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201240 Fall 2012 BUSI 530-B21 LUO
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Forum: Forum 2 (Module 3)
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201240 Fall 2012 BUSI 530-B21 LUO
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Thread:
Company Valuation
Post:
RE: Company Valuation
Author:
Toni Johnson
Posted Date:
September 9, 2012 11:47
PM Status:
Published
Toni Johnson
Dr. Lyle
Bowlin
Reply to Audrey Gobin
Thank you for your very informative post, Audrey. Being able to increase company value and maintain a
healthy relationship with stakeholders is a daunting, yet, achievable feat. Current economic trends, also,
play a part in how companies compile and distribute stock information. “ Shareholders are the owners
of corporations, and managers in turn have a fiduciary duty to prioritize their interests to those of other
stakeholders such as employees, customers, suppliers, communities, and the environment” (Yawen,
2010). All managers should, not only, be ethical, but also implement God’s Word in their daily practices.
Romans 12:2 tells us, “Do not conform to the pattern of this world, but be transformed by the renewing
of your mind. Then you will be able to test and approve what God’s will is-his good, pleasing and perfect
will” (NIV). Corporate leaders need to be innovative and renovate old business practices.
Reference List
Yawen, J. (2010). Stakeholder Welfare and firm value, Journal of Banking & Finance, (34,
10), 2549-2561.
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Thread:
Valuation
Post:
Valuation
Author:
Toni Johnson
Posted Date:
September 9, 2012 11:08
PM Status:
Published
Toni Johnson
BUSI530 Discussion Board 2
Dr. Lyle Bowlin
September 6, 2012
Factors That Determine a Company’s Valuation Compared to Financial Statements
The internal and external factors that establish a firm’s valuation can be confounding and
copious. There are designated, professional agencies that are equipped to process this kind of pertinent
information. Yet, the compiled financial statements don’t always reflect what the perceived valuation of
a firm should be. “…the valuation effects vary across stakeholders and the positive effects are driven by
firms’ performance on employee relations and environmental issues” (Yamen, 2010). A few of the tools
utilized to comprise crucial data such as a firm’s liabilities and assets are the balance sheet, statement of
cash flows, and the statement of income. “The difference between a company’s actual value and its
book or liquidation value is often attributed to going-concern value, which refers to three factors: 1.
Extra earning power, 2. Intangible assets, and 3. Value of future investments” (Brealey, Myers, &
Marcus, pg.
190). Some of the methods used to determine these factors are the Liquidation Asset-based approach,
the Market Value approach, and the Earnings Value approach.
How Company Executives Create the Most Value For All Stakeholders
Managers must construct financially feasible methods of producing returns on stakeholder’s
investments and maintain their Christian principals. Executives, to the extent that they are
representatives of their investors, should not merely focus in on earnings expansion. “They must
ascertain the interests and values of their investors that limit the single-minded pursuit of profit”
(Hardwig, 2010). Profit maximization and growth are the essential goals within a firm. “…stakeholder
management has a positive responsibility to promote sustainability” (Gibson, 2010). Companies have an
obligation to produce the most accurate information to their stakeholders. In Deuteronomy 8:18, it
says, “But remember the LORD your God, for it is he who gives you the ability to produce wealth, and so
confirms his covenant, which he swore to your ancestors, as it is today” (NIV). CEO’s and other
corporate frontrunners have a responsibility to ensure that their financial decisions not only benefit
them, but the welfare of their clients, as well. They must remember that all of their business-savvy
talents are given by God and should not be abused.
Reference List
Brealy, R., & Marcus, S. (2012). Fundamentals of corporate finance. Boston, MA:
McGraw- Gibson, K. (2012). Stakeholders and sustainability: An evolving theory. Journal
of Business Ethics, 109(1), 15-25. doi: 10.1007/s10551-012-1376-5
Hardwig, J. (2010). The stockholder - a lesson for business ethics from bioethics? Journal of
Business Ethics, 91(3), 329-341. doi: 10.1007/s10551-009-0086-0
Yawen, J. (2010). Stakeholder Welfare and firm value, Journal of Banking & Finance, (34,
10), 2549-2561.
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Thread:
Company Valuation
Post:
RE: Company Valuation
Author:
Bannon Squirewell
Posted Date:
September 9, 2012 10:26
PM Status:
Published
One of the most recognizable IPOs of the year is the IPO of Facebook. The offering of Facebook stock
was one of the most talked about financial stories of late 2011 and early 2012. Unfortunately, the stock
was not able to sustain and match the buzz surrounding it. Facebook went public on May 8, 2012 with
an IPO of $38 and a first day high of $45 (Kristof, 2012, Para. 1). By May 31, 2012, the stock price fell
over 20% to $29.60 (Kristof, 2012, Para. 1). Facebook is now being sued by a group of investors over
what they feel are “selectively disclosed diminished revenue estimates” (Kristof, 2012, Para. 2).
Although it is not unusual for an stock price to fall after an IPO, many think the IPO of Facebook stock
was set way too high ((Kristof, 2012, Para. 4). Many analysts cite the volume and the severity of the
investment risk, the stalled growth of Facebook in early 2012 and the higher expense and lower revenue
of Facebook (Kristof, 2012, Para. 7). Facebook, what was one of the most anticipated IPOs is now
considered one of the stock market’s greatest disasters.
References
Kristof, K. (2012). Investors unlike facebook's IPO.Kiplinger's Personal Finance, , 1. Retrieved from
http://search.proquest.com/docview/1024541016?accountid=12085; columns/picks/archive/investors-
unlike-facebook-ipo.html
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Thread:
Company Valuation
Post:
RE: Company Valuation
Author:
Tia Peeks
Posted Date:
September 9, 2012 3:44
PM Status:
Published
Discussion Board 2,
Reply Reply to Audrey
Gobin Tia A Peeks
Managerial Finance, BUSI 530
Liberty University
I found it refreshing that you put in your forum that executives should be mindful of the importance of
honesty and good ethics. In my post, I mentioned intangible assets, and how firms looking from outside
can see how ethical or honest you are by how your employees are, the reputation you have amassed,
and how true your financial reporting’s are. I think that they are key in improving the value of the firm,
thus making stakeholders and stockholders happy.
You also mentioned that valuation of a company depends on what the valuation is done for and who
does it. I would offer to add how it is done also. In my initial posting, I offered three ways valuation can
be done, but I think the most important one is one that would take into account things like human
capital (in my opinion the most valuable asset), and their social needs. In a study on firm value, and
article written by Yawen Jiao says:
…a positive valuation effect would be incorporated only if the market perceives that stakeholder
welfare represents intangibles contributing to firms’ value creation process, and a negative valuation
effect would be incorporated only if the market perceives that stakeholder welfare represents
managers’ private benefit (Jiao, 2010).
