http://www.winnipegfreepress.com/business/breakingnews/shaw-communications-second-quarter-profits-dip-despite-higher-revenue-90348879.html
Summary
Shaw Communications Inc., a Calgary-based cable company has recently announced its plan to start its long awaited wireless business in late 2011. The company has invested 100 million dollars this year and hopes their investment will pay off when they debut their wireless business. By making this large investment the company hopes that they will be able to offer a leading-edge product in two years. The company has no problems waiting two years before they release their wireless service, and believes it might be a good thing. Despite the fact that the company will be having a large cash outflow in the next two years, the company has bumped up its dividend by 5%. Besides the large investment in its wireless business, Shaw Communications Inc. has also announced its plan to buy control of Canwest Global, one of Canada's largest international media companies.
Connection
The connection between the article, "Shaw to launch wireless business in late 2011, invest 100 million this year" and the financing accounting textbook is cash flow, specifically cash outflow and investing activities. Many companies invest in long-term assets to bring in future profit, and Shaw Communications Inc. is no exception. The investing activities that Shaw is currently involved in is their $100 million investment in their wireless business and possibly the purchase of Canwest Global. The large investment causes a large outflow of cash for the company, but will possibly result in a larger inflow of cash after two years, when their wireless business has launched. Besides an outflow of cash caused by investing activities, the company is also having an outflow of cash caused by their financing activities. Even though the company knows that their will be a large outflow of cash caused by their new investments, the company has decided to increase their dividends by 5%.
Reflection
I think Shaw Communications Inc. is heading in the right direction by planning to launch a wireless business. With a rapidly increasing rate of improving technology, I think it is a good idea for almost all companies to spend more on investments and R&D. Although Shaw will have an increase of cash outflow for the next two years, I think they will be able to achieve a higher cash inflow when their wireless business has launch. Besides their investment in their wireless business, I think it would be a good idea for Shaw to buy out Canwest Global since it is one of Canada's largest media company. Even though there will be an increase in cash outflow for Shaw, Shaw has increased their dividends by 5%. I think it was nice of the company to increase their dividends even with their large cash outflow. The increase in dividend not only thanks their investors for their support but gives an aura of confidence that Shaw is financially healthy and will be able to produce a great product in the near future.
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It looks like it had been a good year for Shaw as they are continuing to lauch new services to the public. However, the company must keep in mind that they have to earn enough revenues to cover up the research costs for the wireless services that they are about to launch. Eventhough, they will have an increase in cash flow, the tricky part is are they able to pay their dividends, creditors and stock up inventory with the revenues earned and still make a profit? I agree with Sam that increasing their dividends by 5% was a good idea because some shareholders may not feel confident regarding the new wireless business and this could definitely show them that the company is riding up the slope. Building a positive relationship with the investors are very crucial the success of the business.
ReplyDeleteA long-term investment like this would seriously affect Shaw's performance in the next two years. If this project failed, Shaw would actually give the wireless market away to its competitors like Telus. Increasing their divident by 5% means that they are confident about their future in the next two years. I think they'll eventually get enough earning to cover up the reasearch costs. What you can't expect is their market shares. That's something you can't put a price on. More market shares means more customers. More customers means more revenue. More revenue means more cash inflow. Everyting in the business is well connected like a human body: if one organ is sick, others can't be healthy.
ReplyDeleteTo read an article where the company is willing to increase their dividend by 5% indicates that they are very confident in their product(s). It is interesting to see that Shaw is willing to wait for two years to have their wireless service available for users and still incrase their dividends. While cash outflow into this project could potentially be greater than the cash inflow after launching the service, I believe it will be successful since other companies may not have the same functionality or accessiblity. Not only so, cash outflow for this year is heightened by the purchase of Canwest Global.
ReplyDeleteBetty Chan
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