Identifying Value Creators Essay

2206 words - 9 pages

Financial Management CASE STUDY NO.2
IDENTIFYING VALUE CREATORS
1. Defining case issue
Based on the issue Linda faced, she needs to assess which company create or destroyed value for investors, it should be included to the value analysis, which means using value ratios to show the “embedded value” in stocks in order to screen and assess the invest value before making investment.
So in our case report, we will solve three case issues:
(1) To make value analysis of the pairs of Asian and American firms in different industries;
(2) To understand how to use EVA, such as the differences between EVA and other financial ratios, advantages and disadvantages.
(3) To make value ...view middle of the document...

3. Value analysis of the pairs of Asian and American firms
4.1 EPS
The portion of a company's profit allocated to each outstanding share of common stock, investor need to know that how much benefits the stock could generate, so the EPS (earnings per share) could become the good measure tool. EPS also serves as an indicator of a company's profitability.
(1) Computer Companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Apple | First , relative large negative EPS, than keep on growing to a higher level | Steep | Since 1998, EPS increased a lot and become higher than Acer |
Acer | Positive, but very low | Flat | No turning point |
(2) Telecom companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
AT&T | Relative large positive EPS, but keep on going down in this period | Steep | Since 1997, EPS started to decrease |
Singapore | Positive, but very low | Flat | No turning point |
(3) Food Companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Coca-cola | Positive, higher EPS than Nestle, but the decreasing amount is larger. | Steep | Since 1997, EPS started to decreased all the time |
Nestle | Low positive EPS | Flat | No obvious turning point |
(4) Automotive companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Ford | Positive, higher EPS than Hyundai, but the decreasing amount is larger. | Steep | Since 1998, EPS started to decrease and become closer with Hyundai |
Hyundai | Two years’ negative EPS, three years’ low positive EPS | flat | No turning point |
(5) Real estate companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Simon | Positive, higher EPS than Nestle, but the decreasing amount is larger. | Steep | Since 1998, EPS increased a lot and become higher than Acer |
Ayala | Low positive EPS | Flat | No turning point |
(6) Technology companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Yahoo | Positive, higher EPS than Nestle, but the decreasing amount is larger. | Steep | Since 1998, EPS increased a lot and become higher than Acer |
PCCW | Low positive EPS | Flat | No turning point |
4.2 EVA
Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit. EVA could go deeper into the company and find what cause the value during the operation process. Thus, to solve this case issue, we need to more rely on the EVA ratio, to evaluate whether company has generated or damaged value for investors.
(1) Computer Companies

Result conclusion:
| Absolute value | Steep or flat | Turning point |
Apple | First , relative large negative EVA, than keep on growing to a higher level | ...

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