Valuation and Financial Statements Shareholder Value the Essay

Open, View, and/or
Download this Document

Total Length: 580 words ( 2 double-spaced pages)

Total Sources: 3

Page 1 of 2

Valuation and Financial Statements

Shareholder Value

The question of shareholder interest as it pertains to a takeover bid is dependent on a variety of factors, not the least of which is the valuation of the company as determined by the board of directors and executive management. While current stock price plays a relevant role, valuation depends on analysis conducted in key areas including but not limited to: earnings multiple times EBITDA, price to book ratio, forward looking earnings guidance, and perhaps most crucial enterprise value. The current scenario of ABC Company pursuing the acquisition of XYZ Company for $35.00 a share, a $10.00 premium over the current $25.00 stock price, allows for an explication of these valuation techniques.

XYZ management believes that the $35.00 offer price is undervaluing the company and as such is not in the shareholder's interest. In identifying the rationale for this position a logical place to begin is the earning multiple times EBITDA.

Stuck Writing Your "Valuation and Financial Statements Shareholder Value The" Essay?

View All Our Example Valuation and Financial Statements Shareholder Value the Essay

Have A Custom Example Essay Written

This figure identifies operational cash flow by stripping out earnings prior to interest, taxes, depreciation, and amortization (Marshall, D. & McManus, W. 1996). EBITDA multiples are industry specific and as such a proper valuation includes a comparison to similar companies. The EBITDA multiple identifies how much XYZ is valued in relation to its operational earnings. Succinctly, "it estimates how many times of the EBITDA the business operation is worth" (Investor Words.Com. N.D.). XYZ on a per share basis may have an EBITDA multiple which values the company at $40.00 a share.

A second valuation technique involves the calculation of "the price/book (p/b) ratio, sometimes called the market-to-book ratio, which links the stock/share price of a company with the book or accounting value of shareholders' equity per share. It reflects how many times book….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Valuation And Financial Statements Shareholder Value The" (2011, July 28) Retrieved May 16, 2025, from
https://www.aceyourpaper.com/essays/valuation-financial-statements-shareholder-51632

Latest MLA Format (8th edition)

Copy Reference
"Valuation And Financial Statements Shareholder Value The" 28 July 2011. Web.16 May. 2025. <
https://www.aceyourpaper.com/essays/valuation-financial-statements-shareholder-51632>

Latest Chicago Format (16th edition)

Copy Reference
"Valuation And Financial Statements Shareholder Value The", 28 July 2011, Accessed.16 May. 2025,
https://www.aceyourpaper.com/essays/valuation-financial-statements-shareholder-51632
   

Open, View, and/or
Download this Document
order custom essay example