Mergers & Acquisitions
Divestitures
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 […]
EON Investment Insights
Understand stock price as a forecast
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Mergers & Acquisitions
Stock vs Cash Acquisition
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 […]
Mergers & Acquisitions
Value Destructive Accretive Acquisition
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 […]
Mergers & Acquisitions
Architypes for Value-Creating Acquisition
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 […]
Growth
Value Drivers
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 […]
Mergers & Acquisitions
Best Owner Thesis
“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” […]
Investor Psychology
Dr. Jekyll vs Mr. Hyde
Many investors believe they are Dr. Jekyll, but research confirms that Mr. Hyde lives within each of them. As researchers say, we humans struggle to assess the “beast” […]
Investor Psychology
The Principle of Price Anchoring
When viewed through the lens of human behavior, even a fundamental economic model like the principle of equilibrium in demand and supply curves comes into question… The issue […]
Investor Psychology
Decoy effect
We make decisions based on the principle of relativity and then consider them “rational.” This also happens when making investment decisions, especially when we use the multiples method […]
Behavioral Finance
Doing nothing
“Many want to be long-term investors, but as the graph shows, few succeed. As behaviorists say, the problem is fundamental for investors. Last week, I read this book: […]
Cross-Border Valuation
Currency Translation
Sometimes, the financial statements of a subsidiary are translated into the parent company’s currency before being presented, which complicates the evaluation of the subsidiary. In such cases, it’s […]
Cross-Border Valuation
Inflation Influence on Value
High inflation erodes the value of an organization because passing inflationary pressure onto customers is challenging and often not initiated – managers often do not realize the impact […]
Cross-Border Valuation
Cross-Border Forecasts
Subsidiary companies operating in another country use the local currency. Therefore, their evaluation requires special considerations. In this entry, I will discuss forecasting cash flows for a subsidiary […]
Other Valuation Methods
Capital Light Business & ROIC
Some business models inherently involve very small amounts of capital, making the use of ROIC (Return on Invested Capital) impractical for evaluation. When the scale of profit relative […]
Statement Reorganizations
Pensions & WACC
To assess an organization’s value, we need to accurately measure the beta. Since the beta statistic for an individual organization is not reliable, we perform an industry beta […]
ROIC
R&D Capitalization
According to financial legislation, intangible assets generated during the process of organic growth (including R&D) are not recorded on the balance sheet; instead, they are directly expensed, which […]
Statement Reorganizations
Operating Lease
In accordance with IFRS, almost every leasing contract exceeding one year is recognized as financial leasing. This implies that the contract’s capitalization should occur as assets and liabilities, […]
Statement Reorganizations
Pension Liabilities
In many countries, organizations offer employees pension and post-retirement medical benefits. Such obligations require special attention during the organization’s assessment process. For example, in the United States, companies […]