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Financial Brief For Frater Ltd Financial Status
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RE: Financial Brief For Frater Ltd Financial Status I have reviewed the accompanying balance sheet of Frater ltd as of 31st December 2012, and the related statements of income, retained earnings, and cash flows for the year then ended. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management a brief is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole (Braswell, Daniels, Landis & Chang, 2012). And to help your firm find out areas of concern and probable sectors that more information need to be further scrutinized have therefore laid the foundation for you inside this document and I do hope that you will find this information of utmost importance.
The supply of private companies is driven by many business owners who do believe that their company needs to be part of a larger company to reach its full potential, in the face of world globalization and the need for efficiencies (Fustec and Faroult, 2011). This increasing trend does suggests that companies are analyzing their operations more closely and are making increasingly complex business decisions in order to maximize market presence.
The increasing demand for private companies has been driven by a strong economic environment and access to low-cost financing. Lately, purchasers have been able to raise good amounts of equity and debt capital a fairly low amounts. This less cost of capital makes buyouts an ever increasing and attractive substitute (Fustec and Faroult, 2011). The desire for private organizations is also motivated by public organizations that feel obligated to mature through getting hold of small companies to meet the expansion expectations of their shareholders (Berkman, 2013).
Prior to embarking on an active search, Global PLC should conduct a thorough needs analysis (as described above) to ensure that the solicitations are likely to yield appropriate acquisition candidates (Yates & Hinchliffe, 2010). In most scenarios, industry owners have not contemplated a sale, and an unwanted call from a prospective purchaser can be a channel for such consideration (Fustec and Faroult, 2011). In such conditions, purchasers must be geared up to take action swiftly in order to get hold of the opportunity devoid of raising undue concerns for the seller (Spalding, 2012). Usually, this is best performed through a rather easier approach, which begins with informal meetings and progresses gradually to information revelation (Depamphilis, 2011). If properly conducted buyers often can avoid an auction and structure, a deal that benefits both the buyer and seller (Boakye-Agyei, 2011).
Company introduction
Frater Ltd. is a privately owned business, its family oriented and it does operate in the electronics industry and specifically the current owners do perceive a market opportunity in developing new circuitry for flight control systems, new robotics and related technology it has been in existence for eight years now and operates as going concern. The founders are two brothers whose noble intention was to exploit the novel ways of manufacturing electronic circuits Startup capital came from a legacy inherited and also through the selling of shares to family members.
For the year ended 31st December 2012 turnover was British pounds 8756,000 against a turnover of pounds 5941,000 for the year ended 31st December 2011.
Overview
Operating in the aerospace industry also faces the various threats and risks as well as competition as depicted in the porters five model forces. Porter’s five forces include the threat for new entrants to enter the market, the threat for substitute products or services, the extent to which suppliers are able to influence the company and the intensity of rivalry among existing competitors. Financial statement analysis and the ratio analysis, gives managers good information for analyzing a company’s performance and for making better decisions (Frankel, 2013). It helps investors and managers alike to make decisions on how to gauge the profit level of a company as well as how to interpret the financial strength of an organization.
According to Fustec and Faroult (2011), because growth and profit is the major objective of any firm, the financial statement analysis, and the sister ratios analysis is so critical for the managers of any company.
The forecasted economic conditions are also detailed in this report to enable the company adopt correct strategies and actions that can enable it succeed in the ever dynamic financial market (Yan & Guoqiang, 2013). The specific conditions have been highlighted in this paper and an insight of their impact on the company’s operations.
Ratio Analysis
A financial ratio can be described as a relationship between financial variables and helps ascertain the financial condition of the firm. Ratio analysis is a means of comparing and quantifying relationships between financial variables (Haw, Hu, Lee, & Wu, 2012). With ratios, financial statements can be interpreted and usefully applied to satisfy the needs of the users of financial statements I have found the following ratios to be important for valuing the net worth of Frater ltd and due consideration need to be given to the results (Herndon & Galpin, 2013).
The following are some of the reasons why it is important that we perform ratio analysis
The value of ratio analysis enables the equity on credit analyst evaluate past performance, assess the current financial position of the company and gain useful information for projecting future results
Financial ratios will provide insight into;
Micro-economic relationship within a company that helps analyst project earnings and free cash flows
A company financial flexibility and ability to obtain the cash required to go and meet its obligations
Management ability to utilize the company assets
Liquidity Ratios
This focuses on cash flows and measures the company ability to meet its short-term obligations
This is computed by dividing total current assets by total current Liabilities:
Liquidity measures how quickly assets are converted to cash and the ability to set off short term obligations and in judging whether a company has adequate liquidity required (Haw, Hu, Lee, & Wu, 2012).
