Study Of Various Discounted Cash Flow Valuation Models Finance Essay - Free Essay Example

Sample details Pages: 10 Words: 2937 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The paper is a study of various Discounted Cash Flow Valuation Models to value both equity and organizations. The difference between cash flow to equity and to an organization is studied. The basic Dividend Discount Model is studied with its various variants like Gordon Growth Model, two stage and three stage dividend discount models. Don’t waste time! Our writers will create an original "Study Of Various Discounted Cash Flow Valuation Models Finance Essay" essay for you Create order In the last two the values of extraordinary growth is separated from the value of steady state growth. There is a discussion of why free cash flows to equities different from dividends for a lot of organizations. The two and three stage FCFE models are described. An alternative valuing model FCFF has been described which discounts cash flows to the firm at the weighted average cost of capital. The advantages and limitations of each model is mentioned along with conditions of which model has to be applied under what conditions. VALUATIONS Determining the Present Value of the future cash flows of a company is the aim of any valuation technique. Generally investors buy stocks for as they expect that the future cash flows of the company will be high. Hence how much cash flow an asset is going to generate has to be calculated in order to determine the fair price to be paid for the particular stock. Price is that numerical figure at a moment when a transaction is completed when the market is in balance. It represents a snapshot of a dynamic market. Price is generally the function of demand and supply. Valuations are used by Fundamental Analysts, Franchise Buyers, Chartists, Information Traders, Market Timers and Efficient Marketers in different ways to suit their respective objectives. Valuations are also required in Acquisition Analysis and Corporate Finance. Valuations take into account future cash flows. Future cash flows can only be predicted or guessed with some amount of certainty. Hence even small errors lik e non payment of rent, etc could lead to an error in valuations. The more certain one is about the future cash flow, the valuations are correct to that degree of certainty. Therefore valuations a definitely uncertain. Valuations can be done by various methods and no one method is the best. Different methods have to be used under different circumstances. Valuation methods, generally, can be divided into three approaches Discounted Cash Flow method, Relative Valuation method and Contingent Claim Valuation method. All the above if used for the same valuation an give very different end results. DISCOUNTED CASH FLOW VALUATIONS The sources of uncertainties in valuations are rational and can easily be identified. For the purpose of our study for this paper, we will concentrate on the Discounted Cash Flow valuation method. This method is based on the thought that The actual value of any asset is its present value of the expected future cash flows that it will generate. Cash Flows will be different for every asset. To transform the value of future cash flows into present value, we use a Discount Rate. For some, this Discount Rate is the function of riskiness of estimated cash flows that is the rates will be higher for riskier assets and will be lower for safer assets. where DPV Value n life of the asset FV Cash Flow in time t i discount rate which reflects riskiness of the estimated cash flows There is a difference between Equity Valuation and Company Valuation. Either on the equity stake can be valued in an organization or the entire organization can be valued. In both the methods, the fu ture cash flows of the firm are discounted, the cash flows and discount rates taken into account are different. For an Equity Valuation, the expected cash flow to equity is discounted at the Cost of Equity while to value a company, the expected cash flow to the company is discounted at the Weighted Average Cost of Capital (WACC). Discounted Cash Flow Method is firms that have positive cash flows which can be estimated with certain amount of reliability for the future. The method cannot be used for firms in trouble, cyclical firms, firms that have unutilized assets, firms with patents, firms which are restructuring, the ones involved in acquisitions, private firms. The most commonly used methods by discounted cash flow in order to value companies are Free Cash Flow which is discounted at the Weighted Average Cost of Capital Cash Flow to equity discounted at the Rate of Return on Equity that is required Capital Cash Flow which is discounted at the Weighted Average Cost of Capital before tax Adjusted Present Value Risk Adjusted Free Cash Flow to a firm discounted at the Rate of Return required to the Assets Risk Adjusted Equity Cash Flow to a firm discounted at the Rate of Return required to the Assets Economic Profit which is discounted at Rate of required Return to Equity Economic Value Added which is discounted at Weighted Average Cost of Capital Risk Free Rate Adjusted Free Cash Flows which are discounted at the Risk Free rate of Return Risk Free Rate Adjusted Equity Cash Flows which are discounted at the Rate of Return required to Assets All the above methods giving the same end results is very logical as all the methods only differ in the cash flows taken at the start of the method but has the same of same reality and hypothesis. DIVIDEND DISCOUNT MODELS GORDON MODEL A very convenient and widely used Dividend Discount model includes The Gordon Growth Model. It can only be used for firms that have a stable growth rate. Po Value of stock D1 Expected dividends during next year k Required rate of return for equity investors g Growth rate in dividends forever