans to cater to the Do-It-Yourself market, and over the years has been successful with it. This is a $100 billion market. Over the years, since Home Depot has expanded over most of the states and areas in United States and neighboring countries, its time they find another target market that they can address. Hence now Home Depot is thinking of concentrating on the Professional business customer market with is a $265 billion dollar market. Even though the profit margin is low in this business, Home Depot can expand and supply this market and still make good amount of Profit instead of having around $150 million per year in cash savings.

Key Managers
The Key Managers for Home Depot are widely experienced in other retail markets. Many of the key managers have been promoted from within. Because of internal promotions employees have an attachment to the company and are motivated to work hard at their jobs. The company has further improved productivity by cross training its employees. It has invested a considerably large amount of money towards training therefore employee turnover is a concern. Currently Home depot has a 30% turnover rate an this issue needs to be addressed.

Bernard Marcus, Arthur Blank and Ronald Brill are a part of the key management team. Marcus and Blank are co-founders and serve on the board of directors. They have also served on many other boards which bring them more experience in management. Marcus’s background before Home Depot was in the retail industry. Brill has been with Home Depot since its inception in 1978 and was the Treasurer and more currently an Executive Vice President and CFO.

Board of directors
The Board of Directors consists of ten really experienced people. Most of the board members are from outside the company. Like the management team, the board of directors needs to have members with more outside experience in similar retail markets. This will allow them to guide the company in with regard to where competitors are moving, and would help Home Depot take a few critical steps forward. Home Depot Values its employees, and pays them decent wages.

Value chain
As mentioned earlier Home Depot’s wide array of products which is coupled with its supporting services, and extremely helpful and knowledgeable staff proves to be a strong source of added value to its products. This makes the Do-It-Yourself task much simpler. Home Depot has also applied its cutting edge technology to reduce the huge customer lines associated with its large customer base. They have incorporated a self-checkout system which makes it a lot faster, and convenient for customers to complete the purchase process; this is another aspect that adds value to purchasing products at home depot.

Financial analysis
Home Depot has been successful financially, and has showed impressive growth since its beginning. The Do-It-Yourself market has proved to be successful with 24.1 billion in sales, which is more than twice their nearest competitor. The growth numbers have been impressive for this company. If one had invested $1,000 in this company on June 30, 1982, their investment would have been worth $152,479 on June 28, 1997. Home depot’s Inventory turnover increased significantly following the application of a new inventory management system. The change was from 4.1 in 1985 to 5.7 in 1994. This rate helped Home Depot carry 40 million less in inventory tying up less working capital to finance it. This allowed for a cost structure that was significantly lower than its competition.Home Depot had a quick ratio of 54% in 1997, and 35% in 1998; even then they have increased their current assets and inventories. The current ratio for Home Depot in 1997 was 2.01 and in 1998 it was 1.81. This is pretty strong, since they have 1.81 assets for each liability. They have taken no risk at all; they actually have an equivalent of almost half their debts on hand. This means that they have a lot of cash that hasn’t been used for anything yet. These available funds can be used towards the implementation of strategies that support expansion in to the professional market.


Resources , capabilities and performance evaluation
Home Depot is expanding pretty rapidly and making more and more profits every year. Their Balance sheet for 1997 and 1998 shows that Home Depot has an equivalent of $146 million and $172 million in cash and in cash equivalents. The company has always been able to translate its resources into capabilities, by trying to expand in new markets by opening more and more new stores every year and continuously incorporating new technology in its processes. The company’s past performance has been really good. They have used their finances efficiently to expand their business. The Company has been successful up till now with their Do-It-Yourself strategy, and hasn’t yet failed in any strategies that they have tried to implement. Home Depot was mainly focusing on the DIY strategy up until now, when they decided to enter in to the professional market. New strategies that utilize their healthy finances will have to be implemented in order to increase market share of this large target market.

Strategy
While Home Depot has been doing very well over the past few years there is still much room for improvement in a couple areas. The more minor area that Home Depot could look at improving is there employee turnover. While the 30% turnover rate is extremely good in the retail business it is costing Home Depot a lot of money. The reason that there is such a high cost involved is that employees go through an extensive training process. Home Depot needs to find a way to cut the cost involved when they lose an employee.

Unlike the first new strategy suggestion, the second more major strategy involves generating more revenue rather then cutting costs. Our suggestion is for Home Depot to enter the large Professional builder market. Currently Home Depot has the largest market share of the DIY market and is making tons of money. If they are able to do the same with the professional market then their profit potential would skyrocket. Also, the DYI market tends to do better during times of recession while the professional market tends to do better during times of economic growth. By capturing both markets not only would Home Depot make more money, but also their cash flows would be more even throughout the years (not as affected by economic trends).


Implementation Plan

Since Home Depot has done so well in the past they should be able to use some of their past experiences to better help them with our new suggestions. For our first suggestion of cutting cost involved with employees leaving the company Home Depot needs to develop some controls that would allow them, when hiring, to determine which individuals are high risks for turnover. When someone is determined to be high risk Home Depot could decide to not give the employee all of the four to six weeks of training at once. For example; only train an employee on the cash register to begin with, once they have stayed employed for a few months give them training in another section. Hopefully this will be able to save Home Depot some costs that are involved with training then loosing help.

