Theory and practice in M&A valuations

2016 ◽  
Vol 32 (6) ◽  
pp. 8-11 ◽  
Author(s):  
Patrick Mazzariol ◽  
Mark Thomas

Purpose Academics and practitioners are in relative agreement on what drives a company’s fundamental value, primarily it’s current assets and future cash flows. The practice of paying a premium may thus be due to the non-tangible factors associated with perceived value that currently are not incorporated into the assets of the company and the expected growth of the cash flows. Design/methodology/approach This paper looks at the most common theoretical models used in the calculation of the value of a firm. It then explains how human factors can cause divergence in the original price set. Findings Empirical evidence proves that the price paid for a company can easily reach 40-50 per cent above this calculation of the current value. Until valuation models can account for the factors that drive premium pricing, it is necessary to recognize that intangible and, in some cases, emotional aspects will have a great influence on the final price. Practical implications The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

2017 ◽  
Vol 21 (1) ◽  
pp. 12-17 ◽  
Author(s):  
David J. Pauleen

Purpose Dave Snowden has been an important voice in knowledge management over the years. As the founder and chief scientific officer of Cognitive Edge, a company focused on the development of the theory and practice of social complexity, he offers informative views on the relationship between big data/analytics and KM. Design/methodology/approach A face-to-face interview was held with Dave Snowden in May 2015 in Auckland, New Zealand. Findings According to Snowden, analytics in the form of algorithms are imperfect and can only to a small extent capture the reasoning and analytical capabilities of people. For this reason, while big data/analytics can be useful, they are limited and must be used in conjunction with human knowledge and reasoning. Practical implications Snowden offers his views on big data/analytics and how they can be used effectively in real world situations in combination with human reasoning and input, for example in fields from resource management to individual health care. Originality/value Snowden is an innovative thinker. He combines knowledge and experience from many fields and offers original views and understanding of big data/analytics, knowledge and management.


2017 ◽  
Vol 18 (4) ◽  
pp. 464-479 ◽  
Author(s):  
Ehsan Khansalar ◽  
Mohammad Namazi

Purpose The purpose of this paper is to investigate the incremental information content of estimates of cash flow components in predicting future cash flows. Design/methodology/approach The authors examine whether the models incorporating components of operating cash flow from income statements and balance sheets using the direct method are associated with smaller prediction errors than the models incorporating core and non-core cash flow. Findings Using data from US and UK firms and multiple regression analysis, the authors find that around 60 per cent of a current year’s cash flow will persist into the next period’s cash flows, and that income statement and balance sheet variables persist similarly. The explanatory power and predictive ability of disaggregated cash flow models are superior to that of an aggregated model, and further disaggregating previously applied core and non-core cash flows provides incremental information about income statement and balance sheet items that enhances prediction of future cash flows. Disaggregated models and their components produce lower out-of-sample prediction errors than an aggregated model. Research limitations/implications This study improves our appreciation of the behaviour of cash flow components and confirms the need for detailed cash flow information in accordance with the articulation of financial statements. Practical implications The findings are relevant to investors and analysts in predicting future cash flows and to regulators with respect to disclosure requirements and recommendations. Social implications The findings are also relevant to financial statement users interested in better predicting a firm’s future cash flows and thereby, its firm’s value. Originality/value This paper contributes to the existing literature by further disaggregating cash flow items into their underlying items from income statements and balance sheets.


2018 ◽  
Vol 26 (4) ◽  
pp. 5-6

Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings A study of two innovative workplace programs for workers with intellectual disabilities (WWIDs) in Australia revealed their positive influence. The study has a number of practical implications. The first is that HR departments can play a significant role in developing innovative projects that help WWIDs to settle down in a company. Ideally, the programs help them to move from feeling like “outsiders” to being “insiders,” who understand the working environment and feel closer to their colleagues. The best moment for such innovative programs is right at the start of employment. Practical implications The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


