Link to original article: http://www.financialpost.com/news/WestJet+initiates+dividend+share+buyback/3769738/story.html

Link for information found and used in Reflection section: http://www.flightnetwork.com/airlines/westjet/
Link for updates on share prices using Toronto Stock Exchange:
http://tmx.quotemedia.com/quote.php?qm_symbol=WJA

Summary:

          On Wednesday, November 3, 2010, WestJet Airlines Ltd. announced that they are going to add 5 cents to the new quarterly dividend. They are also going to begin a new share buyback program. By Nov. 5, 2011, the carrier claims it will buyback an estimate of 5% shares, or 7.3 million shares. The shares actually jumped up 4.38% which is the equivalent of $13.35 each, on the Toronto Stock Exchange. It is because WestJet has so carefully stockpiled its cash during the recession, that they are able to launch all these things. Additionally, since 2 years ago, WestJet hasn’t been able to increase its yields until now by 2.1%. Now that the carrier has been able to fill its planes again from the recession, WestJet is increasing some prices such as the 2^nd luggage fee. They are charging $20 per 2^nd luggage rather than continuing to uphold its previous bonus of a free 2^nd luggage. However, the carrier is reducing costs on the 3^rd and 4^th luggages from $75 to $50 each. This great revenue of cash has allowed WestJet to make a code-share agreement with Cathay Pacific Airways and first interline agreement with American Airlines. “They seemed to be very aggressively expanding capacity, and they seemed to be pursuing it as a primary goal, and shareholder value creation was taking a backseat,” David Tyerman, Canaccord Genuity analyst said. “You can see it in the stock. It hasn’t done very much all year. So this might signal a change, but I don’t expect the company to completely change.” 

Connection: 

One of the connections that can be made with this article is that WestJet practices using the “dividends declared” account. They will have a board of directors to determine when the dividends will be given and how much of it. In this article’s case, WestJet will have gone through that to declare their new quarterly dividend of 5 cents per share. “At the date of declaration, they become a legal liability of the company.” In their accounting records, it will appear as a decrease in retained earnings under the account “dividends declared.” It will also affect the cash flow statement because it is considered a financing activity when the cash is paid. 

The last connection that can be made is with “issuing shares.” As WestJet’s shares increase in price, “issuing shares” will be put into action. “One way for a company to raise money is to issue additional shares.” In this way the carrier gains more money because its revenue and income is doing well, and when the customers realize or notice this happening, they will buy more. In turn, that basically leads to a cycle of clients feeding WestJet’s income and revenue which allows WestJet to do more things with the money and potentially make bigger profits. The term that could be applied to this situation of an increase in Assets and an increase in Shareholder’s Equity (Common Shares) is “sales revenue”, because WestJet profits from the rise in share prices and people buying them.



Reflection:

On a global perspective, I can't think of anything that is strongly linked with the information provided in this article. However, I do have a comment that is somewhat involved worldwide with their decision in changing the policy on its luggage fees. Firstly, I think that regular customers of WestJet will no doubt be surprised and frown upon this change. Their decision in lowering the 3rd and 4th luggage fees may seem to balance the new fee set for a 2nd luggage, but realistically, how many people take more than 2 luggages on a flight? Considering the most common types of reasons for why customers take a flight to elsewhere, they are probably people going on vacations, visiting, and for business. Referring to these typical and generalized reasons, you are:
1. Not moving, so you don't need to pack that much.
2. Incapable of dragging more than 2 suitcases since you only have 2 arms.
3. Going for vacation; pack lighter so you can bring home souvenirs or new clothes.
4. Going for business; you won't be staying long, so why pack everything in your closet?
So those are just a few realistic reasons on why WestJet's customers wouldn't go as far as to bring 3 or more suitcases, meaning the lowered prices will not affect them. There are obviously the exceptional reasons, but this is my opinion on the majority of reasons on why people pay for a plane trip to somewhere else. Furthermore, this may be considered as a global affect because WestJet has planes that reach countries like Hong Kong, New Zealand, Australia, United Kingdoms, Germany, Rome, and France, to name a few. It is also the second largest airline in Canada and plans to be one of the top 5 most profitable airlines in the world by 2016. So basically, you can tell that there's a lot of people using WestJet to go to places.
          On a larger picture, WestJet seems to be doing very well as a company. The fact that they are adding 5 cent per share for this quarterly earning could mean that they are rewarding their customers for having "been loyal and supportive of our growh over the years," says Gregg Sarestky, WestJet chief executive. Or is that really what WestJet is doing? They could also be doing this to encourage new [possible] clients to buy shares because people can see that the carrier is doing well at the moment. At the same time, WestJet announces a buyback program so that it can entice current shareholders to give up their shares (possibly knowing [or gambling] that the company itself will have even greater profits in the near future). What I'm trying to say is, WestJet knows what it will invest in, what it will do with it's funds, and probably a good estimate of how much it will profit. As customers, we only know how much they allow us to know through their financial statements which can be somewhat on the "grey side of things." Perhaps the carrier knows that it will make a huge profit in something, and is trying to buy back it's shares so that it can re-sell for even more at a later date once WestJet has made it's "huge profit." Aside from this possibility, it could just be like Mr. Tyerman simply put it as, "We are please to announce our dividend and share buy-back program and provide our shareholders who continue to believe in our low-cost, high-value airline with an even greater return on their investment."