In other words, the outside is always looking in, and your human capital will speak volumes to them
when it is time for the outside firms to attempt to buy into your firm.
Reference
Jiao, Yawen. (2010). Stakeholder welfare and firm value. Journal of Banking & Finance, 34 (10), October
2010, 2549-2561. ISSN 0378-4266, Retrieved from: http://dx.doi.org.ezproxy.liberty.edu:
2048/10.1016/j.bbr.2011.03.031
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Thread:
Tia Peeks, Valuation
Post:
RE: Tia Peeks, Valuation
Author:
Odell Bizzell
Posted Date:
September 9, 2012 1:38
AM Status:
Published
DB Reply 2
Tia brings up great points in discussing the ways to determine value in a company. She really brings out
three approaches that have to do with analyzing a company’s past, present, and future.. The ways that
were brought to light were the asset based approach which represents the past, the market value
approach the present, and the earnings approach which could represent the future. The asset based
approach that Tia discussed is book value. Book value is the net worth of a firm according to the balance
sheet (Brealy, Myers, & Marcus, 2011). As noted book value is a reassuringly definite number and is
related to gaining investors. When investors can see ‘the numbers’ and the company they are thinking
of investing in is in the black in all the right places it makes the investment more sound.
Another approach discussed was the market value approach. Market value is the amount of money
investors are willing to pay for the shares of the firm. This number unlike book value fluctuates
depending on the market. In contrast to the book value, market value can change a lot depending on
what is going on in the market. The earnings approach is the approach that projects the future more
than the others. This approach looks what a company could potentially earn in the future so that
investors can project to whether the company is a viable long term investment.
The Word of GOD provides sound principles in investing that many people overlook. The parable of the
talents suggests that we should look for opportunities that multiply our investments. One scripture in
particular discusses counting the costs, "Suppose one of you wants to build a tower. Will he not first sit
down and estimate the cost to see if he has enough money to complete it?” Luke 14:28 (NIV) Though
investors may not all want to build towers, they do all want to build profitable portfolios, and using the
approaches outlined can help them when assessing an investment.
References
Brealey, R. A., & Myers, S. C., & Marcus, A. J. (2011). Fundamentals of corporate finance with
Connect Plus (7th ed.). Boston, MA: McGraw-Hill. ISBN: 978-0-07-7596118.
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Thread:
Company Valuation
Post:
RE: Company Valuation
Author:
Scott Prochniak
Posted Date:
September 8, 2012 10:55
AM Status:
Published
There is more to consider when looking at the value of a company or even the value of a trade
agreement. The defense offset valuation process is a process where countries compare imports and
exports of defense relation procurement with the technology vulnerability that is inherently related to
transferring and selling defense technology on a global level, (Jan & Joung, 2007). This type of valuation
is similar to the more fiscally focused valuation processes as it does compare cost versus impact and
effective return on the investment, however more information required when dealing with national
defense and global security issues around the world. “ On a daily basis, companies are faced with
social, economic, legal, ethical, and environmental challenges that condition their behavior,”
(Rigoberto, 2009, p.284). These considerations are always impacting the valuation process. Not all
valuation processes consider these impacts on a company. Corporate Social Responsibility valuation
focuses on the improvement of social well being, to include defense security, safety and well being,
(Rigoberto, 2009). Companies that use the Corporate Social Responsibility valuation process in
conjunction with the normally expected fiscal methods understand that without society there would be
no company.
References:
Jang, W., & Joung, T. (2007). The defense offset valuation model. DISAM
Journal of International Security Assistance Management, 29(4), 91-101. Retrieved from
http://search.proquest.com/docview/197797330?accountid=12085
Rigoberto, P. (2009). A valuation model for corporate social
responsibility. Social Responsibility Journal, 5(3), 284-299. doi: 10.1108/17471110910977230
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Thread:
Week Three
Post:
Week Three
Author:
Bannon Squirewell
Posted Date:
September 6, 2012 11:42
PM Status:
Published
The book value of a company is derived from information taken from the balance sheet. The book value
of a company’s equity is the book value of the company’s assets minus the company’s debt and
liabilities (Brealey, Myers & Marcus, 2012, p. 189). The equity is equal to the amount the shareholders
have invested plus a company’s earnings. The book value of the stock is the equity divided byt the
number of outstanding shares (Brealey, Myers & Marcus, 2012, p. 189). The book value of the shares
does not necessarily equal the stock price. There is one main reason that the stock price does not equal
the book value of a company. Investors purchase stock based on the current value and a company’s
earning potential (Brealey, Myers & Marcus, 2012, p. 190).
One way companies’ valuations are computed is by comparison. Investors will compare the price
investors are willing to pay for similar companies’ stocks. (Brealey, Myers & Marcus, 2012, p. 190). In
valuation by comparison, investors will compare price/earnings and asset/earnings ratios. This is one of
the most popular ways to valuate companies.
A biblical perspective of investing and valuation is the Parable of the Talents. Matthew 25: 14-30
(English Standard Version) tells of a master who leaves his property and entrusts three of his slaves with
five, two and one talent apiece. Two of the slaves invested and doubled their talents. One of the slaves
just buried his talent. The two talents who invested their talents were rewarded and praised by the
master. The slave who buried his talent was chastised and punished by the master.
References
Brealey, R.A., Myers, S.C., Marcus, A.J. (2012). Fundamentals of Corporate Finance.
New York: Mcgraw-Hill Irwin.
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Thread:
DB2 - Company valuation &
stocks Post:
DB2 - Company valuation & stocks
Author:
Christopher Church
Posted Date:
September 6, 2012 11:13
PM Status:
Published
Christopher Church
Business 530- Managerial Finance
Dr. Lyle Bowlin
Stocks and the Stock
Market Introduction
When companies need to raise capital they can either borrow money or offer shares of the company
to the public through an initial public offering, an IPO. When a person purchases a share of company
stock they become a shareholder or part owner (Brealey, Myers and Marcus, 2012). A businesses
initial IPO is presented to the primary market and since stocks can go up and down in value they can
be traded on a secondary market such as the stock exchange (Brealey, Myers and Marcus, 2012).
Valuation of the Company and its Stock
There are many different items that can affect the overall value of a company and its stock. It is
important to first look at the balance sheet; the list of company assets and liabilities. Understanding the
debt a particular company compared to its assets will provide a more accurate book value of equity. The
book value of the firm can provide potential stockholders some concrete data on which to base their
investment decision. While knowing the book value of a company is helpful it does not always
necessarily correlate with stock price.
