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You’ve heard of the iPhone but what about iMerica?

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$75,876,000,000 is a lot of cash. But who does it belong to?

We blogged recently about Apple’s latest set of successful results but if you look into the figures you’ll see a staggering amount of cash that they hold.

Cashflow is a key factor for most businesses but by anyone’s reckoning $76 billion of cash is a hefty amount that will cover most eventualities.

Apple are reportedly holding onto the money for potential big ticket acquisitions but if you look at the latest market capitalisations of some well known companies on the London Stock Exchange then you can see what Apple could buy with their cash of $76 billion (£47 billion).

For example, they could purchase ALL of the following household names with cash:

BSB (Sky TV) (market cap = £14.8bn)

Burberry (£6.2bn)

Sainsbury (£6.1bn)

Marks & Spencers (£5.7bn)

Ryan Air (£4.7bn)

Next (£4.2bn)

Pfizer (£4.1bn)

Easy Jet (£1.5bn)

So, without taking out any loans or raising any additional funds Apple could buy all of the above.

These are phenomenal amounts of cash that they are holding.

They even have so much cash that they currently have more cash at hand than the US government!

According to the US Treasury, the total operating balance (in effect the amount of money the US government can spend before it hits their debt ceiling) was $74 billion. This is $2 billion less than the cash that Apple has at hand.

So, Apple has more cash than the US government. Will we shortly be seeing a picture of Steve Jobs on the one dollar bill?

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Should you get married if you’re a finance person?

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Marriage – that traditional bond between man and woman where they share their journey through life. Joining in together with the good times and the bad times but above all being a symbol of ultimate love between a man and a woman.

That’s all very nice but forget about all that romantic stuff, if you’re a finance person is now the right time to get married?

One of the cornerstones of a marriage is the gold wedding ring and they are likely to be getting more expensive in the near future as yesterday the price of gold hit a new all time high record price of $1,610 an ounce.

Why has the price suddenly shot up? Is it because the world has suddenly got all romantic and there has been a surge in demand for gold wedding rings?

The answer has nothing to do with weddings but rather the case that gold is seen as a “safe haven” for investments during times of global economic uncertainly.

With the current economic problems in Greece and thoughts that high debt countries such as Italy and Spain may get drawn into the crisis, investors are avoiding shares and government bonds and instead investing in gold.

So, looking on the bright side for those of you that are about to get married, although your wedding ring is likely to become more expensive to buy, not only will your “emotional wealth” hopefully grow after you get married but so will the value of the gold investment on your finger.

Then again, whether you’ll ever be looking to sell your wedding ring at any stage in the future is another discussion altogether…

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Would you criticise me if I spent ALL of YOUR bonus on alcohol?

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One of the ways that governments around the world have tried to kick start the economy during the recent recession has been through the reduction of interest rates.

10 years ago the Bank of England base rate was 11.38%.

Today, the current rate is 0.5%.

If individuals have variable rate loans or mortgages on their home and the interest rate falls, their interest payments will also fall.

As a result these people will have more money in their bank account and in theory this additional money should make them feel more relaxed about buying goods. If these additional goods are purchased then the economy is stimulated.

Lower interest rates may also encourage individuals and organisations to take out new loans. This money can then in turn be used to buy products which again should stimulate the economy.

Now, whilst low interest rates are good for people that are borrowing money, they are not so good for people who are investing money and looking to receive interest on the cash they’ve invested.

Certain parts of the population are more reliant on interest received as part of their income than others. Pensioners for example, who are no longer working can be hit particularly hard as they often rely on interest income.

I’ve just had a quick look at the internet bank Egg.

Egg was established in 1998 and 4 years ago was bought by Citigroup (Citi). It’s one of the top internet banks around and offers good interest rates when compared to some of their competitors.

But what sort of interest rate do you get?

The Egg site today includes the following text:

“Egg Savings Account – watch your money GROW.

Get 0.60% gross pa/AER variable and watch your savings grow.

Includes a fixed 12 month introductory bonus rate of 0.10% gross pa/AER from the date your account is opened on balances from £1 to £1 million.”

The accountant in me likes to play with figures so let’s just think about this for a moment.

If you open an account with Egg with a £1,000 deposit, after the first year you’ll receive a bonus of £1.

