Generally, there are two ways for a valuation of a company namely, liquidation value and going concern way. Companies prefer going concern way of valuation. If a company wants to eliminate a targeted company or wants to remove it from the market, the company goes for valuation.Some of the methods ... Read More

Consider the following table −Company 1Company 2Revenue ($)1000000500000Cost of goods sold ($)750000270000EBIR ($)250000125000Growth Rate (Expected)5%9%Cost of capital11%14%Assume the following −Cost of goods sold is reduced from 75% to 60% of revenues.Tax rate = 32%.Weighted average cost of capital = 14%.Weighted average growth rate = 6%.SolutionThe solution is as follows −Before ... Read More

Considered the following balance sheetAssetsEquity & liabilities$$Fixed assets900000Equity share capital685000Investments90000Reserves300000Receivables29500010% Debentures425000Bank12500014100001410000Company 2 is paid $ 150000 for assets for company 1Assume fair market value of fixed asset = $ 1000000SolutionThe solution is as follows −Considered fixed assets (given)Fixed assets (fair value) = $1000000Next step is to calculate net worth of ... Read More

Let us assume company 1 is taking over company 2. In this, company 1 is acquiring company and company 2 is Target Company.ABTotal number of shares800000550000Market price/share$6$3.2510% Debentures$250000The board also decides the following −Issue 1 share of company 1 for every 10 shares held.Issue a 12% debentures for every 4 ... Read More

Merger of companies is a complex and giant task. Depending on companies, it takes months or years to complete the process.Sometimes the merger of two big companies may take months of time and the merger of two small companies may take years to complete due to their own reasons and ... Read More

Valuation is an effective management tool, which helps the business in achieving the business objective by showing the value of business in its life cycle. In general valuation is done to resolve tax/legal issues; however it is also performed for various reasons like selling a business or acquiring a business.Valuation ... Read More

Before going for difference, let us understand the meaning of price, value and cost in simple wordsPrice is what you payCost is what you expendValue is what you getThere is confusion between words price, cost and value. Many people think all the threewords are more or less same but there ... Read More

Exchange ratio tells about the shares, which has to be issued to each individual share (target firm) by acquiring the company. Exchange ratio is an important metric in mergers and acquisitions.FormulaThe formula for exchange ratio in mergers and acquisitions is as follows −ER = OP/SPHere ER = Exchange ratio, OP ... Read More

Financial decisions will vary from company to company and sometimes from department to department in the same company. These factors are classified into Internal and external factors.Internal factorsThe internal factors influencing the financial decisions are explained below −Nature of business − If a company is in manufacturing services, it invests ... Read More

Whether it's about company survival or it is about the company's growth, financial performance plays an important role. Financial performances are influenced by many known factors called organizational factors.Some may have positive influence and some may have negative influence. So, before going for those factors, examining these factors have immense ... Read More