Companies also have a liquidation value of their stock. In other words, the cash value of each share of
stock should the company sell its assets. As Brealey, Myers and Marcus (2012) have noted, “a successful
company ought to be worth more than liquidation value”.
Book value and liquidation value are just two types of valuations. There are other factors that influence
the company’s market value, or what a person is willing to pay for a share of the company. Extra earning
power and intangible assets such as patents, brand recognition and expertise are crucial assets that
increase company value. Another item not represented on the balance sheet is the potential for future
profits. Some companies may be at an advantage to earn higher future profits because of their
innovation, niche platforms or specialized products. For example, PayPal has become the a primary way
to pay for items online. While other payment platforms exist, PayPal was the innovator that gave
consumers the most secure way to make fast and easy transactions over the Internet. Kirkby (2012)
even mentions that PayPal is quickly becoming the primary source for companies wishing to accelerate
their debt collections.
With so many factors playing a role in company value it is no wonder that stock prices do not always
match the perceived value. Value takes into consideration immesurables such as potential and what
people are willing to invest at a particular time. These non-measurable items can fluctuate and change
based on perception and public opinion which affects value.
Conclusion
Company value is ultimately decided by examining several different elements. Potential, timing and
public perception can also have a huge impact on value and, in turn, stock prices. Companies would do
well to examine each of these factors in order to provide the best return on investment to current and
potential stockholders.
References
Brealey, R.A., Myers, S.C., Marcus, A.J. (2012). Fundamentals of Corporate Finance.
New York: Mcgraw-Hill Irwin.
Kirkby, A. (2012). New payment mechanisms. Credit Management, 32. Retrieved
September 6, 2012 from Summon database.
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Thread:
Valuation
Post:
Valuation
Author:
Scott Prochniak
Posted Date:
September 6, 2012 9:31
PM Status:
Published
Discussion Board 2
Scott Prochniak
Managerial Finance, BUSI 530
Dr. Lyle Bowlin
Liberty University
Company valuation can be viewed from different perspectives. Internal activities such as managerial
principles, financing techniques, and reinvestment options have an impact on the perceived value of a
company. External methods such as dividend evaluation, company comparisons or supplier forecasts
can impact the company value as well. “For any method, the valuation is only as good as the cash flow
forecasts on which it is based,” (Poniachek, 2010, p.27). Ultimately, valuation is about cash flow, profit
margin, and the ability for a company to produce quality returns for their investors while increasing
their profit share and market share of their particular industry. It is also important to understand when
a company has a overpriced stock, or trends change and investors start to look elsewhere for
opportunity. “It is important to sell when the market is ready to buy, not when you are ready to sell,”
(Purcell, 2011, p.31). Many investors retain stock in a company far too long than they should. People
who invest with emotion will pay less attention to market valuation and more attention to their
perceived attachment to a particular company. Regardless of valuation method, in the end all methods
ultimately derive from a form of the comparable valuation method, where the company is evaluated
against an industry standard or industry competitor to determine future grow and market valuation,
(Brealy, Myers & Marcus, 2012). A company will always attempt to increase their value and potential
returns. This may be done through Profit and Earnings modeling, comparison of past performance, or
market comparison with like companies in similar markets. Consider potential opportunity investments
on their way up, and sell before the market turns. Valuation of a company, when done with the proper
perspective can highlight situations where buy means buy, and sell means sell. Investors then should be
leery of possible attempts to target possible investors with growth numbers that may have been bent
by differing account methods to represent a brighter financial future than what really exists. A company
with a bright future and projected earnings above their peers will attract investors and drive up stock
prices.
References:
Brealy, R. A., Myers, S. C., Marcus, A. J. (2012). Accounting and Finance. Janicek, M.
& Fisher, K. L. (Eds.), fundamentals of corporate Finance (52-77). New York: McGraw-Hill Irwin.
Poniachek, H. (2010). Valuation of distressed companies and securities.
Valuation Strategies, 14(2), 22-27+. Retrieved from http://search.proquest.com/docview/840372162?
accountid=12085
Purcell, J. (2011, Nov 05). Maximising your company's valuation. Financial
Times, pp. 31. Retrieved from http://search.proquest.com/docview/902251597?accountid=12085
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Thread:
Valuation
Post:
Valuation
Author:
Luke Benton
Posted Date:
September 6, 2012 8:53
PM Status:
Published
Valuation is a method used to determine a business’ worth (www.privco.com). Valuation can be a good
resource for many different undertakings. Its role can be varied depending on the task. Valuation of a
company rarely takes place with a blank slate. Most likely our views on companies have already formed
before we ever compare them to the companies financial statements (pages.stern.nyu.edu).
There are many influencing factors that lead to a company’s valuation. The size of the company can be a
factor. The company’s operating history can also be a factor. Are there any inherent risks in or with the
company? The leadership and management can be a factor in valuation for a company. Earnings
measurement can be a factor too, along with a company’s capital structure (www.privco.com).
Stakeholder’s can use these things as guidelines and as ways to value the and assign a worth to a
company, but they also need to see where the company is headed and how innovative they are in
today’s business world. It seems that is the key word stakeholders are looking for, innovation. All the
variables for valuation and the financial statements may be the tools to give an actual worth or
amount to a companies stock, but innovation or the path of the company are things that stakeholders
will value the most. The fundamental analysts know this and technical analysts fear this. (Brealy,
Myers, Marcus, 2012).
In conclusion, valuation can be a great tool, but should not be relied on for stakeholders making
decisions about purchasing more stock or selling stock. They also should not only rely on the company
executive’s tactics for creating value in the company. Both are important tools and resources for the
stakeholders, but there should be a balance of both, just as Christians seek balance in our lives
(Proverbs 30:8-9).
First, help me never to tell a lie. Second, give me neither poverty nor riches! Give me just enough to
satisfy my needs. For if I grow rich, I may deny you and say, “Who is the Lord?” And if I am too poor, I
may steal and thus insult God’s holy name. Proverbs 30:8-9
Bibliography
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Goals and Governance of the Corporation. In
Fundamentals of Corporate Finance. (7th ed.). (pp. 3- 23). New York, New York: McGraw-Hill/Irwin.
New Living Translation. Proverbs 30:8-9 (2001) Retrieved from, http://www.biblegateway.com
staff. (2012). Privco. In The Private Company Financial Data Authority. Retrieved 9/6/2012,
from http://www.privco.com/knowledge-bank/private- company-valuation.
staff. What is Valuation. In An Introduction to Valuation. Retrieved 9/6/2012, from
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/background/valintro.htm.