Yes, a whole £1.

My favourite drink is London Pride beer and a pint will set me back £3.50.

Just think, in one year’s time if I invested £1,000 in the Egg savings account I could blow the bonus on just over a quarter of a pint of beer.

Then again, I couldn’t actually buy a quarter of a pint as I’d have to pay tax on the £1 bonus received…

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You can raise your profile on LinkedIn but will LinkedIn raise $175 million?

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The professional networking site LinkedIn yesterday announced plans to raise up to $175 million (£110 million) by way of a public offering.

Many of you may well be members of LinkedIn and in terms of registered users it has been very successful since it started back in 2002.

Financial information about the company though has historically been difficult to obtain as such information was kept away from the public domain.

The IPO document released yesterday however provides some interesting figures.

For example, LinkedIn gains a new member every second and now has more than 90 million total members worldwide.

Although the majority of LinkedIn users are subscribers that sign up for the free version the company does generate significant income. It was able to double its 2009 revenues to $161 million in the first nine months of 2010. The $161 million can be broken down as follows:

  • Hiring solutions (job listings): $66 million (41% of revenue)
  • Marketing solutions (advertising): $51 million (32% of revenue)
  • Premium subscriptions: $44 million (27% of revenue)

2010 was the first year that LinkedIn was profitable with a net income after tax of $10 million.

Cash at hand as at 30 September 2010 was $90 million whilst total assets were $197 million.

The IPO document also has to provide details of shareholders with more than a 5% stake.

The founder and chairman, Reid Hoffman owns 21.4% of the company together with his wife whilst 3 venture capital firms own approximately 39% between them.

The shareholders should do very well out of the IPO and indeed Mr Hoffman is no stranger to successful e-businesses having previously been an executive at PayPal.

If you’ve got a relaxed day at the office and a love of detail then the full document submitted to the US Securities and Exchange Commission can be found here.

How many sandwiches can a stockbroker in Hong Kong eat in 2 hours?

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What did you have for lunch today? Did you manage to get out of the office or did you grab a quick sandwich at your desk?

If you’re a stockbroker working at the Hong Kong stock exchange then the chances are you had a rather nice long lunch.

The Hong Kong stock exchange has one of the shortest “opening hours” out of the major stock exchanges.

It is open for business 4 hours a day and also enjoys a rather pleasant 2 hour lunch break.

It also does fairly well when looking at the opening hours of the other major stock exchanges around the world:

  • London, Paris and Frankfurt – 8.5 hours
  • New York – 6.5 hours
  • Australia – 6 hours
  • Tokyo – 4.5 hours

For anyone that has lived or worked in Hong Kong this may come as a bit of a surprise as it’s one of the busiest most frenetic cities in the world.

Alas, it seems that their 2 hour lunch break is now under threat.

A consultation paper has recently been issued and it is raises the proposal of:

  1. Starting half an hour earlier at 9.30am (surely it’s virtually impossible to have a nice breakfast if you have to be in the office at 9.30?)
  2. Reducing the lunch break from 2 hours to an almost impossible to fit in a 3 course meal and a bottle of wine timescale of 1 hour.
  3. Luckily there are no plans to change the closing time of 4pm so the brokers will at least have a reasonable time to get ready for dinner.

The arguments in favour of adjusting the opening hours are to enable it to tie in with the mainland Shanghai exchange opening hours.

In what can only be described as “hardly the surprise of the century” it was reported that 70% of the Hong Kong Securities Professionals Association members that were asked their opinion on the proposals felt that the 2 hour lunch break should remain.

Closing for lunch isn’t something that you find in the majority of stock exchanges elsewhere around the world.

If for example you wanted to get the views of somebody from London who had actually experienced the London stock exchange closing for lunch you’d have to find a very elderly broker. The London Stock exchange last closed for lunch 60 years ago in 1950.

A bank run? Don’t worry, it’s only a bit of fun…

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It hardly seems possible that the bank run on the UK bank Northern Rock happened over 3 years ago but last week some people thought that there was a similar run on the Spanish bank BBVA.

A bank run occurs when a large number of people with deposits at a particular bank head to branches of the bank to get their money out as quick as possible.

