The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below: WALMART https://www.nasdaq.com/symbol/ wmt/financials?query=income- statement COSTCO https://www.nasdaq.com/symbol/ cost/financials?query=income- statement Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers. Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization. Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is c...
Should managers be required to disclose private information they have that might influence the investment decisions of the public?
When we talk about “insider information” and trading stock, we usually go into the conversation assuming that using the “inside” information to our own advantage is wrong. Life is supposed to be “fair” and “just” and we are all supposed to play nice together and not take advantage of anyone else’s lack of information, right?
I disagree.
Why is the federal government allowed to set legal limits on success? If a person works hard enough to achieve a position where insider information is available, then why are they limited in how they can use it? Maybe trading in stock should not be available to everyone who can afford to do so. It should only be accessible to the people who have the right information to take advantage of how the market works. Your average Joe or Jean should not be allowed to login to a website and buy a few shares of stock because a company’s environmental ethics “sound good”. It should be the same with betting on horses, cards, or sports teams. It should be illegal for an uninformed person to even place a bet or buy stocks. Buying stock (or betting on sports) is often just “throwing away money” for people who do not have access to all of the information. If insider information was shared in near real-time with all stockholders and the public, it would show everyone how complex the financial world really is. “Making insider trading legal would make it clearer to individual investors that picking and choosing stocks is a sucker’s game and deter more of them from trying, to their financial benefit.” (Carney, 2011)
Assuming investors are not scared off by how the financial markets really work, they are still at a disadvantage. When high-volume stockholders buy or sell, this is big signal to market that something is going on and investors should sit up and take notice. Allowing such financial activity to happen BEFORE the bottom drops out, allows all investors to see that a big change is on the horizon, and they can decide to hold or sell. Keeping insider information as a secret is unfair. It prevents everyone who is capable of and wanting to, from making an informed decision based on current business circumstances. The way publicly-traded companies are regulated now, the government really should to protect the average investor from losing money, because he or she is at an unfair advantage and cannot make a fully informed decision about investments, based on a company’s published financial performance. By allowing insiders to hold back corporate information, the market is not reflecting the true state of the business. By preventing insiders from sharing this information by holding off on stock trades, “we are simultaneously causing innocent investors to lose capital.” (Dorfman, 2015)
In the parallel argument in professional sports, should a manager be allowed to bet on his or her own team? Or an opposing team? In theory, this is the same as trading stock on insider information. All of the information about both teams in the game should be made available to the public. Information about players with injuries, personal issues, financial crises, or an eating disorder should be announced before the start of the game. If the manager is well-informed about his own team and the opposing team, and capable of understanding financial gains and losses, he should be allowed to bet on any team. If the bet is for the opposing team to win, we might want to know why the manager is not favoring the team who employs him, because he may have inside information that has not been shared with everyone else.
If we look back at the Enron case, managers had information about the company that warned of an impending stock price drop. (Wayne, 2002) Due to their role in the company at the management level, they had access to this information. Employees who are informed about company changes and who own considerable stock investments should have the right to sell if they feel the company is going to change in a way that will cause a loss of value of the investment or if they oppose the methods by which the company is managed. Companies would be run differently if stock could be sold at any time, by any employee, based on how the ownership is running the business. It would be a nonverbal vote on company performance.
Management of publicly-owned businesses has an obligation to share company information on a regular basis – such as in quarterly reports. However, if there is a change in the company that could affect its valuation, all shareholders should be informed as soon as possible. A press release is necessary, as well as announcements through social media, to share the information as quickly as possible.
What I am advocating is real transparency – in the way publicly-traded businesses are managed (or how professional sports are managed, to follow the example). If this was the operating norm, and it was illegal to keep “insider” information a secret, then stock would be more accurately valued. (and the odds of winning in professional sports would be more accurate) All of the stockholders of a company should be informed of performance at the same time. Some business owners apparently forget that by selling stock to the public, those investors own a piece of the business and have a right to know if it is running well or not. Just as professional sports teams that require fans to purchase tickets to see the game, the ticket holders have a right to know about the factors affecting the outcome of the game. To put it simply, “The more information in the market — insider or not — the more quickly a stock gets to its true value.” (Altucher, 2011) If the “inside” information is openly announced to anyone who is affected by it, then the successful investor (or gambler) will be the one who gathers the data, analyzes it, and makes the right decision on where to place the money.
References
Altucher, J. (5/17/11) Why Insider Trading Should Be Legal. MarketWatch web site. Retrieved 7/13/18 from: https://www.marketwatch.com/
Carney, J. (7/26/13) Why Insider Trading Should Be Legal. CNBC web site. Retrieved 7/13/18 from: https://www.cnbc.com/id/
Dorfman, J. (3/22/15) Make Insider Trading Legal to Stop Hurting Ordinary Investors. Forbes web site. Retrieved 7/13/18 from: https://www.forbes.com/sites/
Wayne, L. (1/13/2002) Enron’s Collapse; Before Debacle, Enron Insider Cashed in $1.1Billion in Shares. The New York Times web site. Retrieved 7/15/18 from: https://www.nytimes.com/2002/
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