Case 2
Case 2.5Alumina Jumps on Bad News
1.Alumina reported an 86.3 per cent fall in first half-year profit, and suspended its final dividend. Why did its share price rise by 9.79 per cent on the announcement date?
Although the situation in Alumina was extraordinarily difficult, Alumina firmly believed that the worst reason behind them is the impact of the global crisis, and Alumina were quietly confident that market will begin to improve. In between last November and April, Aluminium prices had since rebounded trade above $US2000 a tone, then Alumina’s share price rose by 9.79 per cent on the announcement date. In my opinion, from this problem we can analyze that a share's perceived value is a huge player in its price change. Pleasant surprises can help a company's stock move up in price because it ameliorates the investor's opinion of the company and therefore encourages more people to buy. This increases demand, which increases price. Accordingly, a disappointment can trigger the opposite effect. The more speculation there is regarding a particular stock, the more volatile its price per share becomes. Actually, several factors can cause a share price to rise. For example, one of factor that influences whether or not a share price will rise is supply and demand, simply put, if the number of people who want to buy a share increases, so will the price of share. The price of share can also increase if enough investors feel strongly about it, as explained in case of Alumina.
2.In trying to explain the positive response to Alumina’s reported earnings, explain whether and/or how you could use the following approaches to accounting theory construction(a)decision usefulness; (b)normative; and (c)scientific.
Decision usefulness – is an approach to the preparation of financial accounting information that studies the theory of investor decision making in order to infer the nature and types of information that investors need (concentrated on users of accounting reports, their
1.Alumina reported an 86.3 per cent fall in first half-year profit, and suspended its final dividend. Why did its share price rise by 9.79 per cent on the announcement date?
Although the situation in Alumina was extraordinarily difficult, Alumina firmly believed that the worst reason behind them is the impact of the global crisis, and Alumina were quietly confident that market will begin to improve. In between last November and April, Aluminium prices had since rebounded trade above $US2000 a tone, then Alumina’s share price rose by 9.79 per cent on the announcement date. In my opinion, from this problem we can analyze that a share's perceived value is a huge player in its price change. Pleasant surprises can help a company's stock move up in price because it ameliorates the investor's opinion of the company and therefore encourages more people to buy. This increases demand, which increases price. Accordingly, a disappointment can trigger the opposite effect. The more speculation there is regarding a particular stock, the more volatile its price per share becomes. Actually, several factors can cause a share price to rise. For example, one of factor that influences whether or not a share price will rise is supply and demand, simply put, if the number of people who want to buy a share increases, so will the price of share. The price of share can also increase if enough investors feel strongly about it, as explained in case of Alumina.
2.In trying to explain the positive response to Alumina’s reported earnings, explain whether and/or how you could use the following approaches to accounting theory construction(a)decision usefulness; (b)normative; and (c)scientific.
Decision usefulness – is an approach to the preparation of financial accounting information that studies the theory of investor decision making in order to infer the nature and types of information that investors need (concentrated on users of accounting reports, their