The main aim of any for-profit business is to maximize profits. To a great extent, maximizing profits has a lot to do with minimizing risks that contribute to business losses. Risks may be explained as business uncertainties or unforeseen events that lead to the failure of the business. Although the stocks of a company are its most important assets, they may also turn out to be its biggest risk depending on the company’s performance in the market (Paweł, 2011). As one of the leading electronic companies in the world today, Philips Company has continued to extend its market share by tapping to new markets in Africa, America, and Asia. The company’s increased growth can be attributed to its consistently growing stock value that has attracted great investors from all over the world. But like any other company in the market, Philips is faced with significant business and market risks that must be addressed to the survival of the business.
The value of a company is mainly determined by the value of its shares and the number of investors who have invested in the company. As of February 21, 2017, Philips USA’s share PHG:US was quoted at $29.57 USD at the New York Stock Exchange (Reuters, 2017). This marked a great improvement in the company’s share value compared with the share value of June 12, which was quoted at $17.32 and February 2016 where the value was quoted at 23.68. The company’s highest record share value is $37.92 and this was in January 2014 (Reuters, 2017). In general, the company has been doing well in the market by controlling its risk factors.
Elements Comprising Philip’s Capital Structure
Philip’s current equity is estimated at 13,058 million US dollar while the debt is estimated at 6,477 million US dollar. An estimated 1,969 million USD in equity is owned by institutions, while the remaining equity of 603 million USD is owned by mutual funds. There are no insiders who own equity at Philips. As of January 20, 2017, Philips Company had a market capitalization of $27, 2656.8 million (Reuters, 2017). This is a relatively stable market cap considering that most companies in the same sector had a market cap of below $20,000 million. Capitalization is an important business measurement element that shows a company’s long-term or permanent capital. Philip’s relatively higher equity of $13,058 million compared with its debt of $6,477 million shows that the company is doing well financially.
History of Philips Company USA Growth
Since the company was established in early 1890s, Philips Company has experienced increased growth over time. Philips started business primarily in the electronics sector but quickly shifted to healthcare and communication following the increased demand of health and communication services. Philip’s greatest growth was however experience when the company started running global operations outside Europe. Most importantly, Philips experienced great growth when the company moved some of its operations into the United States and opened an electronics branch there (Reuters, 2017). The growth after entering into the US could be evident as the company was seen when the company was listed at the New York Stock Exchange.
The company’s stock is listed both at the Euronext (PHIA) stock exchange and the New York Stock Exchange (PHG). By the end of the fourth quarter in 2016, Philips number of common shares outstanding was 922,437 thousand (Reuters, 2017). This was after a deduction of the treasury stock. A stock split was proposed on March 30, 2000 where a 4-for-1 where the board of members met and approved the split. The split was implemented on April 10, 2000, paving for the growth of the company’s shareholder capacity. The continued growth of the company’s share values is an indication that the company has gained customers trust and this is why they consistently consumed the company’s products. The increased value of the company’s share could also be an indication that the company has been able to gain investor’s confidence and this is why the investors continue investing their money in company.
In accounting and finance, the Beta is used to measure a company’s systematic risk or volatility as compared with the overall risk in the market. In the stock market, Beta is used to measure how a company responds to swings in the market. A Beta of 1 means that the share value of a company moves with the market swings at the same rate. That means that if the market moves up or goes down by 2 units, the company’s share value will consequently go up or down by the same unit. Beta of more than 1 shows that the company’s share is more volatile to the market. The higher the Beta from 1, the risky the share will be (MacMinn, & Page, 2005).
The recorded stock Beta for Philips by the end of the fourth quarter of 2016 was 1.42. An interpretation made in this case is that the company’s stock is average. The company’s stock Beta value of 1.42 is relatively better considering that most companies in the electronics industry have a better exceeding 1.5 (Weigand, 2014). When compared with investing in other companies, Philip’s offers relatively lower risk. An investor stands a better chance of generating good returns on his/her investment by investing in Philips Electronics than investing in other electronics companies with a stock Beta value of more than 1.5.
I consider Philips Company to be a relatively lower risk company. First is because the company has an average stock Beta. Second is because the company has experienced increased growth for decades and there has been not had major incidents of major losses. Thirdly, the company has a good debt to equity ratio, an indication that the company’s management has done a good job of financial management. Fourthly, Philips has invested in different sector and this implies that the company would still remain stable even if there is a decline in one sector.
- MacMinn, R. & Page, F. (2005). Stock options and capital structure. Annals Of Finance, 2(1), 39-50. doi:10.1007/s10436-005-0029-4
- Paweł Wnuczak, P. (2011). The Capital Structure of the Companies Quoted on the Warsaw Stock Exchange. Contemporary Economics, 4(4). doi:10.5709/ce.1897-9254.o196
- Reuters. (2017). Koninklijke Philips NV (PGH). Retrieved from http://www.reuters.com/finance/stocks/companyProfile?symbol=PHG
- Weigand, R. A. (2014). Applied Equity Analysis and Portfolio Management: Tools to Analyze and Manage Your Stock Portfolio.