2016 ◽  
Vol 32 (2) ◽  
pp. 23-25

Purpose – This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach – This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings – Mergers and acquisitions strategies are not risk-free. Potential problems include integration difficulties, inadequate evaluation of target, inability to achieve synergy and complexity. The theory and practice of strategic decision-making need to take into account both economically rational and intuitive decision processes. Practical implications – The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value – The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


Author(s):  
Gülcan Erkilet ◽  
Gerrit Janke ◽  
Rainer Kasperzak

AbstractThis paper examines which valuation approaches financial analysts use to value a company and whether the chosen valuation approach affects the target price accuracy. To address these questions, we conduct content analyses of 867 hand-collected analyst reports on German publicly listed companies published between January 2014 and June 2017. We find that sell-side analysts more frequently use the single-period market approach when formulating target prices, followed by the multi-period income approach, and a mixture of both by combining the results, the so-called hybrid valuation approach. Additionally, we show that 612 of the analyzed analyst reports are based on a holistic valuation methodology instead of a sum of the parts valuation technique. Both univariate and multivariate analyses emphasize that the choice of valuation approach is significantly associated with the accuracy of price targets. Specifically, the income and market approach lead to significantly more accurate target prices compared to the hybrid approach. We also find that the target price accuracy is higher when analysts apply the holistic rather than the sum of the parts valuation approach to determine the fundamental value of the company. Additional results emphasize that target price accuracy improves when analysts use the sum of the parts valuation that bases solely on market or income approaches rather than hybrid approaches. Hence, we contribute to theory and practice by providing evidence on the link between the choice of valuation approach and the analysts’ target price accuracy as well as on the performance of certain valuation techniques.


2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  

Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings Major crises like the Covid-19 pandemic can negatively impact on cash flow of small B2B firms. But SMEs affected can address the issue by implementing relevant marketing strategies associated with three key business processes to enhance their crisis management. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


2014 ◽  
Vol 30 (3) ◽  
pp. 16-18

Purpose – This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach – This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings – Say what you like about IKEA, it attracts far more than its fair share of publicity – some of it self-generated, some of it triggered by customers, some of it part of comedians' stand-up routines, and most of it welcomed by a company which has, despite being the world's largest furniture retailer, even bigger ambitions Practical implications – The paper provides strategic insights and practical thinking that have influenced some of the world's leading organizations. Originality/value – The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to digest format.


2020 ◽  
Vol 36 (4) ◽  
pp. 36-38

Purpose Reviews the latest management developments across the globe and pinpoints practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings When looking at human history, it is interesting to note that companies are a relatively recent phenomenon. They started appearing mostly in Japan in Medieval times, before growing more widely in the Middle Ages before becoming international with the likes of the East India Company and others that were set up with the agreement of the British Crown. Since their beginning, there has always been a strong theme attached to firms which has likened then to human bodies. People refer to the ‘heart’ of a company or its ‘soul’; firms are described as ‘ailing’ or ‘thriving’; even the word ‘corporation’ comes from the Latin word for body. It seems that in seeking to understand how firms work, we use anthropomorphic language to describe them. Practical implications Provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/Value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


2016 ◽  
Vol 32 (7) ◽  
pp. 14-16

Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings The ever-widening expanse of social media means that all companies now need an online profile. But such increased exposure means that companies are now under the influence of the public to look good. The need to strive for a good e-reputation is a fundamental aspect of any social media presence for a company. Instant communication means that public dissatisfaction can accumulate uncontrollably. Therefore, effective online communication of ethical plans and initiatives by companies through social media is a key concern. Practical implications The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


2016 ◽  
Vol 24 (5) ◽  
pp. 25-27
Author(s):  
Simon Linacre

Purpose Reviews the latest management developments across the globe and pinpoints practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings What is cynicism? To the manager, it is a cancerous, evil flow of negativity that stops employees from getting on with the job they are paid to do; it is the holding back of a company on the rise; it is the contamination of enthusiastic, young employees with so-called wise words from more experienced members of staff. In short, it is nothing less than the almost willful sabotage of all the good things a company tries to do. Practical Implications Provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.


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