Current Ratio
Current ratio = Current assets
Current liabilities
2012 2011
886/680 =1.30 537/422=1.27
1.30:1 1.27:1
Current ratio of more than one means that a company has more current assets than
Current liabilities For Frater ltd the current ratio for the two years are within limits the higher the ratio the more liquid the firm is
Acid-test or quick ratio
Quick ratio found by dividing total current liabilities less stock by current liabilities. A firm with a satisfactory current ratio may actually be in a poor liquidity position when inventories form most of the total current assets.
Acid test ratio = Current assets less stock
Current liabilities
2012 2011
886- 554 /680=0.488 537-338 /422=0.471
0.488:1 0.471:1
The higher the ratio the better the firm as it means an improved liquidity position Boot (2007)
Gearing or leverage ratios
Debt ratio or capital gearing ratio
Debt ratio measures the proportion of debt finance to capital employed by a firm. An organization is said to be extremely geared if the ratio is higher than 50%.
Debt ratio = Total long term debt x 100%
Capital employed
2012 2011
178/1000*100 158/1500*100
=17.8% 10.53%
Debt equity ratio Measures the percentage of non-owner supplied funds to Owner’s contribution to the organization. A company is highly geared if the debt equity ratio is greater than 100%.
Debt equity ratio = Total liabilities
Equity or Net worth
2012 2011
858/2730 580/1850
=0.314 =0.315
Times interest cover
This shows the number of times earnings cover current payments. The higher the ratio, the less the gearing position thus fewer financial risk.
Times interest cover = Earnings before interest and tax + Depreciation
Interest charged
2012 2011
748+1283/38 349+719/23
=53.44 =46.43
PROFITABILITY RATIOS
This measures indicate whether the company is performing satisfactorily, it measures whether the managers are performing satisfactorily and whether the is a worthwhile investment
Return on capital employed (ROCE).
This measures the efficiency with which a company uses long term funds or permanent assets to generate returns to shareholders.
ROCE = Profit before interest and tax or operating profit
Total capital employed
2012 2011
748 /2908 349 /2008
=0.257 26% =0.174 17%
Capital employed consists of shareholders funds (ordinary share capital, preference share capital, share premium, and retained earnings) and long term debts.
Gross profit margin
This ratio indicates the percentage of revenue available to cover operating and other expenditures higher gross profit margin indicates some combination of higher product pricing and lower product costs and vice versa it shows how well cost of production has been controlled in relation to distribution and administration costs.
Gross profit margin = Gross profit X 100%
Sales
2012 2011
2643/8756*100 1373/5941*100
=30.18 =23.11
Net profit margin
This measures firm’s ability to control its production, operating and financing costs.it offers a better view of the company’s potential future profitability since it involves the net income, which is calculated as revenue less expenses
Net profit margin = Net profit X 100%
Sales
2012 2011
380 /8756*100 184 /5941*100
=4.34 =3.1
Net assets turnover
This gives a guide to productive efficiency i.e. how well assets have been used in generating sales.
Net assets turnover = Sales
Capital employed
2012 2011
8756/2908 5941/2008
=3.01 =3.0
Profit after taxation
2008£175,000
2009£210,000
2010£190,000
2011 £ 268,000
2012 £ 484,000
2013 £ 500,000(Forecast)
From the year 2008, there has been noted a steady increase in profit after taxation this can be seen that the margin increased to 210,000 in 2009 before a decline in 2010. Probably the company needs further investigation as why the profits dipped further, but in general the company has been performing well over the years the forecast profit of £ 500,000 for the year 2013 is welcome good news
The cross sectional analysis
Cross sectional analysis is the comparison of two or more companies in the same industry
The purpose why you need to do the following analysis is because of the following
Measure profitability
Indicate the trends of achievement
Assess the growth potential of Frater ltd
Have a comparison analysis with other companies in the industry
Assess the overall financial strength
Assess the solvency of Frater ltd
This analysis will provide important information regarding historical performance and growth given a sufficiency long history of accurate seasonal information; this will be of great help in assisting forecasting and knowing of crucial information to help you make prudent decision
A plc B plc C plc Frater ltd Frater ltd
DY PER DY PER DY PER DY PER
Recent year 12 8.5 11.0 9.0 13.0 10.0 2.3 0.016
Previous year 12 8.0 10.6 8.5 12.6 9.5 Three years ago 12 8.5 9.3 8.0 12.4 9.0 Average 12 8.33 10.3 8.5 12.7 9.5 Key RisksKey risk here is the industry in which Frater ltd operates. This industry is marked by short product life cycles, which can make it hard for the firm to keep its head up. Inappropriate company scrutiny and industry analysis, Poor return on Investment, Corporate Integration risks i.e. the inability of the two firms to integrate and any Legal issues that may crop up
Other Considerations
The corporate governance issues also need to be looked at because for the moment Frater ltd is managed wholly by the two brothers James and John Frater. More disclosures are needed to be as regards their expertise in running the company to a more successful venture.