This Model assumes that the growth rate in dividends is going to last till infinity and hence the same can to assumed for firms other measures of performance. A stable growth rate which has to be assumed has to be a very reasonable value as in the long term, the organizations growth rate cannot be more than that at which the economy operates. The above method is highly sensitive to the input of growth rate. As the growth rate will converge on discount rate, the value goes to infinity. It is best used for organizations whose growth rates can be compared to the nominal growth rate of the economy. TWO STAGE DIVIDEND DISCOUNT MODEL Another method is called the Two Stage Dividend Discount Model. It takes into account two stages of growth the first one which has a high growth rate and the next one which has a stable growth rate and is expected to be that way for a long time. Value of stock at present = (from 1 to n) ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å" (Expected dividends per share in year t / ((1 + Required rate of return)^t)) + Price at the end of year n / ((1 + Required rate of return)^n) where Price at the end of year n = Expected dividends in the year n + 1 / (Required rate of return Growth rate forever after year n) The above Model faces a problem in specifying the length of the high growth period, as the growth is expected to decline and come to stable after this period, increasing this time period will increase the value. In reality, the shift from high growth rate to a stable growth rate happens gradually over time but this model assumes that it happens suddenly which may only be the practica l case for few. However the method can be used for firms which are expected to maintain the high growth rate for some time after which the reasons for high growth rate disappear. VALUE OF GROWTH The value of Growth is important to estimate which can be done using the two stage dividend model as high growth companies tend to have a very high price/earnings and price/book value ratios. Due to this investors end up paying higher premiums to own the stock. There are several factors which determine the value of growth. It depends on growth rates when the growth period is extraordinary. The higher is the growth rate during this period, higher will be the value of growth. It depends on How long will the extraordinary growth period last. The longer is this period, hence greater will be the value of growth. As and when projects start becoming more and more profitable, the growth rate increases and so does the resulting value from extraordinary growth. If the risk of the stock increases the corresponding discount rate will also increase thereby decreasing the present value to extraordinary growth. H MODEL There is The H Model which is used for valuing growth. It is a two stage growth model where the initial high growth rate decreases linearly with time to reach the steady state growth rate. If the growth rate suddenly drops from a high value to a low one, then the above value proves to be wrong. Also assuming that payout ratio is constant is also incorrect here as it usually increases and is not the same or both the phases. THREE STAGE DIVIDEND DISCOUNT MODEL There is also a Three Stage Dividend Discount Model which combines both the Two Stage model and the H model. It requires a very large number of inputs but also eliminates a lot of drawbacks from the above models. It should be used for organizations that have an extraordinary present growth rate, will maintain so for sometime then with a gradual decline will reach the steady state stable growth rate period. The Dividend Discount model is simple to use but is not really used for valuations due to its drawbacks and has limited applications in high dividend paying equities. The model can also be used for firms which are high growth and are not paying dividends with the consideration that the dividend/payout ratio is adjusted to show the changes in the expected growth rate. This model creates a tax disadvantage in case where dividends are taxed at a greater rate than capital gains. The model does show very impressive results over long periods of time. The model generally outperforms the markets in five year time frames. It is also biased towards finding low price/earnings with high dividends and high price/earnings with low dividends. FREE CASH FLOW TO EQUITY (FCFE) MODELS FCFE = Net Income + Depreciation Capital Spending ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚   Working Capital Principal repayments + New debt issues FCFE = Net Income + (1 ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´) (Capital expenditure Depreciation) + (1 ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´) ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚   Working capital Dividends are different from FCFE. FCFE measures how much an organization can afford to pay as dividends. Dividends paid from FCFE are different for different organizations for the below four reasons Organizations have a Desire for Stability where in they do not want to change the dividends as variations in dividends is considered to be a lot lower than variations in earnings and cash flows. Organizations may not pay dividends at all to meets its Future Investment Needs. It might require a lot of capital expenditure in the future and raising capital again is an expensive process. Tax Factors come into play where if Dividends are taxed higher than Capital gains then firms m ight again not pay out dividends. Organizations also use dividends as a sign of saying, with the increase in dividends implying is a positive sign while decrease in dividends a negative one. It is nothing more than a Dividend Prerogative. CONSTANT GROWTH FCFE MODEL The Constant Growth FCFE Model values organizations that are in a steady state ie have a stable growth rate. Po Value of stock today FCFE1 Expected