Tuesday, September 24, 2019

Financial Strategy Essay Example | Topics and Well Written Essays - 1500 words - 2

Financial Strategy - Essay Example â€Å"Value added† is only meaningful in the context of some kind of value that a firm's portfolio has that isn't immediately apparent from their stock prices or investment guide. The fact that a company is connected to a larger company, for example, would be relevant to investors. Managing cost centres is normally quantified on the balance sheet anyways, but even when it isn't, it is a tiny part of the value added picture. Lu, Tsai and Yen (2010) point out that intangible assets are immensely important to valuing firms. â€Å"In knowledge-based economy, the method for creating firm value transfers from traditional physical assets to intangible knowledge. As intangible assets value is an important part of firm value, valuation of intangible assets becomes a widespread topic of interest in the future of economy† (Lu et al, 2010). Lu, Tsai and Yen point to six particular value-added sources that their data-mining from Taiwanese firms found: â€Å"R&D intensity, family, p articipation in management, pyramids, profitability, and dividend† (Lu et al, 2010). Intangible assets are clearly vital to a company: Indeed, they are the company, the money being the way for those assets to be deployed. What makes a company like Microsoft grow ten-thousand fold is intangible elements like strategy, intuition, etc. The problem with these assets is manifold: 1. These assets are not easily fungible. Bill Gates would not have been worth very much before Microsoft's ascension. 2. These assets are not easily measurable. Creativity, political connections, inherited knowledge from family, secret recipes... until they have been tried and tested in the market, they have no quantifiable value. 3. They are context-specific. A piece of land is worth however much it is objectively. But Bill Gates and Paul Allen were a team. Split them apart and their separate value was probably far, far lower. Aside from the factors that Lu, Tsai and Yen (2010) identify, intangible assets of value include far more. Political connections are immensely valuable: If someone can exert political pressure to protect one from upcoming regulation or other important legislation, that can be worth millions to the shareholders. Families are value-added because they typically have a shared sense of camaraderie and loyalty with less need for monitoring and because they have special knowledge passed down a family line not accessible to those outside of it. Again, the problem is the signal-to-noise ratio: The vast majority of family knowledge is not applicable to business success, but sometimes an individual piece of information in the flotsam and jetsam, like a recipe, actually is. Innovation is particularly important, especially a culture of innovation. Companies like Google, 3M, Microsoft in their heydey and Mac now are known for being innovators, which is partially created by the people they hire but also heavily determined by the organizational practices they implement. Partn erships with other firms would be another value-added investors should be aware of. Strategic partnerships have a proven track record of raising company value. In small-to-medium sized software companies, Kennedy and Keeney's research found that â€Å"strategic partnerships were initiated to take advantage of firm synergy, reputation and credibility

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