Verified Document

Valuation And Financial Statements Shareholder Value The Essay

Valuation and Financial Statements Shareholder Value

The question of shareholder interest as it pertains to a takeover bid is dependent on a variety of factors, not the least of which is the valuation of the company as determined by the board of directors and executive management. While current stock price plays a relevant role, valuation depends on analysis conducted in key areas including but not limited to: earnings multiple times EBITDA, price to book ratio, forward looking earnings guidance, and perhaps most crucial enterprise value. The current scenario of ABC Company pursuing the acquisition of XYZ Company for $35.00 a share, a $10.00 premium over the current $25.00 stock price, allows for an explication of these valuation techniques.

XYZ management believes that the $35.00 offer price is undervaluing the company and as such is not in the shareholder's interest. In identifying the rationale for this position a logical...

This figure identifies operational cash flow by stripping out earnings prior to interest, taxes, depreciation, and amortization (Marshall, D. & McManus, W. 1996). EBITDA multiples are industry specific and as such a proper valuation includes a comparison to similar companies. The EBITDA multiple identifies how much XYZ is valued in relation to its operational earnings. Succinctly, "it estimates how many times of the EBITDA the business operation is worth" (Investor Words.Com. N.D.). XYZ on a per share basis may have an EBITDA multiple which values the company at $40.00 a share.
A second valuation technique involves the calculation of "the price/book (p/b) ratio, sometimes called the market-to-book ratio, which links the stock/share price of a company with the book or accounting value of shareholders' equity per share. It reflects how many times book value investors are ready…

Cite this Document:
Copy Bibliography Citation

Related Documents

Corporate Financial Statements Stanford, Jim.
Words: 588 Length: 2 Document Type: Article Review

Article 3: Evaluation of high- and low- risk investment projects Ispas, Constantin, Eduard Lovin, & Dana Tilina. (2009). Risk analysis in investment projects. Annals of DAAAM & Proceedings. Retrieved October 23, 2010 at FindArticles.com http://findarticles.com/p/articles/mi_7105/is_2009_Annual/ai_n53386583/ Accurately evaluating the technical, economic and social risk of a new investment project is critical. Common potential risks include errors in evaluating opportunity growth; errors in data-gathering; misevaluating the priority of the economic objective to be achieved, mis-projections

Financial Statement Analysis Project
Words: 2528 Length: 10 Document Type: Term Paper

Financial Statement Analysis The following is an equity research report on Starbucks. The company competes primarily in the quick service food industry, where it holds the #5 market share in the United States, and #1 in its segment of coffee (QSR Magazine, 2011). The company had revenues last fiscal year (ended 10/2/11) of $11.7 billion and net income of $1.245 billion. The current stock price is $43.91, which gives the company

Financial Management Fundamental Decisions in Financial Management...
Words: 1117 Length: 4 Document Type: Essay

Financial Management Fundamental Decisions in Financial Management In financial management, there are three fundamental decisions, which are central to capital budgeting, capital structure and working capital management. Capital budgeting refers to the process of planning and managing the company's long-term investments. Capital structure refers to the particular mixture of long-term debt and equity a company utilizes to fund its functions. Working capital management refers to the company's short-term assets, which may include

Financial Analysts Play a Number of Roles
Words: 600 Length: 2 Document Type: Essay

Financial analysts play a number of roles within an organization. They made assessments of the value of investments the firm has or may have in the future. They can specialize in determining the value of projects. In addition, financial analysts are engaged in risk assessment, and take steps to determining the best ways for the firm to mitigate the risks that have been identified. Overall, financial analysts use a multitude

Financial Derivative the Aim of
Words: 3179 Length: 8 Document Type: Term Paper

Report: 2 The developments of credit derivatives began in 1980s as a new financial innovation after the swap market started. Swap market provided derivative organizations with profit due to their intermediary position while the credit margins for borrowers were reduced. As the swap market developed there was the development of new interest derivatives so that there were additions to the list of products. Credit derivatives are relatively recent introductions and these

Valuations Question 1- Valuation - Valuation Using
Words: 920 Length: 2 Document Type: Research Paper

Valuations Question 1- Valuation - Valuation Using Comparable information- Valuation is a process of estimating worth of an asset. However, when valuing a company or organization there is no "one" correct way to accomplish the task. Each organization may have a different way of reporting historical information, and event financial statements prepared with GAAP show assets based on a more historical, rather than current, paradigm. Generally speaking, though, the valuation of

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now