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Thread:
Company Valuation
Post:
Company Valuation
Author:
Alexandria Adams
Posted Date:
September 6, 2012 8:35
PM Status:
Published
Introduction
There are many factors that impact a company’s stock price as well as the perceived valuation of the
company. Below are items that are considered in determining these matters as well as information that
can assist executives in creating the most value for all stakeholders. The main topics to be considered
are: internal factors, external factors, and creating value from a Christian perspective.
Internal Factors
When discussing internal factors that affect stock price, items that are considered are those that
the company can influence from the inside of the company or information that is given as a result of the
company’s action(s). One study evaluated the financial ratios within firms in the industrial industry
which included the subsectors of food, metal products, metal main, and chemical-petroleum; and the
service industry which included the subsectors of communication, transportation, electric, and
commerce. The results showed that the for the electric and metal main subsectors, the stock influence
was more dependent on the financial position of the company which were contrary to the companies in
the commerce subsector which was influenced mainly by external factors (Ozlen & Ergun, 2012). One
aspect that was consistent throughout all subsectors was the influence of book value as the most
significant internal dynamic of stock prices following total asset turnover, net profit margin, and price to
earnings ratio. (Ozlen & Ergun, 2012).
External Factors
The main external factor that influences stock price and company valuation is the economy.
While economy does not always influence the quality of products that are sold from firms or the services
that a company provides, it can. It can also influence how much an investor is willing to invest into
purchasing shares from the company, especially if the company is one that provides more risk.
Sometimes the economy even dictates how much a corporation is willing to spend on items that
influence consumers such as advertising, which was noticed more in countries characterized by
significant stock market pressure and few foreign owned multinational corporations (Deleersnyder,
Dekimpe, Steenkamp, & Leeflang, 2009).
Creating Value from a Christian Perspective
Maximizing the value of shares is a desire of shareholders that should be handled with care by
the managers in order to remain ethical and not act only in the interests of the shareholders (Brealey,
Myers, & Marcus, 2012, p. 14). This idea can be further supported using Proverbs 22:1 which states, “A
good name is more desirable than great riches; to be esteemed is better than silver or gold.” In
conducting business and handling the finances of a corporation in order to please shareholders, a
manager must remember that actions should be taken that can ensure that his reputation as well as the
reputation of the company is not tainted. If the manager commits actions that are unethical to create
more value for the shareholders, he is then negatively affecting the reputation of the company causing
the worth of the company to eventually decrease due to distrust viewed by consumers. While a
manager might be able to disguise his unethical choices in the beginning in 1 Corinthians 4:5 it can be
noticed that “ He will bring to light what is hidden in darkness and will expose the motives of the heart.”
References
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Fundamentals of Corporate Finance (Seventh ed., p.
14). New York, NY: McGraw-Hill/Irwin.
Deleersnyder, B., Dekimpe, M. G., Steenkamp, J., & Leeflang, P. (2009, October). The role of national
culture in advertising's sensitivity to business cycles: An investigation across continents. Journal of
Marketing Research, 46(5), 623-636. doi:10.1509/jmkr.46.5.623
Ozlen, S., & Ergun, U. (2012, June 15). Internal determinants of the stock price movements on sector
basis. International Research Journal of Finance and Economics, 111-117. Retrieved September 4, 2012,
from Business Source Complete.
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Thread:
Company Valuation
Post:
Company Valuation
Author:
Pauletta Windham
Posted Date:
September 6, 2012 7:55
PM Status:
Published
Pauletta Windham
Business 530_B21_201240
Dr. Lyle Bowlin
September 6, 2012
Stock valuation is important when considering the attempt to create valuable economic policies, to
improve in the management of companies, to relay accurate and uncomplicated information to the
public, and to profit (Scott, 2006). When finding the valuation of a company, many kinds of research
must be performed by several groups of people. Corporate managers, financial analysts, asset
managers, individuals, and economic policymakers all have vital roles in the valuation of stock (Scott,
2006).
When comparing its financial statements, companies primarily rely on the balance sheet, the income
statement, and the statement of cash flows (Scott, 2006). Those financial statements are required
regulations of the Internal Revenue Service (IRS) and the Securities Exchange Commission (SEC) for
publically traded companies (Scott, 2006). Company’s assets and liabilities are presented on the
balance sheet, and it provides information from different accounts at a particular point of time. This
information is used to help determine how much money the company will need to make to satisfy
investors (Scott, 2006). The income statement is an itemized estimate of the company’s profits and the
factors that influenced those profits over a specific period of time (Scott, 2006). The statement of cash
flows reflects the actual cash flows of the company from its investments and financing decision
(Brealey, Marcus, & Myers, 2012). It reflects the change in the balance sheet (Scott, 2006). All three
documents are linked and help companies to assess their financial conditions.
Companies employ certified public accountants who are accredited to do business valuation to value
their company stock (Miller, 2007). Those certified public accountants also assist with “capitalization of
a company, bankruptcy reorganizations, business mergers or sales, exchanging preferred shares for debt
or other types of equity securities, gift or estate tax planning,” and many other studies (Miller, 2007).
They are truly an asset to the company.
An external factor that would influence the valuation of a company is looking at the economic trends of
the area in which the company is located and staying within means of what the customers or consumers
can afford. Comparing the trends of top competitors of a company and making necessary changes to
offset the differences of competitors is another mode of using external factors to impact a company’s
stock price. The external factors are just as important as the internal factors.
The establishment of an organization is a task within itself, but a successful Christian organization must
remember to incorporation Christian principles and remain steadfast in their decisions. When dealing
with stock, it is believed that interaction with untruthful and greedy people is an often occurrence.
Ecclesiastes 5:10 says that people who love money and wealth will never be satisfied or have enough; it
will be meaningless. As the old saying goes, misery loves company. If they are unhappy, more than
likely, they will try to make others’ lives unhappy as well. 1Timothy 6:10 says, “For the love of money is
the root of all evil: which while some coveted after, they have erred from the faith, and pierced
themselves through with many sorrows” (KJV). When dealing with stocks and the valuation of a
company, one must diligently seek God for wisdom and guidance because it is easy to be steered
wrong otherwise.
