When Lab International issued 13,996,466 shares on December 2005 at 0.88, the proceeds that were realized were $12,316,890. The net cash flow recorded in the year was $16,914 and was greater than $12,049 of the previous year. This difference was as a result of the exchange rate and other factors from cash flow and investment activities.
The shareholders equity also increased in the subsequent year. In the year 2004, it was $ 4787 however at the end of year 2005 it increased to $ 5875. The revenue also grew from $ 25188 to $ 46490 in the 2005. The growth is an indicator of the growth of the company. Due to increase in the level of revenues it was observed that the level of losses declined in year 2005 than it was in the year 2004. This puts the company at a better position than before.
The Lab International faced loss per its share. There are two types of losses per share that are observed; the diluted and the basic loss. The basic loss per share was 0.27 in the year 2004 and 0.24 in the year 2005.
The Lab International faces various financial problems which include having insufficient cash to manage expenses thus leading to loss in the company. The shareholders did not receive any dividend at the end of the year or during the interim period. Another problem that Lab International faced is the stiff competition from relative companies.
The markets undervalue those companies that have significantly different divisions because of misperformance. One of the characteristic of this is when the firm makes loss instead of making profit. The main objective of the company is to make profit for the company and to maximize the welfare of the shareholders. If the company diverts from this, then the market would undervalue the firm.
The Lab International announced issue of shares on December 2005. The shares that were issued were 13,996,466. The issue price was 0.88 thence their proceeds at that time was $12,316,890
The consolidated cash flow stated for the year end shows a positive response. The company at the end of the year realized a profit of $16,914. The current ratio is positive meaning that the firm is able to cater for its short term expenses without much difficulty.
The company is also able to maximize the shareholders equity. When one compares the shareholders equity between year 2004 and 2005, 2005 the shareholders get more. The shareholders equity in the year 2005 was $5875. The revenues also grew at a high rate from the year 2004, $25188 to $46490 in the year 1995.
Although there is a high increase of revenue from the year 2004 to 2005, there is lesser increase of loss in the year 2005. This shows that the shareholders are in a better position than in the year 2004.There is also loss per share. In the year 2004 the basic loss was 0.27 which was more compared to the year 2005. The diluted loss per share in the year 2004 was also 0.27 compared to lesser loss in the year 2004 which was 0.24.
The nature of financing problem facing Lab International is the use of debt financing in its capital structure. The use of much debt financing results to loss hence reducing the shareholders return from the business. Another challenge that the company is facing is the stiff competition compared to the relative industries that are there. The competitor industries are big and this is realized by their revenues that they make. The reason why the market undervalue the company that have significantly different divisions is when the company starts making loses and when the objective of maximization of the shareholder’s wealth is maximized.
Lab International offered to issue 13,966,466 shares in December 2005. The shares were issued at 0.88 and the resultant proceeds were $1,2316,890. The ratio of current asset is favorable to the Lab International. This shows that the company is able to cater for its short term expense. The consolidated cash flow shows a surplus of $ 16914.
The objective of company with shareholders is to maximize profits and the shareholders wealth.lab international has no difference with that. The shareholders’ equity increased from the year to 2005by $5875. The revenues also increased from $25188 in 2004 to $ 46490 in the year 1995.
There was also loss per share in both dilute and basic. Both of them had equivalent losses in the year 2004 of 0.27 losses and a decrease of 0.24 in the year 2005. The revenue also increases from $25188 in the year 2004 to $ 46490. This is an indication of the growth of the company. A loss is also observed however it is much reduced than it was in the year 2004.
The financing problem that is experienced in Lab International is the expenses exceeding the revenues that are available hence leading to the company making loss. The shareholders are made worse off because they will receive lower dividends at the end financial period. Despite the challenge of financing the company it also faces the problem of stiff competition amongst big competing firms thence keeping the small companies at toes.
The question of why should the market undervalue the company that have significantly different divisions is when that company produces less profit or incase of loss. The main objective of the company is profit maximization and promotion.