FCFE over the next year r Cost of equity gn Growth rate in FCFE forever for the firm The model is very similar the the Gordon Growth model and hence all the above advantages and limitations apply to this model as well. TWO STAGE FCFE MODEL The above heading also contains a Two Stage FCFE Model and a Three Stage FCFE Model (E Model). The two stage FCFE Model has the same concept as had been described above. THREE STAGE FCFE MODEL OR E MODEL The E Model is used for organizations which are expected to initially grow with very high growth rates then come into a transition period where in the growth rate decline and then comes to a stable period where it is at steady state. Here assumptions about variables have to be consistent with the assumption of growth rates. As the organization moves from a high growth organization to a stable stead state one, the relationship between capital expenditure and depreciation is bound to change. Also as the growth patterns of the firm changes so does the Risk pattern consequently. The Model is very similar to Three stage dividend discount model. It is appropriate to use it in organizations which currently have a very high growth rate. Comparison between FCFE Valuations and Dividend Discount Model Valuations Same values can be obtained by using the above two only when either dividends and FCFE are equal or when FCFE is more than dividends, but the remaining cash is invested in projects which have Net Present Value as zero. The above two also provide with a different estimate when FCFE is more than dividend but the difference between the two earns interest lower than the market rates or is invested in negative NPV projects. If an organization pays out small dividends as compared to what it can afford, the debt/equity ratios decrease hence making the organization underleveraged which will also decrease value. In another case if too much dividends are paid out then simply loss of wealth happens with there are capital constraints to good projects. FREE CASH FLOW TO FIRM MODELS (FCFF) FCFF = FCFE + Interest expense (1 tax rate) + Principal repayments New debt issues + Preferred dividends FCFF = EBIT (1 tax rate) + Depreciation Capital expenditure ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚   Working Capital Difference in Growth of FCFE and FCFF The main reason for the difference in the growth rates in FCFF and the growth rates in FCFE is leverage. Generally, due to leverage, growth increases in FCFE. It affects the growth rate in Earning Per Share. However, growth rates in Earnings Before Interest and Tax, growth rates in depreciation, growth rates in capital expenditure and growth rates in capital spending all remain identical. STABLE GROWTH FIRM MODEL The above method includes Stable Growth Firm Model. Value of firm = FCFF1  / (WACC gn) where FCFF1 Expected FCFF over next year WACC Weighted Average Cost of Capital gn Growth rate in the FCFF To use the above model, the growth rate used has to be relative and reasonable as compared to the nominal growth rate in the economy at that particular time. Also, depreciation and capital spending should have a relationship which support the assumption of stable growth. A stable firm, generally, cannot have depreciation significantly lower than capital expenditure as there in no high growth and hence there is no need for additional high capital expenditure. The model is also highly sensitive to the expected growth rates that are used for calculations. It is also sensitive to assumptions about capital expenditure with respect to depreciation. The value of FCFF can be adjusted by adjusting the value of capital expenditure with respect to depreciation. TWO AND THREE STAGE FCFF MODEL There are also a General Version of the FCFF Model which are also the Two and Three Stage versions of the FCFF Model It can be used to value any firm where FCFF can be forecasted with available sufficient information. Value of a Firm = where FCFFt Free Cash Flow to firm in year t The above model values organizations and not equity, however, the value of equity can be calculated by subtracting the market value of debt which is outstanding. The advantage of using FCFF over FCFE is that cash flows related to debts do not have to be accounted for separately. Where ever there is leverage which is expected to change largely with time, this turns out to be a significant saving. Also FCFF does not required any information regarding debt ratios or even interest rates to find out the Weighted Average Cost of Capital. The model is best suited to use for by organizations that have a high leverage or the organizations that are in the process of transforming their leverage. Using FCFE has a drawback that it frequently turns out to be negative in cases with high leverage and cyclical organizations. CONCLUSION After looking at a number of different models applicable to various situations, it is a fact that a lot of time and resources get wasted in trying to fit the data to a valuation model. We cannot call any one model as best. It depends upon the following factors What are the level of earnings of an organization. Has it lost or gained money, the ones that have gained money are easier to value than those which have lost it. The choice of the model also depends upon the level of current growth found in earnings. For firms with stable growth rates, the Gordon growth model, and stable FCFE and FCFF models should be used. Examining the sources of growth is also important. High growth can be due to competitive advantage due to brand building or reducing production costs or patent advantages. There can be other competitive advantages the speed of whose loss depends upon the competences of the organizations management and the entry barriers for that particular industry. Also, t he ease of use decides the choice between cash flows to organization and cash flows to firms.