Further analysis that you need to perform are the following
Equity analysis
Labor negotiations
Directors oversight
External auditing
Financial management
Management and control
Credit analysis
Mergers, acquisitions and diversification
Environmental factors on financial reporting
Based on the analysis above Frater ltd is a high growth potential private company, there is growth supported by the fact that there is an upward profit trend. The company needs to inject more capital to realize its full potential (Carrington, 2008). The cash flow is good and the average debt collection period seems to look encouraging. According to Ramón-Llorens & Hernández-Cánovas (2012), the net assets turnover is stable for the two years and shows that the company has used its assets well to generate its revenue; the return on capital employed is suitable for a company that has been in existence for eight years. You are encouraged to engage an expert in forensic audit to undertake audit for the previous years.
SHARE VALUATION METHODS
Net Asset Valuation
Net assets valuation means finding what all the liabilities and assets of a business are worth and then summing them up. According to Gadawska (2011), the Net Asset Value of a company is usually calculated and shown as a separate line in the Balance Sheet. Having found the Net Asset Value for the company, the figure is then divided by the total number of shares issued by the company to arrive at the net asset value per share or book value per share (Freeman, Koch & Li, 2011). This therefore tells us how much each share of the company is worth in terms of its assets and liabilities (Ironiuc, Carp, Chersan & Robu, 2012). This is then compared with the current actual share price to decide if the shares are overpriced or underpriced by the stock market.
Limitations of net asset valuation include:
Net assets value can understate the value of intangible assets e.g. goodwill.
The method does not take into account future changes in sales or income.(increase or decrease)
The firm’s Balance sheet may not accurately reflect all assets, as they should be (Gadawska, 2011).
Price to Earnings Comparison
In this method Profits of the company is multiplied by the number of years of earnings the company is thought to be worth. According to Almujamed, Fifield & Power (2012), this is done by comparing the (P/E) ratios of similar companies on the stock market to find out what typical companies of this kind have as a P/E Ratio. This is done to reflect the future prospects of the company (Frater ltd) compared with those of the reference companies in the market (Gadawska, 2011). The limitations of this method are as follows
Earnings can be subjected to manipulation at the firm’s level, which means P/E can be distorted depending on how the company has accounted for particular item. The use of P/E method is particularly troublesome for investors in small cap stocks, and for example frater ltd is a fairly young firm (Freeman, Koch & Li, 2011).
Discounted Cash Flow Method (DCF)
Discounted cash flow does involve calculating Free Cash Flows of future years when a business is growing and a Terminal Value of the business when it has reached its steady state. In this method, there are a lot of complicated financial calculations and assumptions just to get those annual figures, which at the end of the day will surely make some sense (Ironiuc, Carp, Chersan & Robu, 2012).
Limitations include;
According to Freeman, Koch & Li (2011), it involves high degree of assumptions that must be in place for the ratio to be applied
This method better operates best where there is a high degree of confidence about future cash flows. And can bring challenges to apply whenever it’s hard to foretell sales and costs with conviction.
According to Almujamed, Fifield & Power (2012) the method is vulnerable to modification and constant check. Inputs and assumptions may need to be adjusted at some particular point.
The model is not suited for short-term investing firms. It does focuses on long-term value (Gleich, Kierans, & Hasselbach, 2010).
The homogeneity of company operating activities i.e. companies may have divisions operating in many industries (Gadawska, 2011). This makes it difficult to find comparable industry relations to use for comparison purposes.
