Short Articles (PDF) - Excellence in Financial Management

More documents

Recommendations

Info

The following guideline is used to score an organization: If the Z Score is 1.8 or less, very high probability of bankruptcy. If the Z Score is 1.81 to 2.99, not sure about bankruptcy. If the Z Score is 3.0 or higher, bankruptcy is unlikely. Example: Total Assets = $ 1,000, Retained Earnings = $ 400, Earnings Before Interest Taxes = $ 50, Sales = $ 1,500, Market Value of Stock = $ 600, Book Value of Debt = $ 700, Working Capital = $ 100. 1.2 x ( $ 100 / $ 1,000) = .120 1.4 x ( $ 400 / $ 1,000) = .560 3.3 x ( $ 50 / $ 1,000) = .165 .6 x ( $ 600 / $ 700 ) = .514 .999 x ( $ 1,500 / $ 1,000) = 1.499 Total Z Score = 2.86 Not Sure 28
Value Based Management Valuations of Mergers & Acquisitions The basic principle for valuing a business combination is similar to capital budgeting of projects. If the present value of incremental cash flows from the merger exceeds the present value of the amounts paid, than the investment should add value. This concept is referred to as Net Present Value. In order to calculate Net Present Value (NPV), you must: Determine the expected cash flows of the target company. Determine the effect the merger will have on the combined cost of capital of the new entity. Determine the amount that will be paid for the target company. A higher price should only be paid if there is definite synergy values. Estimates of cash flows can be seriously distorted if management has plans to change the future operations of the combined entity. Make sure you have a good understanding of future strategic plans. Your estimate of cash flows should include any additional cash outflows that will be incurred from the issuance of new debt. Cash flow estimates need to be based on sensitivity analysis of how NPV changes when a critical variable is changed. Using a decision tree model will help determine the expected value from a range of possible values. The discount rate you should use in discounting the cash flows should be the Cost of Equity of the combined company or the target company; depending upon which cash flow stream you are measuring. Remember you are buying the equity or ownership of the target company. You may need to adjust the discount rate for additional risks incurred from the use of funds. If you are using the Capital Asset Pricing Model, you will need to determine a new Beta coefficient. Finally, don't forget to include an estimate for terminal values beyond your forecasted cash flows. Obviously this overview touches on the very basics in acquiring the equity of another company. A good book on valuing companies is Valuation: Measuring and Managing the Value of Companies by three consultants with McKinsey & Co. 29
Page 1 and 2: Excellence in Financial Management
Page 3 and 4: Cash Flow Management Basic Cash Flo
Page 5 and 6: Basic Accounts Receivable Managemen
Page 7 and 8: Financing What are Effective Intere
Page 9 and 10: Companies like GE (General Electric
Page 11 and 12: Budgeting & Forecasting Financial F
Page 13 and 14: Customer C owes $ 30,000, there is
Page 15 and 16: Project Evaluations Basic Economics
Page 17 and 18: Using Decision Trees Too often Fina
Page 19 and 20: 1. Determine Market Values for Capi
Page 21 and 22: Finally, how do you measure IC Well
Page 23 and 24: Ratio Analysis Cash Flow Ratios Alt
Page 25 and 26: Another ratio that can be used in m
Page 27: Measuring Sustainable Growth Is the
Page 31 and 32: Lease Valuations A lease is an agre
Page 33 and 34: categories. Keep in mind that we ar
Page 35 and 36: Lessons from the Entrepreneur Lesso
Page 37 and 38: this new knowledge. Therefore, "int
Page 39 and 40: Intangibles over Tangibles In today
Page 41 and 42: known as the Value Dynamics Framewo
Page 43 and 44: competencies. - Business success is
Page 45 and 46: Understand the Customer: You must u
Page 47 and 48: “For vision and strategy to be mo
Page 49 and 50: involves risk and the acceptance of
Page 51 and 52: (government, interest groups, and t
Page 53 and 54: Value through Marketing For any org
Page 55 and 56: • Accuracy - Some sources of info
Page 57 and 58: Four Steps to Calculating EVA EVA o
Page 59 and 60: Risk Management Step 1 in Risk Mana
Page 61 and 62: Managing Foreign Exchange Rate Risk
Page 63 and 64: Why Implement Activity Based Costin
Page 65 and 66: Design Steps in Building a Performa
Page 67 and 68: Examples of Key Performance Indicat
Page 69 and 70: The Power of the Scorecard The Bala
Page 71 and 72: their scorecards to meet the needs
Page 73 and 74: Typically a set of performance meas
Page 75 and 76: Financial measurements will often d
Page 77 and 78: 4. Review the allocation and distri
Page 79 and 80:
- Sets a good personal example - Ac
Page 81 and 82:
Secondary sources of intelligence a
Page 83 and 84:
analysis of differences can be diff
Page 85 and 86:
A final point on leveraging competi
Page 87 and 88:
Reaching for the Six Sigma One of t
Page 89 and 90:
several links, manufacturer to agen
Page 91 and 92:
Another common attribute of process
Page 93 and 94:
then we invariably lower our costs.
Page 95 and 96:
Human Resource Management Metrics f
Page 97 and 98:
Cross Functional Teams Financial ma
Page 99 and 100:
What is Matrix Management As Tom Pe
Page 101 and 102:
Cost => Time => Quantity => Error =
Page 103 and 104:
Control over surveys is low Control
Page 105 and 106:
The role of management is to find w
Page 107 and 108:
Since emotional intelligence is som
Page 109 and 110:
Few, if any educational programs (i
Page 111 and 112:
emphasize the most effective applic
Page 113 and 114:
- Competitive forces - Organization
Page 115 and 116:
to do with recruiting and retaining
Page 117 and 118:
In order for HR to be successful wi
Page 119 and 120:
Coaches are very engaged with their
Page 121 and 122:
The Lombardi Rules - The Winning Mo
Page 123 and 124:
poor position to understand what wo
Page 125 and 126:
6. People can Change - People have
Page 127 and 128:
• Team Building - Encourages and
Page 129 and 130:
Strategic Planning: Your First Step
Page 131 and 132:
5. Create: Provide a strong learnin
Page 133 and 134:
your analysis for more detail audit
Page 135 and 136:
Without name recognition in the mar
Page 137 and 138:
Although game theory has been aroun
Page 139 and 140:
as people share with each other wha
Page 141 and 142:
Is Knowledge Really Power We all re
Page 143 and 144:
almost like wiping the slate clean
Page 145 and 146:
will need a diverse group of people
Page 147 and 148:
There are several approaches to bui
Page 149 and 150:
Even simple task, such as distribut
Page 151 and 152:
Comprehending the IT Challenge For
Page 153 and 154:
Leveraging Knowledge Management It
Page 155 and 156:
when viewing it over the internet;
Page 157 and 158:
materials, products, and systems (a
Page 159 and 160:
interdependencies, you will have to
Page 161 and 162:
Key Elements to Effective Decision
Page 163 and 164:
How to Brainstorm All people and al
Page 165:
analysis - all pre-occupied with tr
show all

Short Articles (PDF) - Excellence in Financial Management

Create successful ePaper yourself

Delete template?

Save as template?