References
Brealey, R., Marus, A., Myers, S. (2012) Fundamentals of corporate finance. Boston, MA: McGraw-Hill
Irwin
Miller, S. (2007). Valuing preferred stock, Journal of Accountancy. New York, Vol. 203. Iss. 2; pg. 55
Scott, H. (2006). Stock valuation: an essential guide to wall street’s most popular valuation
models, McGraw-Hill Professional Publishing, ISBN 0-07-145224-9
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Thread:
Company Valuation
Post:
Company Valuation
Author:
Audrey Gobin
Posted Date:
September 6, 2012 6:11
PM Status:
Published
Discussion Board Forum 2: Company
Valuation Audrey Gobin
Managerial Finance, BUSI 530
Liberty University
The valuation of a company is related to an abundance of data, market news and subjective estimations
(Al-Reshed & Atyeh, 2012).There are many factors that affect the final value of the company and there
is no specific way to project the company finances or its value (Al-Reshed & Atyeh, 2012 ). The value of a
company depends on what purpose the valuation is done for and who does it. When a firm decides to
go public bidders are not always aware of the company’s true valuation. Factors such as firms entering
the market for corporate control, firms entering into mergers, and the way in which firms present their
financial information to the public are all factors that could lead to the valuation of a company.
When a potential firm wants to take over a private firm but does not know its valuation, it is almost
impossible for the firm to merge with another firm in the future. The firm has the option to pursue an
initial public offering (IPO). “An IPO reduces valuation uncertainty, leading to a more efficient acquisition
strategy, therefore enhancing the firm’s value” (Hsieh & Zhdanov, 2011). In comparison to the valuation,
the firm’s financial statements are designed to enhance the transparency of the intangible assets. Within
the financial statements one would find information such as the determination date of acquisition,
capitalization, and the amortization of research and development (Sharma, 2012).
In order for executives to create the most value for all stakeholders they must be diligent in their
financial findings and how they are reported. Also executives must create an environment that is built
on honesty and ethics in order to present a reputable reputation for the firm. Providing the latest
technological advancements, great management, and coming up with the best ideas helps to provide
more value for stakeholders.
References
Al-Rashed, W., & Atyeh, M. H. (2012). Business valuation process review. The Business Review,
Cambridge, 20(1), 166-171.
Hsieh, J., Lyandres, E., & Zhdanov, A. (2011). A Theory of Merger-Driven IPOs. Journal Of Financial &
Quantitative Analysis, 46(5), 1367-1405.
Sharma, N. (2012). Intangible Assets: A Study of Valuation Methods. BVIMR Management Edge, 5(1), 61-
69.
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Thread:
Company Valuation-Odell Bizzell
Post:
Company Valuation-Odell Bizzell
Author:
Odell Bizzell
Posted Date:
September 6, 2012 5:26
PM Status:
Published
Internal and External Factors of Company Valuation
Finding value in a company by virtue of its financial statements can be an accurate way to predict how
valuable the company is. We essentially get a snapshot of how well a company will do by looking at the
financial statements which are the balance sheet, the income statement, and the statement of cashflows
(Brealy, Myers, Marcus, 2011). These factors have to do with the internal factors. All investors want to
know that the company they are investing is a viable financially healthy organization. Another internal
valuation measure is the (EM) enterprise multiple.
We can get to the enterprise multiple by dividing (EBITDA) earnings before interest tax depreciation
and amortization. EM is a strong determinant of stock returns, the lower the EM have higher stock
returns than firms with high EM values (Loughran & Wellman, 2011). If the stock returns of a company
are high then the value of the company goes up. Though internal financial factors are a strong
indication of a company’s valuation there are also external factors that cause their value to rise or to
fall.
The actions of executives and external factors such as the economy can determine the value of a
company as well. During tragedies such as 9/11 the stock market crashed. When the government bailed
out the banking and the auto industries the value of many companies in the industry fluctuated simply
because they were in the same industry. Other factors include when companies change policies or
implement different options for employees. If a company changes their stock options or adds a benefit
to the employee constituency then the company’s value could potentially rise (Farrell, Krische, &
Sedatole, 2011). Adding a benefit may or may not affect the bottom line of the company greatly, but the
changes could add more value to the company. Executives have the great opportunity to increase the
value of the company through implementing new programs such as stock options for employees.
Employees may work harder causing more production or sales, or there may be more quality employees
attracted to the company for future employment. In conclusion internal and external factors can prove
to be successful in the valuation of a company.
References
Deffinbaugh, B. (2012). The pursuit of Christian character. In Standing on the
promises--A study of 2 Peter. Retrieved August, 25, 2012, from
http://www.bible.org. Kotler, P., & Keller, K. (2012). Marketing management (14th
ed.). Upper Saddle River, NJ: Prentice Hall. ISBN: 1256392510 custom
Taylor, J. (2009). The wealth of a sinner is laid up for the just. In What
time it is. Retrieved August, 25, 2012, from
http://www.whattimeitis.org. Attachment: DB2-BUSI530 APA.docx
(19.094 KB)
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Thread:
Stock Valuation
Post:
Stock Valuation
Author:
Thomas Mattox
Posted Date:
September 6, 2012 4:50
PM Status:
Published
When valuating common stocks, analysts use a method called valuation by comparables. They start by
identifying a comparable sample of firms and examining the amount investors are willing to pay for
that type of stock (Brealey, Myers, Marcus, 2012, p. 191). Analysts and investors also derive estimated
rates of return and growth rates within these comparables when pricing a firm’s stock (Brealey et al., p.
199).
The book value represents the net worth of a firm with regard to the balance sheet (Brealey et al., 2012,
p. 189). These dollar figures are integral to valuating a firm’s stock price (Baden, 2011). From these
balance sheet numbers, analysts derive and evaluate important figures such as market capitalization
and P/E ratios (Brealey et al., p. 188). Investors compare these figures to similar firms in the industry and
to the previous figures for the same company. However, investors do not buy and sell simply at book
value alone but take into account other factors not necessarily present on a balance sheet.
Along with the book value, investors take into account the going concern value identified by the
factors: extra earning power, intangible assets, and value of future investments (Brealey et al., 2012, p.
190). The market valuation of a firm takes into account what earnings can be generated from current
assets along with the potential or opportunity for future earnings (Brealey et al., p. 190).
Company executives can create value for stakeholders by creating and maintaining a sustainable growth
rate acceptable for that industry. In sustaining growth within the firm, the executives maintain a constant
return on equity as well as reinvesting back into the firm for future growth (Brealey et al., 2012, p. 203).
Additionally, kingdom minded executives will seek the Holy Spirit for wisdom and discernment in their
decision making as in Proverbs 24:3-4 (NASB), “By wisdom a house is built, and by understanding it is
established; and by knowledge the rooms are filled with all precious and pleasant riches.”
