Time value of money (Canon Inc.)

| October 22, 2018

Introduction:
Canon Inc. is a
Japanese multinational corporation which is specialized in manufacturing of
imaging and optical products including camcorders, cameras, steppers,
photocopiers, computer printers and medical equipment. Canon Inc headquarters
are located in Ota, Tokyo and Japan. It
is primary listed on the Tokyo Stock Exchange and is a consistent of the TOPIX
index and is secondary listed on the New York stock exchange.

Canon is organized
into three principal business segments: the Office Business Unit (the products
include digital production printers, copying machines, large format inkjet printers,
multi-function devices and laser printers); the Consumer Business Unit (the
products include calculators, broadcasting equipment, image scanners , compact
digital cameras, digital video camcorders, digital SLR cameras, single function inkjet printers interchangeable
lenses and inkjet .wikipedia.org/wiki/Multifunction_printer” title=”Multifunction printer”>multifunction printers,); and the Industry and Others Business Unit (the
products include LCD lithography equipment , computers, ophthalmic equipment,
magnetic heads, handy terminals, medical
imaging equipment, micro motors, and semiconductor lithography equipment).

Current Stock
Price of the company ¥3,285(New
York Stock Exchange)

2010

2011

2012

Company Sales/ revenue

¥3,706,901

¥ 3,557,433

¥ 3,479,788

Company profitability (net income)

¥246,603

¥248,630

¥224,564

Total assets

¥3,983,820

¥ 3,930,727

¥ 3,955,503

Total liability

¥1338038

¥1379595

¥1357477

Owner’s equity

¥2,645,782

¥ 2,551,132

¥ 2,598,026

Profitability
and nature of operating activities of the company attracts me to choose this
company for financial analysis.
A
company attempting to raise additional capital may decide to perform an IPO
(Initial Public Offering) in which they establish shares of stock which can be
traded by the public in the secondary market.
The initial issuance is a way to inject potentially needed capital and
deleverage a business (highly leveraged firms carry higher risks).
Steps in performing and IPO include:
Selecting
an investment bank
This
is the process in which the firm will choose the investment firm who will help
the company with the issuance. The
investment bank will then become referred to as the underwriter or lead
underwriter. They will set a preliminary
price and help assign a value to the company.
Picking the right investment bank is important because often times their
reputation helps convince buyers to invest.
They also have access to wealthy investors and are able to sell
issuances to existing clients.
The
Underwriting Syndicate
This
is the process where the investment bank team lends its expertise in the
underwriting process. They will either
guarantee with the stock issuance a “firm commitment” underwriting or do a
“best efforts” agreement. Bank don not
give guarantee for “Best efforts” agreements that securities will sell. Most
IPOs are handled through “firm commitment” underwriting. This means that the underwriter guarantees
the issuance by first purchasing the shares then turning around and selling
them to investors. Syndicates are
created to minimize risk for the underwriters..
Underwriting syndicate is the collective group and selling group of
investment banks. Lead underwriter charges 7% of the gross proceeds which is
referred as spread. Spread is the
compensation which lead underwriter receives. Lead underwriter receives 20% of
the gross receipt and 60% is paid as selling commissions and remaining 20% is
paid for legal and travelling expenses.
(Ellis, Michaely, O’Hara 1999).
During this stage the prospectus is created and becomes part of their
registration which a company files (on Form S-1) as its intent to go
public. A component of the Form S-1 is
the “Red Herring” report (or preliminary prospectus) and becomes the main tool
once it is approved by the SEC .
The
Roadshow and Book Building
Once
the underwriter is selected, the group will go on a week tour referred to as
the roadshow. The roadshow is where the
underwriter group travels to a new city to meet with potential investors and
attempt to attract them.
During this process the company is required by the SEC to enter a “quiet
period” where the preliminary prospectus (“Red Herring”) is the main selling
tool. The issuing company and the
investment bank is permitted to answer questions but not allowed to put
anything into writing. This is also the
part of the process where the investment bank begins “book-building”. The term book building refers to the process
where the investment bank determines the number of shares that each investor is
willing to buy. These trips are
typically geared to larger more institutional investors as well as retail
salespeople and do not typically include the “average Joe” investor. The issuing price is then set on the evening
before the offering date. Then comes the
excitement of the first day of trading.

Reference

Ellis, Michaely, O’Hara 1999. A Guide to the IPO, Cornell University

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