Hey Kjohnben here is the paper This is a 5 page paper excluding the reference page. This paper has be written in Microsoft word with a font size 12 and times new roman. All the materials needed to wri
Running head: ADP AND BILLS
ADP AND BILLS
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Briefly describe the companies’ primary product offerings. Use the business description sections and management’s discussion and analysis sections, as well as the companies’ disclosures about segments.
The company was founded to offer human resource services to clients. ADP(2019) offers solutions such as employer service, and professional employer services. ADP offers cloud based products and services.
How much did ADP pay in dividends in fiscal 2019, in total and per share?
The company dividend per share amounted to $1.3 billion, and the declared price per share was 3.06 in USD
How much stock did ADP repurchase, in dollars, shares, and as a percentage of shares outstanding at the beginning of the year?
The total the share repurchases amounted to 980 million in USA dollars. This represents approximately 6.5 million shares. They were fewer outstanding shares after the repurchase of 2019.
ADP was founded in 1949. Suppose ADP continues to operate for another 70 years and its discount rate is 3.5%. If ADP pays the same amount in dividends and repurchases to investors as it did in fiscal 2019 every year for the next 70 years, what is the present value of those payments? Compare this present value to the market value of the common stock stated on the title page of the 10-K.
Ks=D1/P0 +g
Whereby,
Ks is again the return on equity or discount rate,
D1 the dividend at period one= D0 (1+g) where Do is prior period div
P0 the price of stock at period prior,
g is the growth rate
3.5=2.28/p+0.23
3.5-0.23= 3.27
3.27= 2.28/p
The value will be 7.5 billions
PROFFESOR EXAMPLE; Using the present value annuity table
Compute the present value of these four payments as of today using a 2.2% discount rate.
Compute the annuity factor for 16 annual payments using a 2.2% discount rate.
Compute the payment amount for this “debt.”
Describe Bill.com’s initial public offering
The company’s initial public offering price per share is $22 (BILL.com, 2019). The company was approved to list the common stock on New York Stock exchange under the symbol of BILL.
How much did stock do Bill.com issue in shares and dollars, in total and as compared to the amount of outstanding?
The company issued 9,823,529 which in total amounted to 216,117,638 in dollars. The underwriters on the other hand will purchase an additional 1,473, 529 shares as compensation. The company shall then issue 11,246,769 upon issue of the outstanding common stocks. The initial offer is around 20 percent of the total amount.
How does the company plan to use the proceeds from the sale of stock?
The company plans to use the proceeds to increase market visibility, obtain additional capital and increase financial flexibility. The company also plans to create a public market for its common stock. They specifically intend to use the proceeds as working capital. They also intend to use part of the proceeds to invest in technological solutions. Being technological based companies; they are rapidly innovating new solutions and therefore in need have cash. They also intend to use the funds to finance administrative costs. Before the uses however, the company intend to invest the net proceeds in several discretionary ways such as money market accounts, certificate of deposit, and commercial papers.
Based on the stock price at the initial public offering, the market value of Bill.com’s common stock was approximately $1.56 billion. Suppose Bill.com continues to operate for the next 70 years and its discount rate is 3.5%. If Bill.com pays the same amount in dividends and repurchases to investors every year for the next 70 years, how much must it pay investors each year to justify this valuation of the common stock?
Ks=D1/P0 +g
Whereby,
Ks is again the return on equity or discount rate,
D1 the dividend at period one= D0 (1+g) where Do is prior period div
P0 the price of stock at period prior,
g is the growth rate
3.5=d/1.56+ 0.26
The divided each year is 2.1 billion in dividends.
What is this liability? To who is the liability owed? How does the liability get created and how does the company pay off this liability?
Client obligation fund is the amount of cash ADP has collected as of the reporting date that is due to be paid out on behalf of the clients. The liability will be paid upon maturation in the years between 2020 and 2025. The liability is unsecured notes created through the issuance of commercial papers. From the UK markets, ADP creates the obligation through reverse repurchase agreements. The company pays off the obligation upon the maturation of the commercial papers or any other security it may have.
How does having this liability benefit ADP?
ADP uses the liability to refinance existing debts, maintain the appropriate capital structure as well as finance investment and growth. The liability is also used to invest in growth programs such as acquisitions.
What are the risks of having this liability and what does ADP do to reduce those risks?
The liability that ADP has is subject to the volatility of the global financial markets. The company invests most of the funds and hence may not be able to meet the payment obligations upon maturity. Holding clients’ money for a long time may also impair on good client relationship which on the hand may impede the customer growth objectives. In order to limit the impact this may have, the company acquires credit from time to time to meet the obligations.
Bill.com’s largest liability is its “Customer fund deposits.”
a) What is this liability? To whom is the liability owed? How does the liability get created and how does the company pay off this liability?
The customer fund deposits are money that the company holds for customers pending the processing of payments. The company invests the funds in interest bearing securities the money is held until they are credited successfully to the intended recipients. The company pay off the liability through the processing of payments to the intended recipients.
b) How does having this liability benefit Bill.com?
The liability is one of the principal sources of revenues for the company. The others are subscription charges. By taking the funds and investing them in securities, the company earns interests on the funds until the money is cleared to the intended recipient.
c) What are the risks of having this liability and what does Bill.com do to reduce those risks?
The liability is subject to the volatility in the global financial markets. Bill cannot guarantee the security of most invested funds and may not be able to clear the customers in time. This may negatively impact on the company’s credit rating which may be detrimental to growth. Having the funds held for a long term before they are cleared may also impair the relationship the company have with customers noting that most of its earning come from repeat customers. The company reduces the risk by investing in short term basis, and clearing payment to clients as soon as possible.
6) Based on your analyses of ADP’s “Client funds obligations” and Bill.com’s “Customer fund deposits”, what must these companies do successfully in order to remain in business for the next 70 years and pay steady dividends over that time?
The companies must first invest the liabilities in secure market platforms. Secondly, they must use the funds to fund growth and investment projects. In order to remain in operation they also must pay their obligations in short term maturity contracts to limit the impact inflation and the global market volatility may have on their business criteria. They must also pay in time to avoid being listed negatively which may impair on the ability to access the finance markets. The key drivers of both customers however remain their ability to satisfy their market segments. This includes continuously investing in solutions that continuously meet the needs of customers. They must also expand their market base and penetrate new market. This implies that the companies must invest the liabilities to finance growth strategies such as innovation and growth. They must also choose to invest the liabilities in secure options while carefully balancing between short term and long terms liabilities.
References
ADB. (2019). ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE.
BILL.com. (2019). Initial public offering.