It often follows a rumour about problems with the bank and can lead to a self fulfilling prophecy.

Large numbers of people withdraw money. This can cause liquidity problems at the bank which in turn causes more concern which leads to more people rushing to withdraw their money which leads to liquidity problems with leads to….. and so on until a vicious circle develops.

A bank makes its money from lending.

If it just keeps depositors money without using the deposits to generate revenue by for example lending to borrowers then the bank is in effect just a safe deposit box for the deposits.

In the great depression of the 1930s sudden withdrawals by panicky depositors caused liquidity problems to such an extent that a number of healthy banks were forced to close.

Nowadays, as long as the bank is solvent, any short term liquidity problems should be resolved by borrowing cash from its central bank as a “lender of last resort”.

Bank runs can still happen though and last week the queues of people outside of BBVA bank in Madrid caused rumours that resulted in the share price falling sharply.

It took a while for the markets to identify what was going on and it wasn’t so much a bank run that was causing the queues but rather a “fun run”

There was a 10km fun run sponsored by BBVA and joggers were queuing up to get their race numbers and t-shirts from the bank for the run on the Sunday.

Unfortunately rumours quickly spread around the financial markets that there were large queues outside the bank and in the jittery post financial crisis atmosphere the share price plummeted by nearly 4%.

Luckily a hour or so later the markets realised that the bank withdrawals were race t-shirts rather than cash and the share price recovered.

Finally, to test your knowledge of the financial markets there are two pictures in this blog entry. One shows a bank run whilst the other shows a fun run. Can you tell the difference…

Don’t worry about the £117 million you can’t find. Instead, just go on a nice long holiday…

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Paul Bowtell, the CFO of Europe’s largest travel company TUI Travel will soon be able to go on a very long holiday.

TUI recently announced that Mr Bowtell will leave the company at the end of the year.

Why is this I hear you ask?

Put bluntly, the reason is that he messed things up in a big way when he was in charge of the finances of the company.

TUI stated that they would be writing off £117 million of “irrecoverable balances” and restating their prior year financial results.

£117 million is a significant write off in anyone’s books. The share price of TUI fell by over 10% as a result.

It also highlights one of the challenges faced by organisations that merge.

The write down originates from “failures to reconcile balances adequately in legacy systems in the retail and tour operator businesses in TUI UK”. In other words, back in 2007 when TUI merged with First Choice Holidays they had to integrate different systems and simply didn’t manage it.

Questions have got to be asked as to why they couldn’t reconcile the systems. After all, given there’s been a recession on for a few years there must have been a few IT consultants available to work on the reconciliation of the systems and who would have charged a lot less than £117 million.

Mergers often have problems with integrating areas such as the culture of the companies but it’s clear now that the integration of these IT systems has also been far from easy. Being unable to reconcile £117 million makes for a spectacular suspense account.

Publicity around mergers tend to focus on their advantages, real or perceived, but the behind-the-scenes work that has to be done can be substantial.

It no doubt proved to be a real headache for Mr Bowtell. For his sake we hope that this will prove to be the biggest write off he has to oversee in his career.

Was it a good bet or not? 10 years and £1.4 billion later and the answer seems to be…

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Although people have been gambling for a long time, the profile of the betting industry has changed dramatically over recent years.

The bookmakers that were seen on many a high street seem to be gradually disappearing.

People are still gambling though but the delivery method of the industry is switching to internet based gambling rather than placing bets at a physical bookmakers.

Ten years ago former professional gambler Andrew Black and former JP Morgan trader Edward Wray started up a betting business that addressed matters in a new novel way.

For years the typical approach to gambling had been where a bookmaker set the odds and it was up to the individual gambler whether or not he or she accepted these odds and placed the bet.

Betfair pioneered the concept of person to person betting whereby individuals bet against each other rather than the bookmaker. Betfair provide the platform for the betting and take a commission on each transaction.

A gambler will say that they want to bet on a certain event happening (or not happening) and if another gambler wants to accept the bet then the transaction goes ahead. Betfair provide the mechanism for this to happen.

This is known as a betting exchange and is a great example of where first mover advantage really counts.

In order for the business model to work there has to be a critical mass of gamblers that are willing to offer and accept bets. Without this critical mass the business simply would not work.

