Features of a publicly traded company

 A publicly traded company, in essence, is a company that that trades its stocks in the public market. Examples of the public market are the stock exchange and over the counter market. A publicly traded company is also known as a public company. In a public company, the shares and stocks are not limited to a particular group of people; the stocks can be bought by anyone from the public. A public company is however required to have a minimum of two directors and an unlimited number of shareholders; in addition, this company should have a minimum share capital. Such companies can easily raise more capital when compared to private companies since they can legally offer liquidity to the shareholders. These companies, nevertheless, have to abide to strict Securities Exchange Commission regulations and have to give clear and accurate data to the investors.

Publicly traded companies also have to provide all information to the public without bias be issuing their prospectus the number of times the law requires them to. A public company is also its own legal entity meaning that the company and the owners are legally two separate things. Therefore, the company’s existence does not depend on the owners or directors. In these types of companies, the people with the highest number of shares and stocks are the ones who have the most say in deciding the company’s policies. These policies are generated at least once a year in their annual general meeting. One good thing about public companies is that it has limited liability; therefore, in the case of losses or erroneous activities, it is the firm and not the shareholders that will be held responsible of its actions. The shareholders do not run the company in essence; however, the major shareholders meet regularly and choose the managerial staff that will run the company. The management staffs are accountable for the day-to-day running of the company and are answerable to the shareholders. It is therefore clear that the effect of the shareholders, apart from the investments they make, is indirect to the running of the company. Overall, profits in the form of dividends are shared among the people who have bought the company’s share from the stock exchange where the company is listed.

Public companies have mission and visions which primarily guide their objectivity, it is therefore required that the functioning of the company is geared towards achieving the goals set, which should be reflected on their annual reports. In this case, we are going to look at the annual report of a publicly traded company known as Baltic Trading. We are going to see how the company faired in the year 2010 with respect to a certain number of things, among them; how the company conformed to its mission and vision statement and the relationship between the company’s strategic outline and its goals.

Assessment of Baltic Trading

          Baltic Trading is a baby company of Genco Shipping and Trading Limited that deals in the transportation of dry bulk in the spot market. The company owns a number of vessels, which ship dry bulk such as coal, iron ore, steel and grain along the universal shipping routes. The company owns nine shipping vessels. The vessels consist of three Handy sizes, two Capsize and three Supramax vessels. The vessels have an average carrying capacity of 672,000 DWT per trip.

Baltic trading is listed in the New York Stock Exchange. Its last share price recorded in the New York Stock Exchange in year 2010 was $4.39. At the end of that year, it also had a common stock volume of 47, 536 shares in the stock market. In the year 2010, Baltic Trading announced its financial results in three quarters, parallel to its parent company, Baltic Shipping and Trading Limited.

Baltic Trading was formed with a certain clearly stated mission and vision in mind. The vision was “to offer the financial community an opportunity to invest in a dry bulk shipping company that focuses on the spot market”. It also had an objective to “Maintain a low cost configuration and a physically powerful balance sheet”. The company’s mission is “To grow earnings and cash flows and distribute sizeable dividends to shareholders over the long term”.

In the financial report of the year 2010, it was clear that the company conformed to its vision, which was to create an investment opportunity for investors on the spot market. By joining and being listed in the New York Stock Exchange, the company automatically created a platform for investors to come in and buy their shares. As stated initially, by the end of the year 2010, the company had put forty seven thousand, five hundred and thirty six shares in the open market. Investors came in and bought the share at an aggregate of $4 per share that year.

In the objectives of the company, the core objective was to maintain a low cost structure and a strong balance sheet. From the performance of the company as indicated in its annual financial report, we find that a major segment of this objective was attained. The company funded their vessel acquisitions from equity capitals and liquid cash from their operations, hence maintaining a strong balance sheet. On the other hand, in order to maintain a low cost structure, the company used its credit facilities as a financial bridge. This primarily enabled flexibility in the time of accessing the equity markets enabling future growth opportunities. Another thing that helped the company in maintaining its low cost structure is that the management had signed an agreement with its parent company, Genco Shipping and Trading Limited. This agreement provided that Baltic Trading would benefit from the already established image of Genco Shipping and Trading Limited.  The company had already established a well-recognized status as being a low cost operator in the company. This encouraged investors in that the relationship between Baltic Trading and Genco Shipping and Trading Limited was bound to positively affect the operations of the baby company.

Another thing reflected on Baltic Trading financial report that conformed to their vision and mission statements was the expansion of the modern fleet of vessels. The company initially started with a fleet of six vessels, but by the end of the year 2010, they had acquired an additional three vessels, bringing their number of vessels to nine. This was in line with their objective, which was to facilitate future expansion and growth of the company by allocating a certain amount of funds to purchasing assets.

Baltic Trading’s mission and vision was also linked, largely, to its strategic goals. One of its strategies was to maintain a low debt structure to primarily reduce its cost structure. They did this effectively with the help of the already established status of its parent company. Another strategy was two manage a small fleet size of vessels. The number of vessels that Baltic Trading owns is nine, a number that is relatively small. By having a small fleet, the company was able to cut down on its operational costs and maximize on the outputs. This is evidenced from the aggregate load the ships can transport which is 672,000 DWT. The fleet number is small but their relative work output is quite large. With the small fleet, it was easy to manage the operations of the vessels to attain maximum profitability. The operational costs were also reduced in that there was a substantially small labor force required to manage the operations of the ships.