References
Baden, B. (2011). 5 factors that drive stock prices. U.S.News & World Report, 1. Retrieved from
http://search.proquest.com/docview/884431680?accountid=12085;
www.usnews.com/articles/money/personal-finance/2011/07/14/5-factors-that-drive-stock-prices.html
Brealey, Richard A., Myers, Stewart C., Marcus, Alan F. (2012). Fundamentals Corporate Finance. New
York: Mcgraw-Hill Irwin.
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Brice Leckpa - valuation
Post:
Brice Leckpa - valuation
Author:
Brice Leckpa
Posted Date:
September 6, 2012 4:47
AM Status:
Published
Discussion Board 2
Brice Leckpa
Managerial Finance, BUSI 530
Dr. Lyle Bowlin
Liberty University
The subject of this week’s essay can be summarized into one question: what really drives stock prices
and how managers measure and create the most value for shareholders?
Internal factors influencing stock prices
Corporate profitability is such a key driver of stock prices that quarterly earnings reports are eagerly
awaited by professional market-watchers. An abundance of positive reports often boosts stock prices
across the board. In fact, money-making companies tend to be good investments as they pay dividends,
which are obviously attractive to investors. And just as importantly, companies can reinvest earnings to
increase their future growth potential - which means that these companies can become even more
valuable to their stockholders
External factors influencing stock prices
We all like to be in charge of our own lives and when we participate in the financial markets, we realize
that we are constantly being buffeted by forces beyond our control, whether they are natural disasters,
political turmoil or gloomy economic news. “By now, we've almost gotten used to the pattern: a piece
of bad news followed immediately by a plunge in stock prices (O'Neill S, 2011)“ . In fact these drops may
be explained by simple human nature: We fear the unknown, so after any major event that appears to
have negative connotations, we don't know what to expect; as a result, we get nervous, and sometimes
we act on this nervousness by selling stocks and putting money in more conservative vehicles. And
when a lot of people sell a lot of stocks at the same time, prices will drop. However, these drops are
often followed by a quick recovery mostly due to the fact that the decline did not reflect the true forces
that drive the market - corporate profits.
Creating value for shareholders
We are all aware that shareholders want managers to maximize the market value of their shares but
focusing on enriching shareholders might bring us back to the old debate about “The ethics of
maximizing value (Brealy, Myers, & Marcus, p15, 2012)”. Profitable firms are those with satisfied
customers and loyal employees, firms with dissatisfied customers and disgruntled workforce will
probably end up with declining profits and low stock price which lines up with Timothy 6:10 verses in
the Bible “For the love of money is a root of all kinds of evils. It is through this craving that some have
wandered away from the faith and pierced themselves with many pangs”. But how do we know if a
corporation has delivered value or not? Or how do we know if the corporation’s profits are declining
instead of increasing? We start with market capitalization, which equals price per share times the
number of shares outstanding. The difference between market capitalization and the book value of
equity measures the market value added by the firm’s operation. The book value of equity is the
cumulative investment by shareholders in the company (Brealy, Myers, & Marcus, p103, 2012).
Bibliography
Brealy, R. A., Myers, S. C., Marcus, A. J. (2012). Accounting and Finance. Janicek, M. &
Fisher, K. L. (Eds.), fundamentals of corporate Finance (52-77). New York: McGraw-Hill
Irwin. O'Neill S. (2011). What really drives stock prices? Liberty.edu Library. Retrieved from
http://search.proquest.com.ezproxy.liberty.edu:2048/docview/896122037
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Tia Peeks, Valuation
Post:
Tia Peeks, Valuation
Author:
Tia Peeks
Posted Date:
September 5, 2012 5:34
PM Status:
Published
Discussion Board 2
Valuation
Tia A Peeks
Managerial Finance, BUSI 530
Liberty University
Several factors, both internal and external, impact a company’s stock price, and the subsequent
perceived valuation of a company. Sometimes that perceived value matches that of the financial
statements, and other times it is vastly different. Therefore, discuss the factors that lead to a valuation
of a company’s worth compared to that of the financial statements, and how company executives
create the most value for all stakeholders.
The external factors that drive the value of a company down or skyward include the swings in supply and
demand or the turn in the economic status that the market is in
(ie. recession, interest rates). “ Ownership of marketable securities of publicly traded companies tends
to be focused upon either growth or income, or both. The risk of ownership of marketable securities is
generally perceived as lower than closely held businesses” (Sheeler, C., 2004). In order to know what
economic situation your company is in, it needs to be valuated. Owners expect to either grow with
respect to profits or in market size/share.
This valuation can be determined several ways. One way is to look at a company, and determine if
their assets exceed their liabilities. This is an Asset based approach in which a valuator will determine
what a company would have if all of the assets were sold, and liabilities were paid off. It is called a
liquidation asset-based approach to valuation. It can also be categorized under the balance method of
valuation because the “ business under examination generates most of its earnings from its assets
rather than from the contributions of its employees” (Burton, V., 2012)
Another way is to compare your business to other business’s that are similar, and determine your value
based on how much the compared business sold for. This is called the market value approach. While
this approach can be used, it requires a lot of historical data that could be influenced one way or
another by the market climate in which the data was collected compared to the climate at valuation.
A third way to obtain value is the earnings value approach, or the use of the business’ income
statements, which is “predicated on the idea that a business's true value lies in its ability to produce
wealth in the future” (Ward, S. 2012). This is similar in that past data is used to determine future value
of the company. The difference is that this approach uses a capitalization factor, which is a replication of
what the expected return would be on the said investment based off of what a rational investor would
expect the rate of return would be. That is, a common sense investor.
In order to make the most of their investment, owners have to generate revenue for their stakeholders
while looking out for the health the shareholders. Is this done with respect to tangible benefits, or is it
intangible. Definite benefits come in the form of asset value, size or growth. But looking at it on an
impalpable level, one may believe that things like employee morale, benefits packages, reputation of
the firm and others can have a positive bottom line. Viewing it this ways tells us “stakeholder welfare is
a channel for investing in intangibles and would have a positive valuation effect” (Jiao, Y. 2010). Jiao
goes on further to say that there should be a direct correlation between the market value, at the time
of valuation, and the affiliation amongst the firm and its stakeholders. He states that the more positive
ratings come from firms who portray a healthy atmosphere amid the stakeholders, and that it is directly
related to the firm’s productive process. Conversely, “negative valuation effect would be incorporated
only if the market perceives that stakeholder welfare represents managers’ private benefits” (Jiao, Y.
2010). In other words, when owners only think of the tangible assets, disregarding those intangible ones
that have had a direct impact on increasing assets, it can have a damaging effect on valuation.
