January 15, 2010
Growth stocks regain favor after value's long run
Mark Jewell
Growth is in, value is out. And it's likely to stay that way this year.
Investors who loaded their portfolios with growth stocks were rewarded in 2009. Those stocks gained an average 37 percent, nearly twice as much as value stocks.
Growth's notable performance was largely fueled by technology stocks, the biggest part of the growth category. Experts say those companies will continue to prosper as customers ramp up tech spending coming out of the recession. But experts caution a tech rally as big as last year's is unlikely.
There's no pat definition for growth stocks, but typically they generate revenue and earnings at an above-average rate. Examples are Apple and Google. Value stocks generally produce steady earnings, often pay out dividends and are considered cheap based on their price-to-earnings ratios. Companies like Bank of America, McDonald's and Wal-Mart fall into this category.
The leadership shift to growth from value marks a break from historical patterns. All told, the annual performance of growth stocks surpassed value stocks just twice in the last decade. Also, value stocks normally do much better coming out of a recession, as more economically sensitive stocks like banks and utilities rebound at the earliest signs that the economy is expanding.
"Typically, the bigger the contraction during a recession, the bigger the snapback when the economy turns," says Stephen Wood, chief market strategist of Russell Investments. "That hasn't happened this time."
This recovery has been tepid. The economy is growing about half as fast as it usually does exiting a recession, says Wood. Though the stock market has climbed 70 percent since last March, unemployment remains at 10 percent.
Still it's clear that growth stocks were hot in 2009. Growth stocks within the Russell 3000, a broad index covering 98 percent of the U.S. stock market, surged 37 percent last year. Value stocks ended with a more modest 20 percent gain.
That big gap was reminiscent of the late 1990s, when growth had its last big run. Of course that fizzled in early 2000 as the dot-com bust pummeled technology companies.
"What happened in 2009 is not what we should expect going forward," says Jim Swanson, chief market strategist at MFS Investment Management, which manages nearly $188 billion. "We need to look at it as an extraordinary year."
The reality is that certain industries play a pivotal role in driving the performance of growth and value stocks.
Tech stocks are the biggest part of growth, accounting for 30 percent of the value of all that category's stocks in the Russell 3000. Last year those tech stocks finished up an average 59 percent — tops among 11 sectors — boosting growth's overall performance. Two of tech's biggest names put up especially strong results: Shares of Apple and Google more than doubled.
On the value side, financial services stocks are the biggest piece, making up one-quarter of the Russell 3000's value component. While many large banks came back from the brink of failure, their stocks haven't returned to pre-plunge levels. In 2009, financials trailed the broader market despite finishing up 17 percent.
Utility stocks, another value staple, also weighed down the overall performance of the category. They gained just 12 percent last year, less than any other segment of the stock market.
Ultimately, investors trying to forecast whether growth or value will lead the market should closely watch the economy.
In each of the past four recessions since 1980, growth stocks fared better than value as the economy shrank, a Russell Investments study found.
That's because growth companies' competitive advantages — think of Google's search engine dominance, for example — tend to hold up even if the economy is lousy. Value stocks tend to fall more sharply because many are in industries that are unusually sensitive to economic cycles — think of banks that see loan losses multiply in a bad economy, or energy companies that see demand from industrial customers shrink.
When the economy began expanding coming out of past recessions, value stocks began rising faster than growth stocks, the study found.
That's not the case now, so the current market is breaking with the norms. Still, after value stocks led the market nearly all the past decade, Wood, of Russell Investments, figures growth stocks could be in favor for a long while.
But even if they are, don't rush in. Individual stocks don't neatly follow the trend of their broader category. And, perhaps more importantly, Wood says the performance advantage for either growth or value is likely to be narrow.
"2010," Wood says, "will probably surprise us in how normal it will be."
http://www.realclearmarkets.com/news/ap/finance_business/2010/Jan/15/growth_stocks_regain_favor_after_value_s_long_run.html
Tuesday 19 January 2010
Growth stocks regain favor after value's long run
Originally published Saturday, January 16, 2010 at 12:01 PM
Growth stocks regain favor after value's long run
Growth stocks within the Russell 3000, a broad index covering 98 percent of the U.S. stock market, surged 37 percent last year. Value stocks ended with a more modest 20 percent gain.
The Associated Press
BOSTON — Growth is in, value is out. And it's likely to stay that way this year.
Investors who loaded their portfolios with growth stocks were rewarded in 2009. Those stocks gained an average 37 percent, nearly twice as much as value stocks.
Growth's notable performance was largely fueled by technology stocks, the biggest part of the growth category. Experts say those companies will continue to prosper as customers ramp up tech spending coming out of the recession. But experts caution a tech rally as big as last year's is unlikely.
Typically growth stocks generate revenue and earnings at an above-average rate. Examples are Apple and Google.