Another strategy the company used was to employ a management team that was already experienced in the dry bulk-shipping field. By doing so, they were able to create distinct relationships with the existing market almost instantly.

The financial performance of the company had a huge relationship with the strategic goals of the company with respect to its mission and vision. In the year ended December 31st 2010, the company recorded a net income of 8.3 million dollars. The company also announced three dividends that were consecutive that year for post IPO quarters that were eligible. This was in line with the vision of the company, which was to offer the financial community an opportunity to invest in a dry bulk shipping company that focused on the spot market. With a net income of 8.3 million dollars from a newly formed company, who would not want to invest in it? The total dividend price at the end of the year 2010 was 0.49 per share. This was remarkable as the full fleet of nine vessels was operated on only one quarter of the year, the last quarter.

At the beginning of the year, the company announced its first IPO, bringing in $210 million. The proceeds from this Initial Public Offering summed with a capital contribution of 75 million dollars from Genco Shipping and Trading Limited enabled the purchase of the extra fleets, which in turn triggered the increase of the annual net income of the company. This was because the new vessels increased the output of the company by increasing the aggregate load of the fleet of vessels by more than 18%. With the objective of strengthening their balance sheet, the company executed a credit line revolving $ 100 million with a bank in Finland known as the Nordea Bank. The strategy here was to use the $ 100 million facility to bridge financing to the fund in turn acquiring the three extra vessels. Later that year, Baltic Trading enhanced it financial flexibility by amending the credit facility to more favorable terms and conditions through negotiations with the Nordea Bank.

For the year ended December 31 2010, the daily revenues of the three additional vessels were $30,960, $17,921 and $14,819 for the Capesize, Supramax and Handysize respectively. The average fleet revenue was 19, 692 dollars. The fleet expenses were as follows: $5081, $5297 and $4208 for the Capesize, Supramax and Handysize vessels. The average expenses totaled to $5016. The three fleets would therefore bring an average net income of over $14000 daily. When this amount is calculated on an annual basis, the total revenues add up to $32,558,648 and the expenses sum up to $22,212,928 bringing the net income before taxes to $8,400,000. After taxes, the net income resulted to $8,322,435.

Baltic trading had a market niche in the first place before initiating its operations. We find that the company was one of the very few dry bulk-shipping companies that focused on the spot market while maintaining a low cost structure. A spot market is whereby goods are sold and bought in cash and delivered immediately. Conversely, any contracts bought on the spot market are effective immediately. By immediate delivery, it means that the goods reach its destination in a month’s time or less, however, the goods delivered are traded before hand on the current market prices.

Other opportunities for Baltic Trading include the transportation of other non-dry bulk goods such as oil. However, the company has to invest heavily in equipment specialized in the transportation of such goods. Due to the already established low cost structure of the company, it would be easier to convince investors to put more funds in the company to facilitate such growth. However, this opportunity also has its own weakness. Expanding to an oil shipping company would require that one conform to the strict regulatory standards that control oil-shipping companies. The unprecedented and sudden fluctuations of oil in the oil market would be hazardous to a novice oil transportation company. Trading oil in the spot market would also have fatal consequences for a new company joining the sector.

However, if the company becomes successful in expanding to non-dry bulk shipping, the outcome would be tremendous. First, the net revenue would sky rocket considering the fact that the company would be dealing in oil. The current market prices for oil are rather high, making oil shipping and transportation a viable business venture.

A merger would be quite viable if Baltic Trading wished to venture into oil shipping and transportation. A company such as Maersk would be a very suitable contender for the merger. Maersk is an already established container ship operating company based in Denmark. With its wide networks and offices in over one hundred and thirty five countries, Baltic would greatly benefit from this merger. Maersk would also stand to benefit from this merger in that it would get the credibility from both Baltic Trading and its parent company. Baltic Traders would in essence work closely with Maersk Tankers and benefit from the 20 crude carriers that the company owns.

In motivating the employees to increase their productivity, I would formulate a strategy to reward the employees. The rewards would be primarily based on the employee’s productivity and output. The best employees from every department would be rewarded with vacations to exotic getaways every financial quarter. This would cost the company around $300,000 annually that is $100,000 per quarter. This amount would be minimal compared to the company’s net income of $8.3 million. However, these rewards would go a long way in enhancing productivity of the employees.

In conclusion, it is clear that the strategies employed by Baltic Trading would encourage healthy and ethical business behaviors if conformed to to the letter. However, the greater task of ensuring that the strategies are employed effectively lie on the managerial staff, and to some extent, the board of major shareholders.

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference

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Sabrina Bruno and Eugenio Ruggiero. (2011).Public Companies and the Role of Shareholders: National Models towards Global Integration (European Company Law Series), U.K: Kluwer Law International.

Steven, M. B. (2009). Running a Public Company: From IPO to SEC Reporting, New Jersey: Wiley Publishers.

Jason Draho. (2006). The IPO Decision: Why and How Companies Go Public, Cheltenham, UK: Edward Elgar Publishing.

Patrick, A. (2002). Mergers, Acquisitions, and Corporate Restructurings, New Jersey: Wiley Publishers.