(Tudor and Mutiu, 2006, p.2). Another benefit of using cash flow is that this method can also be viewed as a method of measuring firm’s performance in some extent. According to Marshall (2014), there are there categories under cash flow basic: cash flows from operations, cash flow from investing and financing activities. These there approaches will explain users the overall change of cash during the year. If the cash from operations exceeds cash flows from investment, that reflect a good sign of firm’s performance.
America was on a winning streak in the pre-9/11 rise and the ‘dotcom’ economy was growing rapidly with new internet based companies popping up daily. During the dotcom the structural change was the relative new invention of the internet. Immensely high valuations and unprofitable business models were justified by the new market created by the internet. “In the two-year period from early 1998 through February 2000, the Internet sector earned over 1000 percent returns on its public equity. In fact, by this date, the Internet sector equaled 6 percent of the market capitalization of all U.S. public companies and 20 percent of all publicly traded equity volume” (Ofek & Richardson, 2003).
Under this type of analysis, a number of ratios used for measuring the meaningful quantitative relationship between the items of financial statements during the particular period. This type of analysis is useful in comparing the performance, efficiency, and profitability of several companies in the same group or divisions in the same company. In order to avoid the limitations of Comparative Statement, this type of analysis is designed. Under this method, financial statements are analyzed to measure the relationship of various figures with some common base. Accordingly, while preparing the Common Size income statement, total sales is taken as a common base and other items are expressed as a percentage of sales.
2. Many firms give their employees stock options, and they repurchase stock for use when employees exercise the options. In this option, the number of outstanding shares reverts to its pre-repurchase level. 3. A company has excess cash, it may be due to a sudden cash inflow, such as the sale of a division of business, or it may simply be that firm is generating more free cash flow than it needs for its operation and expansion plans.
In light of this when profits are maximised the firm make decisions to access shareholders wealth through the means of equity. For instance such examples of equity are: ordinary share, preference shares, hybrids and bonds. In addition, Capital Asset Pricing Model (CAPM) and Dividend Growth Model (DGM) is used to calculate measures of equity for the organisation. Inasmuch with cost of equity are investments can be obtained to generate cash causing the firm to be affluent and profitable through investment appraisal decision such as net present value, average rate of return, internal rate of return and payback period. The money retrieved at the end of the investments will be utilised in the form of
Whereas usually two companies merger into one through an M&A deal, divestment results in a separation of a company into several companies. Thus, the divestment deal is considered effective if the value of two companies after the separation is higher than the value of a company before the divestment. Pab < Pa + Pb The research studies if the divestment deals are an effective mean of value creation in real life and is carried out using econometric analysis. The efficiency evaluation of divestments is conducted using an event-study method. Event-study conduction implements a review of a sample of deals.
The DCF method has a lot of advantages over the Multiples approach, one would be that the DCF method considers the future of a company and values the future cash flows for every debt or equity holder. So, this method forces us to explicitly explore and analyze the fundamental factors that drive business value creation. Another advantage is the discount factor which shows us if a given company will be able to generate cash flows equivalent to its riskiness. A disadvantage of the DCF method is its complexity. The Multiples approach is usually only used to get a rough estimate how much a company could be worth.
INTRODUCTION The research work is on competitive advantage, firm performance, value creation and its sustainability. The value of a product or service is the amount of money a particular customer is willing to pay for it (Finch 2008:78). Business performance centers on the use of simple outcome based financial indicators such as sales, growth, return on investment etc. (Yamin, Gunasekarau and Movando 1999:510). Competitive advantage of a firm is the edge that it has over its competitors (Altharti 2012).It is important to state that competitive advantage (CA) cannot be achieved without a business strategy or business model.
Among these tools is financial ratio analysis used for comparative purposes. Aside from it, the annual financial statements can be analyzed using horizontal analysis which highlights the trend of various figures from revenue to expenses and cash flow over the reporting periods. Vertical analysis emphasizes the relative size of each item as a composition of a set of numbers such as operating expenses as a proportion of total sales revenue. When dealing with financial forecasts and business plans, historical analysis is irrelevant. Rather a forward outlook would be more appropriate.