Bibliography
ALMUJAMED, H.I., FIFIELD, S.G.,M. & .M. POWER, D. 2012, “Share Valuation Methods And Data Source-Based Accounting In An Emerging Stock Market: The Case Of The Kuwaiti Stock Market”, The International Business & Economics Research Journal (Online), vol. 11, no. 7, pp. 713.
BERKMAN, J., W 2013. Due diligence and the business transaction: getting a deal done.
BOAKYE-AGYEI, K. 2011, “Approaching climate adjusted environmental due diligence for multilateral financial institutions”, International Journal of Climate Change Strategies and Management, vol. 3, no. 3, pp. 264-274.
BRASWELL, M., DANIELS, R.B., LANDIS, M. & CHANG, C. 2012, “Characteristics Of Diligent Audit Committees”, Journal of Business & Economics Research (Online), vol. 10, no. 4, pp. 191.
CARRINGTON, G 2008. Tax Accounting in Mergers and Acquisitions 2009. Cch Inc.
DEPAMPHILIS, D., M 2011. Mergers and acquisitions basics all you need to know. Burlington, MA, Academic Press.
FRANKEL, M. E. S 2013. Mergers and acquisitions basics the key steps of acquisitions, divestitures, and investments. Hoboken, N.J., Wiley.
FREEMAN, R., KOCH, A. & LI, H. 2011, “Can historical returns-earnings relations predict price responses to earnings news?” Review of Quantitative Finance and Accounting, vol. 37, no. 1, pp. 35-62.
FUSTEC, A. & FAROULT, T. 2011, “Mergers and acquisitions in the insurance sector: reducing information asymmetry”, Journal of Intellectual Capital, vol. 12, no. 4, pp. 495-504.
GADAWSKA, J. 2011, “EFFECT OF PROVISIONS ON THE VALUATION OF A COMPANY,” Equilibrium, vol. 6, no. 2, pp. 109-121.
GLEICH, R., KIERANS, G., & HASSELBACH, T 2010. Value in due diligence: new risks, new mitigation. Farnham, Gower.
HAW, I., HU, B., LEE, J.J. & WU, W. 2012, “Investor protection and price informativeness about future earnings: international evidence”, Review of Accounting Studies, vol. 17, no. 2, pp. 389-419.
HERNDON, M., & GALPIN, J 2013. The complete guide to mergers and acquisitions process tools to support m & a integration at every level. San Francisco, Calif, Jossey-Bass.
IRONIUC, M., CARP, M., CHERSAN, I. & ROBU, I. 2012, “The Evaluation of the Investment Opportunity by Analyzing the Financial Structure Influence on Company Value,” Communications of the IBIMA, vol. 2012, pp. 1-16.
RAMÓN-LLORENS, M.C. & HERNÁNDEZ-CÁNOVAS, G. 2012, “Classification and Analysis of Criteria Used in the Due Diligence Process,” International Journal of Business and Management, vol. 7, no. 6, pp. 81-89.
SPALDING,ALBERT D 2012, “Auditing Due Diligence In Law And Ethics: The Ponzi “Feeder Fund” Cases”, Review of Business & Finance Case Studies, vol. 3, no. 1, pp. 1-12.
YAN, H. & GUOQIANG, L. 2013, “Due Diligence in Merger and Acquisition–With China Practice View,” International Journal of Business and Social Science, vol. 4, no. 4.
YATES, G., & HINCHLIFFE, M 2010. A practical guide to private equity transactions. Cambridge, U.K., Cambridge University Press.
Educational Equality
Educational Equality
1. Introduction
A topic that continues to receive increasing attention in the education world is the issue of equality. Society has a moral mandate and obligation to ensure that learners, especially children, receive adequate education that provides the necessary skills that are required to become positive contributors in the adult society. The obligation also serves as a societal advantage because having some children lacking quality education would translate to a social waste (Chzhen et al., 2018). It would mean a waste of human talent that may otherwise contribute positively to the societal welfare. Every student has their own unique talents that are nurtured through the formal education system and learning. Equality in education looks at how impartiality, fairness, and justice can be attained in education. Equality is also defined by Lynch and Baker (2005) as attaining equity, the act of accommodating as well as meeting specific needs of different individuals. In the confines of the education sector, equality, therefore, refers to the deliberate cause of ensuring that the learning needs of learners are met. If a society fails to develop these talents, it loses on opportunities for progress and enrichment. Where some learners have an advantage over the other in learning, inequality exists. In the long-term, financial and social costs of those in poor education systems begin to emerge. Inadequate learning stemming from education inequality should be eliminated as it causes poor economic growth, social waste, reduced tax revenue, and increased healthcare costs, increased crime, and social insecurity. The focus of this report is to present education equality as an emerging educational policy and to provide an argument that discusses the meaning, individual understanding, and offer recommendations on how to implement and improve it.
