Valuation, Measuring and Managing the Value of Companies – by McK.&Co, T. Koller, M. Goedhart, D. Wessels
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The decision to pay dividends or repurchase shares impacts stock prices due to the expectations and signals such decisions create. Therefore, these decisions need to be systematic and well-considered. The process can be divided into four stages: Excel File with formulas. Source: Valuation: Measuring and Managing the Value of Companies – by McKinsey & Co,…
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Financial theory tells us that there is an optimal capital structure derived from tax savings and the risks of financial leverage, but it says little about how to achieve the optimal structure for a specific organization. The diagram below shows the hierarchy of value creation using cash, which represents the foundation for properly forming a…
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The market views divestment positively as an event, even though management usually avoids such decisions. However, divestment does not always create value and can sometimes result in negative outcomes. According to McKinsey’s research, the speed of the process is particularly important. For example, in cases where the process was completed within six months, the excess…
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Mergers and acquisitions can be executed either with cash or by transferring the shares of the new company. What is the difference? When the acquisition is done with cash, the entire risk of the transaction is borne by the shareholders of the acquiring company. In the case of an acquisition with shares, the risk of…
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Managers often justify mergers and acquisitions by claiming that the operation is accretive, meaning that EPS (earnings per share) increases, and therefore shareholders should be satisfied. However, the market focuses not on transactional accounting but on whether value is actually being created. The table below discusses a hypothetical example that shows the deterioration of an…
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According to McKinsey’s research (1999-2013, 1770 transactions), the combined value of the acquiring and acquired organizations increased by an average of 5.8% as a result of acquisitions. In 95% of acquisitions, the value of the acquired organizations represents less than 5% of the acquirer’s capitalization. Generally, synergy achieved through mergers and acquisitions is difficult to…
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Understanding what creates value and how it is created is critically important. A good format to grasp this is through a value creation tree diagram: First, let’s start with the idea that the opportunities for value growth are greater at the lower levels of the organization. Therefore, the lower the level we observe on the…