The Effects Of Air Pollution On Human Health - 1874 Words

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Khazakstan and Belarus A Comparative Essay Example For Students

Khazakstan and Belarus A Comparative Essay Upon the break up of the Soviet Union, Belarus declared itself a sovereign nation from the USSR in 1990; in late 1991, Kazakhstan declared its independence, and held its first elections. The similarity in their modern governments is evidence to the numerous parallels in their history. The historical development of both countries was heavily influenced by the rule of the Mongols and the Tartars, also both Belarus and Kazakhstan would come under the control of the Bolsheviks and later in the 20th century the Soviet Union. Today, each country has established their own governments, both have developed working constitutions and are conducting their affairs separate from the former Soviet Union. In comparing the two adolescent countries this essay will look at their brief history, examine the establishment of their new governments branches: their executive office and its power, their legislatures, and judicial systems. Current military makeup, as well as membership in certain world organiz ations provides important insight into the progress of relatively newly created states. The most important factor in shaping the governments of a modern nation state is the historical development of that country, a brief history of the two nations will better help to understand the choices made during the state creation process. Belarusians are believed to have descended from Slavic tribes, the Krivichi, Dregovichi, and Radimichi; who, between the 6th and 8th centuries settled first on the Daugava (Western Dvina) River and later in the vicinity of the Pripyat and Sozh rivers. The medieval period of Belarusian history dates mostly from the last quarter of the 10th century, when Prince Rogvold ruled the local principality of Polotsk (Polatsk). In the late 10th century, Polotsk was annexed into Kievan Rus, the first significant East Slavic State. The Tatar invasions that destroyed Kievan Rus and the city of Kiev (Kyiv) in 1240 left the Belarusian territory relatively unscathed. In the 14th century Belarusian territory became part of the Grand Duchy of Lithuania, with its capital at Vilnius. By the 16th century a Slavic culture had begun to emerge, symbolized by the translation of the Bible into the Belarusian language by Frantsysk Skaryna in 1517. In 1569, however, the Grand Duchy formed a political merger with Poland by the Union of Lublin, forming the Rzeczpospolita (Commonwealth) and making the sovereign of Poland also the grand duke of the Lithuanian kingdom. During this time, Belarusians faced pressure from the Poles to convert from Eastern Orthodoxy to Roman Catholicism. The union lasted until the late 18th century, by which time the lands of Belarus had fallen under the control of the Russian Empire, as a result of the partitions of Poland that took place in 1772, 1793, and 1795. In 1839 the Eastern (Uniate) Catholic Church in the Polotsk region was dissolved, and the Lithuanian statute of 1588 that codified civil rights was prohibited. Belarusian culture nevertheless made great strides in the 19th century and during this period the concept of a Belarusian nation first truly emerged. The historical development of Kazakhstan followed a similar path, Turkic tribes, in about the 8th century AD began to settle the region now known as Kazakhstan. In the 13th century the area was incorporated into the Mongol Empire of Genghis Khan, and upon his death in 1227, the empire was divided among his descendants. Most of present-day Kazakhstan became part of the territory ruled by his son Chagadai, but the western and most of the northern parts were included in the far-reaching empire of the Golden Horde established by Batu Khan, Genghis grandson. By the end of the 15th century, the Kazakhs emerged as a distinctive group, created by the intermingling of Mongol and Turkic peoples. In the early 16th century the Kazakh tribes united to form a great nomadic empire under the warlord Kasim Khan. However, the Kazakhs soon became divided, with the tribes fighting among themselves. The khan Haq Nazar succeeded in uniting the Kazakh hordes between 1538 and 1580, but by the 17th century t he Kazakhs were again fragmented. In the 1680s the Kazakhs began to fight a series of wars against invaders from the east called Oirots, a group of four Mongol tribes, including Dzungars, that sought to conquer Kazakh lands. Although the Kazakh hordes united again for purposes of war, Dzungar invasions completely devastated the Kazakhs by 1720. This period in Kazakh history is remembered as the â€Å"Great Disaster.