2. Educational Equality
The current educational system around the world does not support educational equality. Educational equality means that every learner has the same and equal rights in accessing education regardless of their background, race, nationality, gender, occupation, social status, property status, and religious beliefs. According to Anne Winter (2018), equality in education means that every individual in a society has equal access to school, equal treatment in the process of education, and equal opportunities for achievement. The ultimate goal of education is the free and harmonious development of individuals. Therefore, educational equality and its principles can only be attained through respecting the basic human rights and the development of freedom of each individual. In a recent exploration of the issue on education, Sloam et al. (2021) found a connection between the principle of equal educational rights and equal political and economic rights, explaining that political and economic systems that support equality also have equal education structures. As expected, there is a deep connection between how a society is constructed and how it eventually provides education to societal members. A good education system is where the teaching and learning processes are equally accessible to children, through equal treatment and success in the process of education. However, Mazzoli, Todd, and Laing (2018) mentioned the principle of differential treatment where the effect of education will be different due to the talent, opportunity and opportunity of the educated individual, equal opportunity cannot be realized mechanically. Therefore, the realization of educational equality is bound to give different educational treatment to each individual.
2.1 Equity Theory in Education
The equity theory, a key concept in sociology, provides that education can be used to attain equal social and economic status. Equity is defined by Chapman and Ainscow (2019) as a state where social and personal circumstances are not limitations to the attainment of educational potential and that every person reaches the basic minimum skill levels. In this definition, inclusion and fairness are used to show that economic and social status are attainable through quality education for all. Circumstances such as family background, gender, economic status, and ethnic origin should not be a limitation to the attainment of educational goals. Equity theory, as Martin (2019) asserts, essentially attempts to explain how individuals view their own efforts versus what is received externally in return. In short, the equity theory points out that people are in a constant monitoring mode to determine if their situation can be classified as fair. In this regard, students, especially those in their early years of study, are obsessed with issues of fairness. The equity theory provides an understanding that education should be closely monitored and controlled by the government through legislation and other measures to ensure equality and to reap the benefits of a fair and inclusive system in the long run. Overall, every child deserves a good education and every child should achieve high standards.
2.2 Inequality in the British Education System
The Education Act 2011 contains the legislative elements of a reform programme aimed at eliminating inequalities in the British education system. Looking particularly at the effect of the legislative changes in the act, it sets out how reforms to the school system together amount to a real change in ending the vast and entrenched inequalities regarding opportunities in the education sector, economic, and social realms (Soysal & Baltaru, 2021). From a personal perspective, this legislation helps to achieve equality in education, but at this stage, the gap between the rich and the poor still has the greatest impact on equality in education. Despite an increase in the level of acceptance of students from different backgrounds in British universities, there are still huge differences between different universities, and the problem of education inequality still exists. For example, in the elite universities represented by Russell university group, Bhopal (2017) found that it is difficult to see students from low income backgrounds or those from poor regions of the country. The effect is that the number of students from well-off backgrounds is significantly higher than that of students from poor backgrounds. As the situation continues to receive attention, the environment is in British universities is changing to become more open and inclusive, further reducing the gap in the attainment of equality in the education sector.
2.3 Outcomes of Inequality in Education
The consequences of class consolidation in the education sector are dire and with longer lasting effects. On the one hand, it will affect social mobility and reduce economic productivity. On the other hand, if young people never see hope, it may even lead to similar recent events in Hong Kong. Education inequality in Britain has led to an increasing gap and the existence of social clusters that affect generations in a vicious repetitive cycle. The overall performance of students in England’s big cities continues to rise, but in the remote areas, the academic performance gap caused by race and family background is widening (Pensiero & Schoon, 2019). The gap is continuing to expand. The main danger is that the more the advantage-disadvantage gap widens, the longer it will take to bridge it and to attain fairness and inclusivity in the education sector.
