Business valuation is the process of assessing the worth of the enterprise which is subject to merger or takeover so that the consideration amount can be quantified and price of one enterprise for the other can be fixed. Such valuation helps in determining the value of shares of the acquired and acquiring company to safeguard the interest of the shareholders of both the companies. The share of any member in a company is a movable property and can be transferred in the manner provided in the articles. A share represents a bundle of rights like right to elect directors, to vote on resolutions of the company, share in the surplus, if any, on liquidation etc. Valuation of shares in anContinue reading
Strategic Management
Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic identification of specifying the firm’s objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm’s objectives. Strategic management, therefore, integrates the activities of the various functional sectors of a business, such as marketing, sales, production etc. , to achieve organizational goals. It is generally the highest level of managerial activity, usually initiate by the board of directors and executed by the firm’s Chief Executive Officer (CEO) and executive team.
Leveraged and Management Buyouts
There are various options available for the revival of a ‘sick company. One is buyout of such a company by its employees. This option has distinct advantages over Government intervention and other conventional remedies. Buyout by employees provides a strong incentive to the employees in the form of personal stake in the company. The employees become the owners of the company by virtue of the shares that are issued and allotted to them. Moreover, continuity of job is the greatest motivating force which keeps them on their toes to ensure that the buyout succeeds. Such a buyout saves mass unemployment and unrest among the working class. Relations between the worker management and the employees are expected to be cordial withoutContinue reading
Business Reconstruction
In the case of business reconstruction, a new company (hereinafter referred to as ‘transferee company’) is formed, the existing company (hereinafter referred to as transferor company’) is dissolved by passing a special resolution for members voluntary winding up and authorizing the liquidator to transfer the undertaking, business, assets and liabilities of the transferor company to the transferee company. The old company goes into liquidation and its shareholders, instead of being repaid their capital are issued and allotted equivalent shares in the new company. Consequently, the same shareholders carry on almost the same undertaking or enterprise in the name of a new company. Halsbury’s Laws of England defines business reconstruction thus: “While an undertaking being carried on by a company isContinue reading
Financial Evaluation of a Divestiture
A divestiture involves the sale of a division or plant or unit of one firm to another. From the seller’s perspective, it is a form of contraction; from the buyer’s point of view it represents expansion. Hence a divestiture is the obverse of a purchase. It is important to recognize that companies often achieve external expansion by acquiring an operating unit — plant, division, product line, subsidiary, etc — of another company. In such a case the seller generally believes that the value of the firm will be enhanced by converting the unit into cash or some other more productive asset. The selling of some of a firm’s assets is called divestiture. Unlike business failure, the motive for divestiture isContinue reading
Importance of Strategic Planning
Strategic planning encourages, managers to take a holistic view of both the business and its environment. The importance of strategic planning is its ability to harness a series of objectives, strategies, policies and actions than can work together. Managing a company strategically means thinking and accordingly taking suitable action on multiple fronts. Due to involvement of multiple operations objectives, strategies, policies or actions may, on the surface, appear contradictory and mutually exclusive, but in reality they can work together. Strategic planning provides the framework for all the major business decisions of an enterprise-decisions on business, products and markets, manufacturing facilities, investments and organizational structure. In a successful corporation, strategic planning works as the path finder to various business opportunities, simultaneouslyContinue reading
Multidivisional Organizational Structure
In Multidivisional Organizational Structure, each business unit is placed in a self-contained division and supplied with all support functions. Thus each part essentially operates separately from the other parts of the company. The office of corporate headquarters is created to control and oversee the divisions. Headquarters also provides corporate support functions, such as finance and R&D. Divisional managers have operating responsibility; corporate managers have strategic responsibility. Each division is treated as a profit center and can adopt the structure and control systems that best serve its strategy. A multidivisional structure has several advantages. Enhanced corporate financial control is one advantage of the multidivisional structure. The profitability of the different divisions is very clear, allowing the corporate staff to readily determineContinue reading