Value stocks generally produce steady earnings, often pay out dividends and are considered cheap based on their price-to-earnings ratios. Companies like Bank of America, McDonald's and Wal-Mart fall into this category.
Historical patterns
The leadership shift to growth from value marks a break from historical patterns. All told, the annual performance of growth stocks surpassed value stocks just twice in the last decade.
Growth stocks within the Russell 3000, a broad index covering 98 percent of the U.S. stock market, surged 37 percent last year. Value stocks ended with a more modest 20 percent gain.
That big gap was reminiscent of the late 1990s, when growth had its last big run. Of course that fizzled in early 2000 as the dot-com bust pummeled technology companies.
"What happened in 2009 is not what we should expect going forward," says Jim Swanson, chief market strategist at MFS Investment Management, which manages nearly $188 billion. "We need to look at it as an extraordinary year."
In each of the past four recessions since 1980, growth stocks fared better than value as the economy shrank, a Russell Investments study found.
Advantage holds up
That's because growth companies' competitive advantages — think of Google's search-engine dominance, for example — tend to hold up even if the economy is lousy. Value stocks tend to fall more sharply because many are in industries that are unusually sensitive to economic cycles — think of banks that see loan losses multiply in a bad economy.
When the economy began to expand coming out of past recessions, value stocks began to rise faster than growth stocks, the study found.
But the market now is breaking with the norms. Still, after value stocks led the market nearly all the past decade, Wood, of Russell Investments, figures growth stocks could be in favor for a long while.
But even if they are, don't rush in. Individual stocks don't neatly follow the trend of their broader category. And, perhaps more importantly, Wood says the performance advantage for either growth or value is likely to be narrow.
"2010," Wood says, "will probably surprise us in how normal it will be."
http://seattletimes.nwsource.com/html/businesstechnology/2010797412_investgrowth17.html?syndication=rss
Growth stocks regain favor after value's long run
Growth stocks within the Russell 3000, a broad index covering 98 percent of the U.S. stock market, surged 37 percent last year. Value stocks ended with a more modest 20 percent gain.
The Associated Press
BOSTON — Growth is in, value is out. And it's likely to stay that way this year.
Investors who loaded their portfolios with growth stocks were rewarded in 2009. Those stocks gained an average 37 percent, nearly twice as much as value stocks.
Growth's notable performance was largely fueled by technology stocks, the biggest part of the growth category. Experts say those companies will continue to prosper as customers ramp up tech spending coming out of the recession. But experts caution a tech rally as big as last year's is unlikely.
Typically growth stocks generate revenue and earnings at an above-average rate. Examples are Apple and Google.
Value stocks generally produce steady earnings, often pay out dividends and are considered cheap based on their price-to-earnings ratios. Companies like Bank of America, McDonald's and Wal-Mart fall into this category.
Historical patterns
The leadership shift to growth from value marks a break from historical patterns. All told, the annual performance of growth stocks surpassed value stocks just twice in the last decade.
Growth stocks within the Russell 3000, a broad index covering 98 percent of the U.S. stock market, surged 37 percent last year. Value stocks ended with a more modest 20 percent gain.
That big gap was reminiscent of the late 1990s, when growth had its last big run. Of course that fizzled in early 2000 as the dot-com bust pummeled technology companies.
"What happened in 2009 is not what we should expect going forward," says Jim Swanson, chief market strategist at MFS Investment Management, which manages nearly $188 billion. "We need to look at it as an extraordinary year."
In each of the past four recessions since 1980, growth stocks fared better than value as the economy shrank, a Russell Investments study found.
Advantage holds up
That's because growth companies' competitive advantages — think of Google's search-engine dominance, for example — tend to hold up even if the economy is lousy. Value stocks tend to fall more sharply because many are in industries that are unusually sensitive to economic cycles — think of banks that see loan losses multiply in a bad economy.
When the economy began to expand coming out of past recessions, value stocks began to rise faster than growth stocks, the study found.
But the market now is breaking with the norms. Still, after value stocks led the market nearly all the past decade, Wood, of Russell Investments, figures growth stocks could be in favor for a long while.
But even if they are, don't rush in. Individual stocks don't neatly follow the trend of their broader category. And, perhaps more importantly, Wood says the performance advantage for either growth or value is likely to be narrow.
"2010," Wood says, "will probably surprise us in how normal it will be."
http://seattletimes.nwsource.com/html/businesstechnology/2010797412_investgrowth17.html?syndication=rss
Interpreting Financial Information
1. WHY INTERPRETE FINANCIAL DATA?
It helps to know your markets, measure growth, and make authoritative decisives.
2. WHAT ARE COMMON BENCHMARKS?
Sales revenues, profits, number of stores, and customers.
3. HOW DO YOU EVALUATE PERFORMANCE?
COST-BENEFIT ANALYSIS
WHAT IS IT? You weigh the expected costs of launching or running a business against the expected benefits. The costs involved are variable (diretly involved with the new activity) and fixed (these remain more or less the same, regardless of the new business).