3. Personal Understanding of the Issue
My understanding of the issue of educational inequality begs the question of how both equity and equality can be achieved in the process of teaching and learning. One of the most important things to note is on the definition of equality in education as an idea that learners should have access to equal education opportunities regardless of features such as disability, class, race, gender, and sexuality. In this definition, it is vital to see the role of the defining characteristics of an individual as a hindrance to equal education opportunities. Throughout history, characteristics including disability, class, race, gender, and sexuality have been used to systematically create rifts and exclusions. The effect is that minorities do not receive proper education and this has not changed in a manner enough to alter the status quo. To begin on the same academic foot, the factors that limit an individual to create disadvantages must be addressed. For example, a learner who already comes from a single parent household is limited in terms of the support and the availability of resources. These factors are outside the control of an individual and should not matter when receiving an education. Despite the UK education system having evolved significantly over the last few years, there is more to do in order to ensure that true equality and equity can be achieved. A combination of the political, economic, and social factors are needed to ensure that learners in the UK have equal opportunities to succeed and to receive quality education.
4. Conclusion
To sum up, I see a need for the UK to further introduce newer and better policies relating to education equality. The government and other social structures have an obligation to ensure that learners, especially children, receive adequate education that provides the necessary skills that are required to become positive contributors in the adult society. In this role, it would be easier for the nation to attain societal advantage because having some children lacking quality education would translate to a social waste. The discussion finds that the consequences of class consolidation in the education sector are dire and with longer lasting effects. Further, the report finds that despite an increase in the level of acceptance of students from different backgrounds in British universities, there are still huge differences between different universities, and the problem of education inequality still exists. It is recommended that new policies be implemented to eliminate traditional barriers to equal education for all in the UK.
References
Anne Winter, L. (2018). Relational equality in education: what, how, and why?. Oxford Review of Education, 44(3), 338-352.
Bhopal, K. (2017). Addressing racial inequalities in higher education: Equity, inclusion and social justice. Ethnic and Racial Studies, 40(13), 2293-2299.
Burkam, D. T. (2013). Educational Inequality and Children: The Preschool and Early School Years. The Economics of Inequality, Poverty, and Discrimination in the 21st Century [2 Volumes], 381.
Chapman, C., & Ainscow, M. (2019). Using research to promote equity within education systems: Possibilities and barriers. British Educational Research Journal, 45(5), 899-917.
Chzhen, Y., Rees, G., Gromada, A., Cuesta, J., & Bruckauf, Z. (2018). An Unfair Start: Inequality in Children’s Education in Rich Countries. Innocenti Report Card 15. UNICEF.
Gullo, D. F., & Ammar, A. A. (2021). Predicting third-grade academic achievement in low-socioeconomic children: developmental and socio-behavioural influences in kindergarten. Early Child Development and Care, 1-16.
Lynch, K., & Baker, J. (2005). Equality in education: An equality of condition perspective. Theory and research in education, 3(2), 131-164.
Martin, D. B. (2019). Equity, inclusion, and antiblackness in mathematics education. Race Ethnicity and Education, 22(4), 459-478.
Mazzoli Smith, L., Todd, L., & Laing, K. (2018). Students’ views on fairness in education: the importance of relational justice and stakes fairness. Research Papers in Education, 33(3), 336-353.
Pensiero, N., & Schoon, I. (2019). Social inequalities in educational attainment: The changing impact of parents’ social class, social status, education and family income, England 1986 and 2010. Longitudinal and Life Course Studies, 10(1), 87-108.
Sloam, J., Kisby, B., Henn, M., & Oldfield, B. (2021). Voice, equality and education: the role of higher education in defining the political participation of young Europeans. Comparative European Politics, 19(3), 296-322.
Soysal, Y. N., & Baltaru, R. D. (2021). University as the producer of knowledge, and economic and societal value: the 20th and twenty-first century transformations of the UK higher education system. European Journal of Higher Education, 1-17.
Inside job is a riveting documentary analyzing how the reckless behaviors of various stakeholder of the Wall Street.
Inside Job
Name
Professor
Institution
Course
Date
Inside Job
Introduction
Inside job is a riveting documentary analyzing how the reckless behaviors of various stakeholder of the Wall Street. This behavior almost leads to the fall of the financial sectors and the 1930s economic recession. This documentary unearths some of the shocking truths about the activities, deals, countercurrent that lead to the panic in the Wall Street and the lack of total confidence in the public. The story begins Iceland. In ice lands, there was a deregulation of the entire financial system. The deregulation was highly timed by the insiders and quite unfortunate to the outsider as the insider benefited hugely for the deregulation leading to the accumulation of enormous assets by three principal banks. The accumulated assets was higher than the gross domestic product of the country and could support the small country three times
Thesis
While the financial crisis has left a bitter taste in the mouths of the public, the public are yet to understand how they got to that point and what could have been the motivating factors. A paper highlight the reasons mistakes made by different parties during the bubbles and after the financial crisis.