† In the early 18th century the Cossacks established a line of settlements and fortifications across the Kazakhs northern boundary in order to defend the Russian frontier, which had expanded eastward into Siberia. During the Dzungar invasions, the Kazakhs appealed to Russia for protection and military supplies. Although Russia was, at the time, unwilling to become involved, the Kazakh hordes subsequently declared their allegiance to Russia in return for Russian protection. Russia gradually came to dominate local affairs, limiting the powers of the khans and imposin g the Russian administrative system. As Russian domination increased, the power of the khans began to completely erode. In the 1790s the Kazakhs revolted against Russian rule, but their uprisings were ultimately ineffectual and were followed by Russias decision to abolish Kazakh autonomy. The tumultuous histories of the two countries led them to establish similar governments, both with popularly elected executives, unicameral legislatures, and similar judicial systems; also both are broken up into comparable administrative districts. Belarus adopted its first post-Soviet constitution in 1994. Under that constitution, a popularly elected president replaced the chairperson of the unicameral legislature, called the Supreme Soviet. As head of state; the president could dismiss the Prime Minister and members of the Council of Ministers, but not the legislature or other elected governing bodies; however, a 1996 amendment to the constitution gave the president the power to dissolve the leg islature. The president of Kazakhstan is the head of state and is directly elected to a seven-year term. With the approval of the legislature, the president appoints a Prime Minister to head the government. The president also officially confirms the Prime Ministers recommended appointments to the Council of Ministers. Under the constitution the president of Kazakhstan is given extensive powers, including the right to rule by decree and to dissolve the legislature under certain conditions. However, the constitution specifically prohibits the president from being officially affiliated with a political party. Under the 1994 constitution, Belarus was to have a unicameral legislature, the Supreme Soviet, of 260 members elected for a term of five years. However, constitutional amendments passed in 1996, established a bicameral National Assembly, consisting of a 110-member Chamber of Representatives and a 64-member Council of the Republic which replaced the Supreme Soviet. Under the 1993 constitution, Kazakhstan had a unicameral legislature of 177 members, but in 1995 Kazakhstan ratified a new constitution which reconfigured the legislature into two chambers. The Senate (Upper house) and the Majlis (Lower House) with a combined total of 114 members and under the 1998 constitutional amendments, members of the Lower House serve five-year terms, while members of the upper house serve six-year terms. Of the 47 members of the Senate, forty are elected by regional assemblies, special electoral colleges comprised of members of local councils, and the president appoints seven. All 67 members of the M ajlis are directly elected. The judicial system of Belarus consists of three high courts: the Supreme Court, the Supreme Economic Court, and the Constitutional Court. The latter court is charged with protecting the constitution, and its decisions are not subject to appeal. It has the power to review the constitutionality of presidential edicts and the regulatory decisions of the two other high courts. The amended constitution allows the president to appoint half of the judges on the Constitutional Court and its chairperson; the legislature is to appoint the remaining members. Under the 1994 constitution its 11 judges were nominated by the president and elected by the Supreme Soviet. Following the reconfiguration, seven of its judges, including the chairperson, resigned in protest. The highest court in Kazakhstan is the Supreme Court, whose members are nominated by the president and chosen by the Senate. Supreme Court judges are appointed for life. Under the 1995 constitution, the Constitutional Council replaced the Constitutional Court that had been established in 1991. The council rules on all constitutional matters, but its decisions are subject to a presidential right of veto. The council is composed of seven members: three appointed by the president and four appointed by the legislature. Belarus is divided administratively into six oblasts, which have the names corresponding to their largest cities. The Minsk, Hrodna, Homyel, Mahilyow, Vitebsk, and Brest oblasts are each divided into smaller administrative districts, called rayony. The oblasts have their own councils for the administration of regional affairs. In addition, the president has appointed a plenipotentiary, or diplomatic agent, in each oblast to report local affairs to the executive. For purposes of local government, Kazakhstan is divided into 16 administrative units, or 15 provinces (in Kazakh, oblystar) and Almaty City. Councils (maslikhat) that are directly elected for four-year terms administer these units. The president of the republic appoints the heads of these councils, which implement national policies on the local level and coordinate these policies with the individual needs of their particular region. The president is empowered to cancel or suspend the acts of the councils—a system that makes local governments directly