Wall Street's Financial Statements Of Credibility Are Questioned

Link to original article: http://www.businessweek.com/magazine/content/10_39/b4196050744977.htm

Summary :
 

      Wall Street’s credibility is being questioned because they are not providing enough information about their fixed incomes, currencies, and commodities (FICC). The last time they shared anything about their mortgage-trading revenue was in 2007. Since then, Wall Street firms’ have kept a tight grip on the financial statements being relayed to their clients. The insufficient source of FICC keeps the shareholders and potential investors from making wiser decisions about their investments. They need to know, with full transparency, what goes on with their own investments and make sure that Wall Street firms’ aren’t just taking their money and using it to pay off other failed investments of individual markets. It will definitely decrease the confidence customers may have in the results of Wall Street firms. More importantly, when they do this it adds to the huge problem that U.S.’s economy is already in, that being recession. Relating to that, the Dodd-Frank Act which is suppose to prevent future financial crises has been uneventful in helping investors gain more informative financial statements to keep from making poor investment choices.

Connection:

            The “Users of Financial Statements” are most definitely connectable to this article. Examples of internal users would be Wall Street firms’ such as Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup. They are actually the five largest firms of Wall Street. The external users would be, in this case, mainly focused on the “shareholders” and “potential investors.” The shareholders pay for shares in a company, but what’s going on is that they don’t really get to know what the money is spent on or where it’s gone to because the data provided is made awry or super vague. The same thing happens for potential investors except that the firms can even go further into being hazy or shadowy about their work. They could be selling them bundles of good and bad mortgages packaged together which Wall Street firms can make even more money off of than individual clients.

            The next connection that can be made to this article is “Business Activities.” The three general activities involved are: financing, investing, and operating activities. Two examples mentioned for financing activities in this article are issuing shares and being able to pay dividends on shares to the shareholders. Wall Street firms need to be able to pay the dividends with their retained earnings, but if they sell mortgages of high value cheaply to bad customers who still can’t pay off the mortgage price the mortgages will become in high supply and low demand which drops their values.
The investing activities in this article involve sharing partial information about the sale and purchase of properties, plants, and shares from the Wall Street firms. Examples could be about the mortgage-trading revenue or how the money (funded by shareholders and investors) is managed.

The third one would be operating (day-to-day) activities, but this article is not specific on which customers and does not provide numbers in any expenses or amounts owed.

Reflection:

            I think that if firms are forced to be more transparent about financial statements or FICC provided to shareholders and potential investors, it would inadvertently help bring back the economy from recession. Even if it doesn’t, then at least they aren’t adding to recession problems.
What I see happening is that non-transparency of information from firms would increase recession, because firms would be allowed to work “in between the black and white rules of accounting standards and CAAPs.”

They could package mixed mortgages of good and bad and clients would unknowingly invest in them. Individuals could be offered places of high value with temptingly cheap or lowered mortgage prices. Who would not want to buy that? Even people who can’t afford would, which can be a problem when companies just allow them to be sold for easy profit. The more people that can afford to buy the less valuable places in general become. Sometimes the value drops so much the mortgage price which they need to pay off becomes higher than what it’s worth. Therefore many people end up not paying off the now costly mortgages or were unable to afford it in the first place, because the company made the bad decision of allowing them to buy without a thorough background check. To sum it all up, “If you cannot figure out a plan in which to pay everything off despite the great deal, do not buy or invest in it. If you are a firm or company, then you better start clearing up any shady areas of work because no one’s going to think much of your credibility in completing any deals. Lastly, either idea helps stop the recession, so why not?”