The inside job
The film depicts an exceedingly common status in the banking system. There are many runaway banks trying to accumulate massive assets with toxic loans that they now will not mature. These players have one thing in common, the financial knowledge that they can leverage to achieve their means. The small banks have a high degree financial engineers who can wield their wand to manipulate the financial market to their advantage. These people rob the country poor while wallowing in the miasma of stupor and money and lavish bonuses (Ferguson, 2010)
The film offers a critical analysis of how the wall street executives and the credit agencies colluded to rob the wall street. It also offers information on how the financial panic making people make panic sales and buys for their own god. The credit regulatory agencies had a significant hand in the financial mess at the Wall Street as well as subsequent economic crisis and depression (Ferguson, 2010)
The motivating factors of the financial loss
Other insider who was not part of the activities saw the looming financial crisis and they attempted warn the public. The general confidence that the public had on the Wall Street clouded their judgment and few reconsidered taking action to save their investment from the financial ruin. The key players include the former CEO of Goldman Sachs Mr. Henry Paulson, Ben Bernanke, Alan Greespan as well as timothy Geithner. These regulators ignored all the signs and warning of the financial crisis because they were either with the team or out of the loop. For example, the Goldman Sachs employee, including Henry Paulson was aware of the pending crisis and chose to do nothing to maximize his gain (Waggonner, 2004)
Agencies
The tripartite team of the Goldman Sachs, Lehman brothers and bear steams were the main perpetrators if the fall as the main players, they orchestrated the financial crisis. The Goldman Sachs was responsible for manipulating the stock market by laddering and spinning. It was quite a wonder that a financial engineer is paid ten times a real engineer. The real engineer is bent on building the bridges while the financial engineer builds the dream. However, the worst part was when the dream is realized, the ordinary man suffers, as the dreams become a nightwear. The ordinary man pays for nightmarish dreams of the financial engineers. On the other hand, Frank Partnoy argues about the legality of making an extra $2 million per annum for putting a financial institution at risk. It is quite open that someone must pay the final bill. It was quite open, as the people on Wall Street would easily bet on that because the financial system was falling and everybody is egoistic (Ferguson, 2010)
Federal regulators
The government agencies and the wall street were responsible for many loses, for example, when the government agencies were contacted and warned about looming financial crisis, no discussion, or measures were implemented. They did not attempt to warn the public about their new intelligence. What they did was open the door wide for the panic stricken people to invest their Money while the job smart cashed on the crashing financial system. Many banks were deregulated , and the public and other inside traders were left to speculation, the derivatives and credit swaps were the order of the day for the Goldman Sachs.
The company sold their Collateralized Debt Obligation to insurance falling insurance companies and cons with the hope that the insurance companies will go under with the CDOs. While this was true, the Lehman brothers were having a field day sending shock waves to the investor community in the financial centers worldwide. The panic made people make uncalculated risks leading to both financial and homelessness. Just as Christine Lagarde said that instead of the government taking action, to correct the mess, the government just looked from a distance instead of running away from the tsunami, the government cast inquire then right swimming costume it can put on to wade through the tsunami(Ferguson, 2010)
Credit agencies
The hand of the credit agencies in the financial crisis was much more open than ever=ne though. Con firm such as bear steams and Morgan Stanley were awarded a grade credit rating by moody and SP. The standard and poor was the main culprit in the rating as they accelerated the process within then week of m the system collapse. The credit rating companies had an extremely hard time convincing the public and the congress that the ratings were just opinion and were not effective (Ferguson, 2010)
Root causes of the financial crisis
The financial crisis was a well orchestrated process that involved many players of common interest. While most people though that the problem owed its existence to bush housing boom in the second term, it was not true. The problem started during the neoliberal activism, whereby the Ivy League scholar’s ideology convinced the public of the positive performance of the wallsteet system and got backing from the government. The systematic breakdown was were planned as the perpetrators realized the importance that people lay to their houses and wealth, then lured them to invest in the newly deregulated system, promising the investor community better dividend and bonuses (Ferguson, 2010)
The two tier trading method
According Kilday, (2012).The two tier trading method unsure that the public were duped and the actual performance of the Wall Street was concealed while a false performance report shown to them for decision making. The investor’s community invested generously hoping to cash on the boom only to realize that the bubble was getting bigger while it had nothing inside on contracting. The country assumed. That if it was growing, then the recession told not be something to be worried about not knowing that the economic growth was just superficial (Bowman, 2010)