Another example of where first mover advantage has been critical to business success is in online auctions. After all, who are the main competitors to eBay?

Back to Betfair though and it certainly is a good business model. Risk for example, is nicely reduced as the company is not standing to lose on the bet but instead takes a nice commission on each transaction.

So how well has it done over the last 10 years?

The answer to this can be found last Friday when 15% of the company was floated on the London stock market and the company was valued at £1.4bn.

Betfair’s advisors were some of the biggest names in the business and included Goldman Sachs, Morgan Stanley and Barclays Capital to name a few.

Amongst other things their job was to identify the price range of the proposed offer. Initial indications were that it would be between £11 to £14. The final initial public offering (IPO) price was set at £13.

With some of the top investment bankers involved and Betfair being in the gambling industry (which is not necessarily renowned for being generous to gamblers) it was something of a surprise to some people to see the share price rise by nearly 20% in the first day of initial trading after the IPO. After all, this could imply that the IPO was undervalued if there was such an initial jump in price.

I wonder what odds you would have got from Betfair that the IPO share price would rise by 20% on the first day of trading?

Get out your sketch pad if you want to overcome a barrier…

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If an organisation can create a successful barrier to entry then it will have a great competitive advantage.

In simple terms, a barrier to entry can prevent competitors entering the market.

We’ve blogged before about a good example of a barrier in the Indian telecommunication market but a recent attempt to create a barrier by Southampton Football Club in the UK was met by a truly artistic response.

Southampton FC decided that they would try to boost their income by preventing any non Southampton FC photographers from taking photos of their match with Plymouth Argyle.

This barrier meant that the only photographers present were official Southampton FC photographers and hence any photos of the match would have to be purchased from the official agency. A nice revenue source for the club.

Ignoring the rights and wrongs of this in terms of impact on other clubs and setting a precedent, this is indeed a pretty tough barrier to overcome.

Understandably upset at having to pay for photos of their local team, the Plymouth Herald newspaper approached well known local artist Chris Robinson.

Chris watched the match on television and then drew “comic strip style” pictures of the football action which were then published in the paper instead of photos.

As you can see, the results were pretty impressive.

It also resulted in a pretty unusual answer to the question of “How do you overcome a barrier to entry”.

The answer now includes, “Draw some cartoons”.

How much does it cost to buy your loyalty?

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Last week one of the top policemen in the UK admitted to getting discounted flights for his family by using air miles obtained on tax payer funded flights.

John Yates, who is the Assistant Commissioner of the Metropolitan Police (i.e. the  Greater London Police), is entitled to fly business class on official trips abroad. This enables him to amass significant amounts of air miles which can then be used for free flights in the future.

With a nice corporate governance angle the rules of the Metropolitan Police say that these air miles must be used for future work related flights and not personal ones. In what he claimed was an oversight, Mr Yates however used these air miles for a number of personal flights.

I’m sure it was the last thing on Mr Yates mind but from the Airline’s point of view, the provision of air miles can involve big figures.

The IFRS Interpretation Committee (formerly known as IFRIC) didn’t make many friends when they wrote IFRIC 13: Loyalty Programmes.

Broadly, IFRIC 13 says that when you are given loyalty programme points by a business, they have to recognise a proportion of the total sale to you as a sale of loyalty points.  In other words, they are buying your loyalty, rather than rewarding it.

This means that each sale has to be unbundled into two components – a sale of loyalty points at the value to the customer (which is likely to be very much higher than the cost of delivering the promised service) and the underlying sale itself.

As the loyalty points are used up or expire, the deferred revenue from loyalty points sold is recognised as revenue.

Previously, the accounting policy of most companies had been to recognise loyalty costs as a provision at the expected marginal cost of delivering the service.

This can be a fairly significant figure.  By “fairly significant”, we naturally mean “completely massive”.  Have a guess what the effect was on shareholders’ equity in the restated 2008 accounts of British Airways for implementation of IFRIC 13.

The answer is £206 million.  Nope, that’s not a typo; getting towards a quarter of a billion British Pounds.  Ouch.

We at ExP travel fairly a lot for work and we’ve noticed that airline loyalty programmes have become a little less generous of late.  Maybe the new accounting rules are something to do with this?