Reference
Burton, V. L. (2011). Valuation. Encyclopedia of Small Business, 2(4th), 1295-1298. Retrieved from:
http://go.galegroup.com.ezproxy.liberty.edu:2048/ps/i.do?action=interpret&id=GALE|
CX2343700589&v=2.1&u=vic_liberty&it=r&p=GVRL&sw=w&authCount=1
Jiao, Yawen. (2010). Stakeholder welfare and firm value. Journal of Banking & Finance, 34 (10), October
2010, 2549-2561. ISSN 0378-4266, Retrieved from: http://dx.doi.org.ezproxy.liberty.edu:
2048/10.1016/j.bbr.2011.03.031
Sheeler, C. L. (2004). A misunderstood aspect of business value: The market approach.The CPA Journal,
74(10), 50-51. Retrieved from http://search.proquest.com/docview/212319824?accountid=12085
Ward, S. (2012). 3 business valuation methods: how to determine what your business is worth. Small
Business Newsletter:Canada Guide, Retrieved from
http://sbinfocanada.about.com/od/sellingabusiness/a/bizvaluation.htm
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Thread:
Adrian B- Company
Valuation Post:
Adrian B- Company Valuation
Author:
Adrian Bumbut
Posted Date:
September 5, 2012 12:07
PM Status:
Published
Discussion Board Forum 2: Company
Valuation Adrian Bumbut
Liberty University
BUSI 530: Managerial Finance
Dr. Lyle Bowlin
September 5, 2012
In order to determine what a company is worth it is essential to evaluate different valuation methods
that can be used to facilitate this process. During this procedure it is not recommended that owners do
their own business valuation but instead it should be done by outside professionals with experience and
knowledge. According to business writer Susan Ward of Cypress Technologies, the valuation of a
company’s worth can be established using a few different approaches. First we discuss the Asset-based
approach which simply totals up all the investments in the business. This approach can be done on a
going concern or on a liquidation basis: “A going concern asset-based approach lists the business net
balance sheet value of its assets and subtracts the value of its liabilities. A liquidation asset-based
approach determines the net cash that would be received if all assets were sold and liabilities paid off”
(Ward, 2012). Our second valuation approach is the Earning Value Approach with the main idea that a
company’s true value lies in its ability to produce assets in the future. The most common earning value
approach is Capitalizing Past Earning. When using this approach, the valuator determines an expected
level of cash flow for the organization using the company’s record of past earnings, normalizing them
for unusual revenue or expenses, and multiplying the expected normalized cash flows by a capitalization
factor (Ward, 2012). Discounted Future Earnings is another earning value approach used to determine
the valuation of a company’s worth. Using this method an average of the trend of predicted future
earnings is used divided by the capitalization factor instead of an average past earnings. Market Value
Approach is the last method explained by business writer Susan Ward and it entails comparing ones
business to similar businesses that have recently sold. “When financial analysts need to value a
business, they often start by identifying a sample of similar firms. They examine how much investors in
these companies are prepared to pay for each dollar of assets or earnings” (Brealey, Myer & Marcus,
2012 p.
191).
Further researching the process of valuating a company’s worth, we look at an interesting article by
Steven Russolilllo of Wall Street Journal discussing social media giant Facebook and its $96 billion dollar
worth compared to leading computer manufacturer Apple and its potential worth of $2.7 trillion. In
this article, Brian Hamilton, chief executive at Sageworks, a firm that analyzes privately-held
companies, explains how Facebook’s valuation is “ significantly overpriced” when compared to other
tech giants (Russolillo, 2012). Not too long ago, Facebook set the price range for its IPO at $28 to $35 a
share, targeting a valuation as rich as $96 billion, action that could potentially be a record debut for an
American company. “This is a rich valuation and exposes investors to downside risk,” Hamilton
explains. He continues to add that giant social media Facebook may be a good investment in the future
but at the
moment an investment here would not be beneficial: “Facebook is significantly overpriced and this is
clear by looking at the price of the company relative to either sales or earnings. Investing in the
Facebook IPO may turn out to be a great investment, but right now, the stock is clearly not a bargain”
(Russolillo, 2012). Hamilton concludes his investigation by comparing Facebook’s valuation issue with
Apple, the most valuable company by market capitalization in the world. “ If Apple, which manufactures
tangible products, was valued at a multiple comparable to Facebook, Apple’s market
capitalization/value today would be approximately $2.7 trillion” (Rusolillo, 2012).
In conclusion, creating value for all stakeholders is a critical leadership role that leaders and CEOs must
posses especially in the aftermath of the housing crisis and the world-wide economic meltdown of 2008-
2009. “Corporate leaders are under great pressure to produce short-term results rather than focus their
efforts on long-term strategies and value creation,” describes Dr. Muna in an article for consulting firm
Meirc.
This overemphasis, on short-term considerations imposes high costs on stakeholders and the economy,
especially in the United States. Short-term outlook is the result of a number of factors which boards of
directors, stakeholders, and CEOs can concentrate on in order to help alleviate the negative
consequences of this occurrence (Muna, 2010).
As Christian leaders it is important to value everything God gives us, provide generously to others and
understand the fact that nothing we have here on Earth belongs to us. Matthew explains this is in more
detail in chapter 6:2-4 emphasizing the importance of being humble when helping others: “So when
you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and
on the streets, to be honored by others. Truly I tell you, they have received their reward in full. But
when you give to the needy, do not let your left hand know what your right hand is doing, so that your
giving may be in secret. Then your Father, who sees what is done in secret, will reward you”.
References:
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Fundamentals of Corporate Finance 7th Edition. New
York: McGraw Hill Irwin.
Muna, F.A. (2010). Creating Value for All Stakeholders: A Critical Leadership Role. Meirc Training
and Conculting. Retrieved from: http://www.meirc.com/meirc-consultants/1012-creating-value-for-
all- stakeholders-a-critical-leadership-role-.html
Rusolillo, S. (2012). Facebook Has a Valuation Problem. The Wall Street Journal. Retrieved from:
http://blogs.wsj.com/marketbeat/2012/05/09/facebook-has-a-valuation-problem/?mod=WSJBlog
Ward, S. (2012). How to Determine What Your Business Is Worth. About Business Guide. Retrieved from:
http://sbinfocanada.about.com/od/sellingabusiness/a/bizvaluation.htm
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Company's Stock Prices
Post:
Company's Stock Prices
Author:
Anjerrika Anthony
Posted Date:
September 5, 2012 1:04
AM Status:
Published
THE PERPLEXITY OF THE STOCK
MARKET ANJERRIKA ANTHONY
LIBERTY UNIVERSITY
BUSI 530-B21 LUO
DR. BOWLIN
August 30, 2012
The Perplexity of the Stock Market
The complexity of stock prices keeps Wall Street in a constant frenzy. The internal and external factors
effecting stock prices perplexes the average individual , and corruption typically resonates in the minds
of American’s at the mere mention of, “Wall Street”. Scandals, greed, and lies encompass what people
believe is the core of the American financial system. God’s Biblical principles concerning finances are
negated and limited to the church. However, He requires truth in the church and the stock market. The
Bible states, “You must have accurate and honest weights and measures, so that you may live long in
the land the LORD your God is giving you,” (Deuteronomy 25:15 New International Version) in order to
explain the correlation between God’s money, His plan , and His land over a lifespan.