The deregulation was the main motivating factors the financial crisis. Most of the people who took advantage of the liberalization were the investment banking companies. The loan culminates and investment companies were happy to gamble and toy with their client money, betting and gambling on and against their depositor’s money. The banks came up with complex financial instrumental that only confused the depositors; they also borrowed from the respective parties and banks while their income stream from the debts bundled up. The companies offered high interest loan to high risk bowers. This was under the argument that the subprime market was more attractive due to the amount of returns charged on these instruments (Ferguson, 2010)
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While the banks were ballooning, Bowman, (2010) argue that the traders were offered bonuses that encouraged then to take more risks by accepting high collateralized loan. Most banks insured their sinful debits against credit default swaps, this means than many insurance policies would be purchased against a single risk. The bank later develops appetite for selling extremely risky instruments because they were highly insured with the credit swaps. While the discipline of economics was corrupted by the crash, most of the scholars were employed by the banks to write reports in support of the reckless deregulation. This must have been issues of public relation, as most people believed that if the scholars endorsed the deregulation, then the world would become a better place and the financial market would get better than was imagined (Kilday, 2011)
The role of then banks CEO
The banks CEO were much involved in the crash just like the other players. The became more like a demigods. They made themselves comfortable creating new regulations at the expense of the government officials; they created ways that suit their professional malpractices for their future and their employs. The financial capacity of the CEO more than they could afford, they lavished themselves. The main agenda for the whole film was that socialism was meant for the rich while the free enterprise was for everyone who could afford it. The problem is that when the good people flailed to pat their debt they were driven out of their homes in foreclosure. On the other hand, the default by the rich men to party their debt take seriously as the ordinary person had to come in to bail them out (Ferguson, 2010)
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Politics
The hand of politics in the whole affair is quite open for example, the connection of the credit crash as the political bigwigs is seen then the congress are called to hear the credit agencies can explain the whole concept, but instead of being proactive, they are just passive. They are taken though the financial urchin and rigmarole. The politicians are partly to blame for their roles (Dams, 2012).
Most of the parties that were supposed it be accountable had their own conflicting interest; the top management handpicked their board member whom could help them swindle the companies further within the shirted time possible. Many other toom advantage of the confusion ensuing during the economic crisis. Some banks develop further and reinforced their antireform efforts. Nobody was ready to be accountable. The consulting firm made their bonuses and; left their client facing the financial crisis while they had their fun times in remove location in sandy beaches. This was the height of financial crisis, but few individuals had a fabulous time lavishing
Conclusion
While the film sets out to provide a comprehensive analysis of the local financial meltdown, the inside job may not have explained in depth then macroeconomic facts and attests that can explain in depth then whole scenario. However, the bottom line is quite clear as the message got home and people realized that the economic bubbles are not bubbles after all but mere mainly in relation of the giant economic system to suit the demand of the few at the expenses of the masses. The masses have also been enlightened of the factors at play and the main players during the economic slump, the only people that surfed the brunt of the financial crisis were the ordinary man. The vivid interview with the players and other microeconomic outlines the beginning of the bubble till the contraction of then bubbles. The main facial insiders try to live out the circumstances that corrupted politics and academia though manipulated regulation. The film has only exposed one main thing, that the public can be stolen from legally in the plain sight of the fed as then industry watchdogs
References
Cassel man, B (2012). “Economists Set Rules on Ethics”. Wall Street Journal. Retrieved January
Dams, R. HYPERLINK “http://www.awardsdaily.com/2010/10/gotham-nominations-live-stream” “2010 Gotham Independent Film Award Nominations. Awards daily.com.
Kilday, G.”DGA 2011 Award Winners Announced”. The Hollywood Reporter
Kilday, G. “Inside Job the American Spectator (2012).
Waggonner, Eric. Epictetus. The Discourses as Reported by Arrian, the Manual, and Fragments. London: William Heinemann, 1928.
Waggonner, Eric. “Inside the Current: A Taoist Reading of the Old Man and the Sea”
Hemingway: Review Spring 1998.
The inside job. Dir. Charles Ferguson. Perf. Matt Damon, Barney Frank, Lawrence McDonald. Touchstone, 2010. DVD.