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The Future of 100 Shares in Overstock

Introduction

In the analysis of the future of the shares, it is imperative to analyse the diverse aspects of Overstock. The entity began operating in the late 1990s. From then, the entity has developed in an exceptional manner. The entity is an online retailer with many warehouses in America to supply its clientele with the merchandise they offer. However, due to the economic crisis, the purchasing capability of the masses has diminished sizeably. Consequently, the entity profitability has reduced. Reduction in an entity’s profitability translates into reduced earnings for shareholders. Reduction in earnings will reduce the share’s worth in the exchange. Overall, the value will reduce slightly or oscillate within a certain range. This is due to not only the reduction in earnings but also the unfavourable market conditions. Nonetheless, this will change due to an assortment of factors. If the economy improves, then the fortunes will change drastically. The improvement in the economy will spur spending hence improving revenues for the entity. Additionally, if they undertake further investments in online promotion and building of extra warehouses outside America they will boost the worth of shares. This is bound to occur since the entity has revealed its ambitions to globalize. Globalization will enable the entity to tap other lucrative markets. This will not only boost revenues but also diminish risks. The future value of the Overstocks’ share will be subject to various factors. The factors comprise the economy, the profitability of the entity and the organization’s tactical plan. Additionally, shares’ value also depends on speculative forces. Adverse speculative forces will reduce the worth of the stocks. Conversely, affirmative forces will culminate in improvement of shares’ value (Daily finance).

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Estimating the values of the shares

The current Overstock shares are trading at eight dollars. The economy will expand sluggishly hence; the shares’ value should rise marginally or oscillate at that value. Thus, despite the affirmative economic outlook the share’s value will increase marginally. The value of the shares will rely on the changes that transpire in one year. Further economic misfortunes will culminate in decreased share value. Conversely, improvements in the economy will boost the worth of the stocks. Therefore, the shares’ value will range between eight to ten dollars. Despite there being models that estimate the value of shares, it is difficult to determine precisely the impact of any factor on the worth of stocks (Daily finance).

Part 2

Problems encountered in the estimation of monetary inflows

Overstock seeks to match other online retailing entities by expanding its operations outside America. The entity seeks to invest additional funds in two activities. First, the entity will invest in search engines that will assist the entity to promote its product. Finally, the entity will invest in warehouses enabling it to hold additional stock to match the escalating demand. The above project will demand injection of a significant quantity of capital. However, this write-up will evaluate the investment implications of building warehouses. In a public entity, there are diverse means of raising capital. The means include public issues, debentures and loans. However, there are procedures followed if an entity wants to fund a certain project. The top hierarchy management will assess the project to ensure it is feasible and sustainable. Analysis of the project will enable the management to determine the monetary inflows from such a project. However, estimation of the inflow is tricky. Determination of the monetary inflow that will emanate from this project will be tricky due to the nature of the operations of this entity. First, the entity has not allocated funds. Consequently, the management cannot determine the capacity of the warehouse. Determination of the capacity of the warehouse would enable the management to estimate the probable monetary inflows. Additionally, the entity may not have clear-cut details on the potential of the market that the storehouse will serve. Accordingly, this will limit the ability to estimate the monetary inflows emanating from the project (Pogue 17).

Overstock’s management will also calculate certain ratios that will reveal the profitability of the project. The calculations reveal the ratio of profitability to the investment made. This reveals the capability of the project to reimburse the funds utilized in the construction. This is a critical tool utilized to appraise projects. Entities always opt to pursue ventures that generate funds rapidly. Conclusively, there are factors that limit estimation of monetary inflows. As such, many organizations select a series of figures that represent possible proceeds from the entity and assign probability. This helps the entity to calculate a weighted estimate of the probable monetary inflows (Pogue 23).

Problems of getting funding for the project

Risk

Risk is a critical aspect of any investment. It denotes the chances that the investment will fail to reimburse the monetary utilized. In this scenario, warehouses may fail to facilitate the generation of revenues that surpass the initial investment. Overstock will always analyze the risk relating to this project. Entities always opt for projects with minimal risk. However, most risky projects have considerable chances of generating phenomenal returns if they succeed. Risk averse entities opt for projects with minimal risk. Conversely, risk oriented entities opt for risky undertakings (Pogue 105).

Cost

The initial cost of an undertaking presents a key hindrance to its implementation. The cost denotes the funds needed to build the warehouse. The management will consider the cost, probable inflows from the warehouse and the financial status of the entity. The three constrains will determine the approval of the project. It is imperative to note that entities cannot undertake projects that will strain their finances. Undertaking costly projects may cause liquidity misfortunes in an entity if the cost surpasses the cash inflows of the organization (Pogue 106).

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Politics

Overstock is an enormous company. Subsequently, a committee or a board would scrutinize the project. Convincing a board that such a project would earn the entity additional income is challenging. This is because some of the members may have conflicting interests and would opt for other investments. Additionally, there are interdepartmental politics that blur the objectivity of such committees. As such, the board may object for a project based on malice rather than its implications on the entity’s finances. Internal politics of an organization affects its undertakings especially when there is an appropriation of resources (Pogue 107).

Public Relations

Public relation has become a critical element of corporate governance. Therefore, entities endeavour to ensure disbursement of appropriate information to the public. This is an issue that entity considers when they undertake projects. The personnel vested with the responsibility of evaluating the project will ensure that the project does not conflict with the moral goals of the public. This is critical since it would contribute to the corporate image of Overstock. As such, the authorities would ensure that the project does not conflict with aspirations of the masses (Pogue 110).

Works cited

Daily finance. Earnings estimates. 2011. Web.

Pogue, Michael. Investment Appraisal, New York: Business expert press, 2010. Print.

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