He gives researchers practical tools for maintaining his biblical principles, such as, the balance sheet.
Therefore, a thorough understanding of the balance sheet helps clarify factual, accurate, and sometimes
misleading information about corporation’s finances. For example, it displays the company’s assets and
liabilities. It also provides shareholders with knowledgeable information about the company’s ability to
adequately distribute funds. If the company uses integrity in their balance sheet the shareholders can
make educated decisions concerning their investment into the business.
Internal & External Factors
The average person perception may view assets as an item with an instant return. But, the balance
sheet demonstrates how there are tangible and intangible assets. The allotment of these resources
could potentially add wealth or destroy the company, which is an internal factor. On the other hand,
investors depend on the stock market, which is an external force, to guide them into making choices
about a company’s marketable assets (tangible asset) and value (intangible asset). However,
accountant’s ability to manipulate the timing information about when assets, are displayed to the
public, effects the perception of the investor. Today, Enron still holds the gold medal for “Corruptible
Firms” in the minds of American’s, because of the scandal that plagued their corporation. “Before its
Bankruptcy, Enron became infamous for its special-purpose vehicles, which allowed it to hide large
potential liabilities from the public. Enron had also guaranteed the outstanding debt of other companies
in which it had ownership stake. To present a fair view of the firm, Enron should have recognized these
potential liabilities on its balance sheet.” (Brealy, Myers, & Marcus 2012) Due to their lack of ethics and
accountability, America has lost trust in the economic power of large corporations.
Book Value & Market Value
Corporations, Accounts and Investors collaboration must encompass a unique way of holding truth in
principles coupled with economic balance.”Accounts also depend on the stock market to retain the
value of the business for the consumer. If companies depended solely on the book value over the
market value, corporation sales would begin to decrease. For example, “suppose that 2 years ago Home
Depot built an office building for $30 million and that in today’s market the building would sell for 40
million.
The book value of the building would be less than its market value, and the balance sheet would
understate the value of Home Depot’s assets.”(Brealy, Myers, & Marcus 2012) If investors’ lost trust in
the company’s value, principles, and budget they would take their monies to better investment
opportunities.
His Value
The word of God calls for Christians to operate on a larger ethical standard, then those of the world.
The bible teaches Christians that they are “Not of this world.” (John 18:36, New International Version)
Therefore, Christians in positions to make financial decision, have a moral obligation to balance the
scale in favor of all. Once a leader implements an honest structure to an organization, it increases the
chances of a longer lifespan for the firm. The art of leadership is influence. If morally sound Christians
would
begin to balance the sheets of their firm, than employees under becomes a part of a Christian culture,
beneficial to society. And in that time the Firm will walk out His plan, His land and a financial plan over a
lifespan.
Bibliography
Brealy, R. A., Myers, S. C., Marcus, A. J. (2012). Accounting and Finance. Janicek, M. & Fisher, K. L. (Eds.),
fundamentals of Corporate Finance (52-77). New York: McGraw-Hill Irwin.
New International Version. Retrieved September 4, 2012, 2012, from
http://www.biblestudytools.com Attachment: Week 3 GDB.docx (16.962 KB)
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Thread:
COMPANY'S STOCK PRICES
Post:
COMPANY'S STOCK PRICES
Author:
Anjerrika Anthony
Posted Date:
August 30, 2012 2:34 PM
Status:
Published
THE PERPLEXITY OF THE STOCK
MARKET ANJERRIKA ANTHONY
LIBERTY UNIVERSITY
BUSI 530-B21 LUO
DR. BOWLIN
August 30, 2012
The Perplexity of the Stock Market
The complexity of stock prices keeps Wall Street in a constant frenzy. The internal and external factors
effecting stock prices perplexes the average individual. Therefore, a thorough understanding of the
balance sheet helps clarify factual, accurate, and sometimes misleading information. For example, it
displays the company’s assets and liabilities. It provides shareholders with knowledgeable information
about the company’s ability to adequately distribute funds. If the company uses integrity in their balance
sheet the shareholders can make an educated decision concerning their investment into the business.
Internal & External Factors
The average person perception may view assets as an item with an instant return. But, the balance
sheet demonstrates how there are tangible and intangible assets. The allotment of these resources
could potentially add wealth or destroy the company, which is an internal factor. On the other hand,
investors depend on the stock market, which is an external force, to guide them into making choices
about a company’s marketable assets (tangible asset) and value (intangible asset). However,
accountant’s ability to manipulate the timing information about when assets, are displayed to the
public, effects the perception of the investor. Today, Enron still holds the gold medal in the minds of
American’s, because of the corruptible nature of their corporation. “Before its Bankruptcy, Enron
became infamous for its special-purpose vehicles, which allowed it to hide large potential liabilities
from the public. Enron had also guaranteed the outstanding debt of other companies in which it had
ownership stake. To present a fair view of the firm, Enron should have recognized these potential
liabilities on its balance sheet.” (Brealy, Myers, & Marcus 2012) Due to their lack of ethics and
accountability, America has lost trust in the economic power of large corporations.
Book Value & Market Value
Corporations, Accounts and Investors collaboration must encompass a unique way of holding truth in
principles coupled with economic balance. Accounts also depend on the stock market to retain the
value of the business for the consumer. If companies depended solely on the book value over the
market value, corporation sales would begin to decrease. For example, “suppose that 2 years ago Home
Depot built an office building for $30 million and that in today’s market the building would sell for 40
million.
The book value of the building would be less than its market value, and the balance sheet would
understate the value of Home Depot’s assets.”(Brealy, Myers, & Marcus 2012) If investors’ lost trust in
the company’s value, principles, and budget they would take their monies to better investment
opportunities.
Bibliography
Brealy, R. A., Myers, S. C., Marcus, A. J. (2012). Accounting and Finance. Janicek, M. & Fisher, K. L. (Eds.),
fundamentals of Corporate Finance (52-77). New York: McGraw-Hill Irwin..
Attachment: Week 3 GDB.docx (13.09 KB)