The second suggestion has the ability to make Home Depot a lot of money. The suggestion is that Home Depot try to expand into the professional builder market. What is important about this strategy is that they not let it affect their current efforts with the DYI market. In order for Home Deport to tap into the professional market they will need to expand their current stores; making a section of the store that caters to the professional. As well as expanding their stores Home Depot will also need to come up with a very good delivery system so that building materials can be delivered directly to the job site of the professional. The third step in the process would be that Home Depot would need to do a lot of marketing and advertising to people in the professional market. Basically Home Depot would need to change their image in the eyes of the professional while at the same time maintain their image to the DIY market.
Home Depot is in the fortunate position that they have enough resources to pay for such an expansion. Even though Home Depot has a lot of cash and cash flows it is a good idea to try to leverage some of there equity. Basically try to let the banks pay for as much of their expansion as possible.

External Task Environment (Porters five forces plus two)

Supplier bargaining power:
Home depot has approximately 5700 vendors. The large number of vendors enables it to have high bargaining power where as each supplier has very little to no bargaining power. It is able to demand lower prices due to its large volumes of purchases which in effect give it an advantage over its competitors.

Customer bargaining power:
Customer bargaining power is very low because Home Depot is like a one stop shop with almost everything a person would need; in addition it also provides many workshops and demonstrations which add value to any purchase. By having such a wide array of products and services Home Depot is able to minimize customer bargaining power.

Substitutes:
Professionals such as tradesman builders and general contractors serve as Potential substitutes to Home Depot’s current DIY target market. A benefit of capturing the professional market is that it will allow Home Depot to eliminate threat of these substitutes. Once they sell products to these professionals; whether they provide the service on their own, or are given opportunities through Home Depot’s contracting; either way supplies will be primarily purchased from their store.

Complimentors:
Home Depot’s owns TLC Inc, a very popular channel with remodeling and home maintenance repair shows. These shows serve as a complimentor to Home Depot’s products. These shows increase the viewer’s desire to do their own home improvements, which draws them into the store. Professionals, such as interior designers and other home improvement specialist, compliment Home Depot by giving people new ideas and the means to carryout those same ideas.

Rivalry:
Home Depot’s main competition includes Loews, PayLess, and Builder’s Square. Rivalry has been mainly fuelled by low prices, location and product offerings. Home Depot has managed to excel in these areas due to their bargaining power against suppliers,and the up to date technology that allows it to have lower prices, and enough inventory on hand to satisfy demand, which makes Rivalry considerably low for Home Depot.

Barriers to entry:
Home depot continues to cannibalize sales of existing stores by opening two other stores in a single area. While this may lower same store sales it is also able to drive existing stores out of business and keep competition from entering. Home Depot has managed to raise entry barriers themselves. Also, there is a large amount of capital cost involved in starting up a new store which reduces the threat of new entry.

Stake Holders:
Home Depot managed to build strong relationships with all its stakeholders. Its internal “network” structure coupled with higher wages and employee stock ownership plans helped motivate and gain employee loyalty. Home Depot’s customers are satisfied because they have been given support with installation of purchases through work shops, and by their licensed contractors. Environmental awareness and strong social activeness gives back to the community, through programs such as “Habitat for Humanity” which has built thousands of homes and increased brand exposure. Such activities have helped free the company from any stakeholder threats

Product life cycle/Economies of scale:
Even though Home Depot sells DIY products to fix up houses and these are mature products, in effect they are commodities because individuals will always update and fix their houses. These products can also be commodities because homes are always being built regardless if there is a recession or not. So Home Depot ultimately benefits from selling most items that will always be in demand no matter how bad the economic conditions may be. Even in the last recession Home Depot performed well as the DIY customers would upgrade and maintain their households. However, access to the professional building market is also beneficial because in good economic conditions Home Depot will prosper with the abundance of new homes being built. If rough times are expected Home Depot can always rely on its bread and butter; the do it yourselfers to drive the business.

As the number one home improvement retailer in the market Home Depot sets the standard for its competitors. This allows them to have an economy of scale on how they obtain their supplies. Like Wal-Mart, Home Depot provides a huge outlet for all its vendors. With the vast size of their stores, Home Depot can get bulk discounts that come with ordering large amounts of inventory. They have the DIY and BIY market cornered. However, they may have a large learning curve to overcome to their low percentage in the professional builders market.

Technology:
Technology is highly integrated into Home Depots operational structure. Using EDI (Electronic Data Interchange) with its thousands of vendors Home Depot is able to keep a good window of communication open so they know when a store is low on inventory. Usage of UPC codes and tracking each item sold allows Home Depot to keep an accurate inventory of items and see which items are selling better than others. The integration of technology gives Home Depot a distinct advantage in inventory management. Thus they are able to increase their inventory turnover through the use of these inventory management systems. By turning over inventory quicker, their capital isn’t tied up in a warehouse but able to be used for other projects.