subordinate to the president. Along with governmental infrastructure, party politics in the two nations run parallel as well. Belarus and Kazakhstan are careful regarding their political party structure, communist ideals have been banned in both countries, however, underlying support for old ideals ultimately broke through in both nations. The Communist Party of Belarus had a monopoly on power until 1990, when a coalition of pro-reform groups was allowed to participate in elections to the Supreme Soviet. The legislature was hardly changed, as Communist Party members won most of the seats. The party was banned in the wake of a failed coup attempt by Communist hard-liners to take over the Soviet government in August 1991. However, the ban was lifted in February 1993 and the party was restored as the Party of Communists of Belarus (PCB). The Communists won a plurality in the 1995 elections to the Supreme Soviet, followed by the Agrarian Party. Both parties support the retention of a centrally planned economy and sta te-run farms. The United Civic Party occupies the political middle ground. The main opposition movement since its formation in 1988 has been the Belarusian Popular Front (BPF). No members of the BPF were elected to the Supreme Soviet in 1995. More than 20 political parties were active in Belarus in 1996. None Provided Analysis EssayThe president of Kazakhstan is the head of state and is directly elected to a seven-year term. With the approval of the legislature, the president appoints a Prime Minister to head the government. The president also officially confirms the Prime Ministers recommended appointments to the Council of Ministers. Under the constitution the president of Kazakhstan is given extensive powers, including the right to rule by decree and to dissolve the legislature under certain conditions. However, the constitution specifically prohibits the president from being officially affiliated with a political party. Under the 1994 constitution, Belarus was to have a unicameral legislature, the Supreme Soviet, of 260 members elected for a term of five years. However, constitutional amendments passed in 1996, established a bicameral National Assembly, consisting of a 110-member Chamber of Representatives and a 64-member Council of the Republic which replaced the Supreme Soviet. Under the 1993 constitution, Kazakhstan had a unicameral legislature of 177 members, but in 1995 Kazakhstan ratified a new constitution which reconfigured the legislature into two chambers. The Senate (Upper house) and the Majlis (Lower House) with a combined total of 114 members and under the 1998 constitutional amendments, members of the Lower House serve five-year terms, while members of the upper house serve six-year terms. Of the 47 members of the Senate, forty are elected by regional assemblies, special electoral colleges comprised of members of local councils, and the president appoints seven. All 67 members of the M ajlis are directly elected. The judicial system of Belarus consists of three high courts: the Supreme Court, the Supreme Economic Court, and the Constitutional Court. The latter court is charged with protecting the constitution, and its decisions are not subject to appeal. It has the power to review the constitutionality of presidential edicts and the regulatory decisions of the two other high courts. The amended constitution allows the president to appoint half of the judges on the Constitutional Court and its chairperson; the legislature is to appoint the remaining members. Under the 1994 constitution its 11 judges were nominated by the president and elected by the Supreme Soviet. Following the reconfiguration, seven of its judges, including the chairperson, resigned in protest. The highest court in Kazakhstan is the Supreme Court, whose members are nominated by the president and chosen by the Senate. Supreme Court judges are appointed for life. Under the 1995 constitution, the Constitutional Council replaced the Constitutional Court that had been established in 1991. The council rules on all constitutional matters, but its decisions are subject to a presidential right of veto. The council is composed of seven members: three appointed by the president and four appointed by the legislature. Belarus is divided administratively into six oblasts, which have the names corresponding to their largest cities. The Minsk, Hrodna, Homyel, Mahilyow, Vitebsk, and Brest oblasts are each divided into smaller administrative districts, called rayony. The oblasts have their own councils for the administration of regional affairs. In addition, the president has appointed a plenipotentiary, or diplomatic agent, in each oblast to report local affairs to the executive. For purposes of local government, Kazakhstan is divided into 16 administrative units, or 15 provinces (in Kazakh, oblystar) and Almaty City. Councils (maslikhat) that are directly elected for four-year terms administer these units. The president of the republic appoints the heads of these councils, which implement national policies on the local level and coordinate these policies with the individual needs of their particular region. The president is empowered to cancel or suspend the acts of the councils—a system that makes local governments directly subordinate to the president. Along with governmental infrastructure, party politics in the two nations run parallel as well. Belarus and Kazakhstan are careful regarding their political party structure, communist ideals have been banned in both countries, however, underlying support for old ideals ultimately broke through in both nations. The Communist Party of Belarus had a monopoly on power until 1990, when a coalition of pro-reform groups was allowed to participate in elections to the Supreme Soviet. The legislature was hardly changed, as Communist Party members won most of the seats. The party was banned in the wake of a failed coup attempt by Communist hard-liners to take over the Soviet government in August 1991. However, the ban was lifted in February 1993 and the party was restored as the Party of Communists of Belarus (PCB). The Communists won a plurality in the 1995 elections to the Supreme Soviet, followed by the Agrarian Party. Both parties support the retention of a centrally planned economy and sta te-run farms. The United Civic Party occupies the political middle ground. The main opposition movement since its formation in 1988 has been the Belarusian Popular Front (BPF). No members of the BPF were elected to the Supreme Soviet in 1995. More than 20 political parties were active in Belarus in 1996. Kazakhstans preeminent party is the Party of the Peoples Unity of Kazakhstan (formerly the Peoples Unity Party), which promotes centrist policies and opposes radical nationalism. Other major parties in Kazakhstan include the Republican Party-Azat, founded in 1992 by the merger of three nationalist opposition parties. The Yedinstvo (Unity), a Russian nationalist group; the Socialist Party of Kazakhstan (SPK), founded in 1991, the Kazakhstan Peasants Union, an agrarian party, and the Peoples Congress Party of Kazakhstan, a party that advocates civil peace. The Communist Party of Kazakhstan (CPK) was banned in 1991 but then granted legal status in March 1994. However, it is an important political force in Kazakhstan today. Smaller parties in Kazakhstan include Alash, a movement promoting radical Kazakh nationalism, and the Slavic Movement-Lad, an organization that represents Slavic communities. Military power between the two nations is relatively similar as well, both have armies comparable in size and stature. In Belarus, Military service is compulsory for all males for 18 months beginning at the age of 18. In 1998 the Belarusian army was composed of 43,350 troops and the air force had approximately 22,450 servicemen. In addition to the regular army, Belarus maintains a border guard with about 8,000 members. Belarus has a nuclear arsenal which consists of more than 500 strategic and tactical nuclear warheads that it inherited when the USSR was dissolved in 1991. In 1992 Belarus signed a protocol in which it agreed to implement the first Strategic Arms Reduction Treaty (START I) and to adhere to the Nuclear Nonproliferation Treaty. In December 1996, Belarus completed the process of deporting its nuclear warheads to Russia, where they were to be dismantled. Prior to independence, Kazakhstan had no armed forces separate from those of the Soviet Union. In 1992 Kazakhstan established a national defense force also, in 1996 a small navy was instituted. By 1998 the country had an army of 46,800 personnel, an air force of 19,000, and a navy of roughly 100 servicemen. The armed forces also include three paramilitary units—the Republican Guard, security troops of the Ministry of the Interior, and border guards. A two-year term of military service is mandatory for all males when they reach the age of 18. A major developing force in national politics is a country’s membership to specific international organizations. These organizations shape many political decisions made by member nations and often establish a path that must be followed by its members. Belarus is a member of approximately 50 international organizations, most notably the United Nations (UN), the United Nations Educational, Scientific, and Cultural Organization (UNESCO), and the World Health Organization (WHO). In early 1995 Belarus joined the Partnership for Peace program of the North Atlantic Treaty Organization (NATO), a plan designed to promote military cooperation between NATO and non-NATO states. In 1991 Kazakhstan joined the Commonwealth of Independent States (CIS), a loose military and political alliance of 12 former Soviet republics. Kazakhstan is also a member of the United Nations (UN); the Organization for Security and Cooperation in Europe (OSCE), the Economic Cooperation Organization (ECO), which promotes economic and cultural cooperation between Islamic states. Kazakhstan also holds membership in the Partnership for Peace program of the North Atlantic Treaty Organization (NATO). Both countries have seen their fair share of conflict and ever changing government evolution. Their people have survived through great hardships and they today have constructed their own governments, both on a national level and local level. Both have granted powers to an executive authority, a legislative body and a judicial body. They have created different alliances in the world outside their borders, which is healthy for young nations. However, both countries are not completely stable and there is definitely room for improvement. It will be interesting to see where these countries stand in the future, hopefully by controlling their local issues, they will contribute to the betterment of the world as a whole. Bibliography:BibliographyZaprundik, Jan.Belarus: At a Crossroads in History. Westview Press. New York, NY. 1993. Olcott, Martha Brill. The Kazakhs. Hoover Institution Press. Stanford, California. 1987http://www.undp.org/missions/belarushttp://dir.yahoo.com/Regional/Countries/Kazakhstan/Government/http://www.kazakhstan-gateway.org

International Business Machines and Dell Inc. Corporations

Table of Contents Introduction Research and development Net Income Earnings per share Conclusion Introduction International Business Machines  (IBM) and Dell Inc. are American multinational information technology corporations which deal with electronic goods and services laptops, software, and electronic accessories; changes in contemporary business environments have seen the companies enact different strategic management policies. This paper discusses changes on research and development expenditure, earning per share, and net income.Advertising We will write a custom essay sample on International Business Machines and Dell Inc. Corporations specifically for you for only $16.05 $11/page Learn More Research and development IBM has consistently showed a decrease in the amount of expenses spent on research and development; the reason behind the move was that the company has concentrated more on consultancy services than developing new hardware and sof tware. When a business reduces its research budget marginally over a period of time, it means its taking advantage of the innovations and inventions it had made in the past. IBM has been a leader in the electronics world thus the decision to conduct minimal research with time can be interpolated as a move to first fully benefit from previous research and development programs or there are some reports that the company is working on. Dell showed increases from year 1 to 2, 2-3, and then from year 3-4 there was the most amount spent on the research and development; during this time, the world economic situation was not favorable for business (the world was suffering from global financial crisis). Other than the situation, there was high competition of other electronics companies like Apple Inc and Lenovo, Dell needed to beef-up its research and development programs to compete effectively. The increase in research and development expenditure is likely to be on marketing and products d evelopment. Net Income IBM shown continuous increase in its net income over the five years under review; the increase can be attributed to increased sales and high gross profit margin. The business strategy adopted by IBM is one that maintains current sales level and aims at increasing its sales steadily. On the other hand, the net income of Dell shown a decline overall with a big drop-off in year four but recovered in year 5; the decrease can also be traced in its sales revenue and gross profit margin. The probable fall of the company’s net profit can be attributed to high competition in the industry; its recovery in year five can be attributed to the results of its aggressive research and development strategies.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Earnings per share IBM showed a 187% increase from year 1-5 in basic earnings per share and a 189% increase in diluted duri ng that same time; the performance can be attributed to its growth in profit over the period of time and net income available to common shareholders. The increase is an indication of good performance by the company where it has embarked on using owners funds other than borrowed ones. Dell on the other hand only showed a 118% increase in basic earnings per share and Diluted during that same period of time; the increase is steady but when compared with one recorded by IBM it is wanting. The company is likely to be suffering from financial deficits as use of preferred stocks seems to remain constant; when considering the fact that the company has had decreasing net incomes, the increase in EPS can be attributed to either decreased shareholding or decrease in dividends paid to preferred stocks holders. Conclusion Contemporary business environments have affected the information and technology companies differently; IBM management strategies has enabled the company grow it financial base stronger than Dell Inc. since 2007. This can be attributed to its responsive decisions made by the management from time to time. This essay on International Business Machines and Dell Inc. Corporations was written and submitted by user Libby Blake to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.