RETURN ON INVESTMENT
WHAT IS IT? A method used to measure the benefits of the project over the length of time of a project (when this is time specific).
You divide the net profit expected for the first year by the amount of expenditure and express it as a percentage of the outlay.
BREAKEVEN ANALYSIS
WHAT IS IT? It provides a way of finding out how many sales are necessary to recoup the capital spent on the original investment. You need to know your contribution margin (the percentage of each sales dollar left over after variable costs are taken aways from overall profits).
TIME VALUE OF MONEY
WHAT IS IT? It describes the concept that a dollar received today is worth more than a dollar received at some point in the future because the dollar received today can be invested to earn interest. The harsh reality is that future benefits may be worth less dollar for dollar than if the capital outlay was put in an investment fund.
4. WHAT ARE THE WAYS TO VALUE A COMPANY?
HARD NUMBERS. These are based on existing figures and include equity book value (assets minus liabilities) and fair market value (the value established between a willing buyer and a willing seller).
SOFT NUMBERS. These are based on estimates of future benefits and therefore contain an element of subjectivity.
INTANGIBLE ASSETS. These include people, knowledge, relationships, intellectual property, brand names, loyal customer base, copyrights or trademarks, mailing lists, long-term contracts, and franchises.
It helps to know your markets, measure growth, and make authoritative decisives.
2. WHAT ARE COMMON BENCHMARKS?
Sales revenues, profits, number of stores, and customers.
3. HOW DO YOU EVALUATE PERFORMANCE?
COST-BENEFIT ANALYSIS
WHAT IS IT? You weigh the expected costs of launching or running a business against the expected benefits. The costs involved are variable (diretly involved with the new activity) and fixed (these remain more or less the same, regardless of the new business).
RETURN ON INVESTMENT
WHAT IS IT? A method used to measure the benefits of the project over the length of time of a project (when this is time specific).
You divide the net profit expected for the first year by the amount of expenditure and express it as a percentage of the outlay.
BREAKEVEN ANALYSIS
WHAT IS IT? It provides a way of finding out how many sales are necessary to recoup the capital spent on the original investment. You need to know your contribution margin (the percentage of each sales dollar left over after variable costs are taken aways from overall profits).
TIME VALUE OF MONEY
WHAT IS IT? It describes the concept that a dollar received today is worth more than a dollar received at some point in the future because the dollar received today can be invested to earn interest. The harsh reality is that future benefits may be worth less dollar for dollar than if the capital outlay was put in an investment fund.
4. WHAT ARE THE WAYS TO VALUE A COMPANY?
HARD NUMBERS. These are based on existing figures and include equity book value (assets minus liabilities) and fair market value (the value established between a willing buyer and a willing seller).
SOFT NUMBERS. These are based on estimates of future benefits and therefore contain an element of subjectivity.
INTANGIBLE ASSETS. These include people, knowledge, relationships, intellectual property, brand names, loyal customer base, copyrights or trademarks, mailing lists, long-term contracts, and franchises.
Monday 18 January 2010
Valuing the company
Valuing a business is never an exact sceience with no one right away of determining a company's price. These are the common ways of appraising a business:
A. Hard numbers
B. Soft numbers
C. Intangible assets
D. Market competition
A. HARD NUMBERS
These are based on existing financial figures and include:
1. EQUITY BOOK VALUE
The simple formula is to subtract a company's liabilities from its assets based on historical records.
2. ADJUSTED BOOK VALUE
This is the same formula but takes into account the fair market value of assets and liabilities, which may produce a more accurate picture as historical records may be very out-of-date.
3. LIQUIDATION VALUE
This is another variation on the balance sheet theme that calculates how much money is left when assets are sold quickly and debts are paid off.
4. FAIR MARKET VALUE
This is simply the value established between a willing buyer and a willing seller.
5. MARKET VALUE
This applies to a publicly traded company.
B. SOFT NUMBERS
Soft numbers are based on estimates of future benefits and therefore contain an element of subjectivity.
1. INCOME METHOD
This is a measurement of the future benefits such as sales, profits, or cost savings.
2. DISCOUNTED CASH FLOW APPROACH
This approach brings future anticipated income to present value.
3. INVESTMENT VALUE
This takes into account the special benefits that a buyer accrues from acquiring the new entity.
C. INTANGIBLE ASSETS
Increasingly, prospective buyers are putting a greater onus on a company's intangible assets, which include people, knowledge, relationships, intellectual property, brand names, loyal customer base, copyrights or trademarks, proprietary mailing lists, long-term contracts, and franchises.
Some intangible assets can be priced using traditional approaches such as:
1. COST-BASED VALUATION
How much would it cost you to duplicate some of these assets today?
2. MARKET-BASED VALUATION
What were the sale transactions of brand-named goods in the sector?
3. CUSTOMER-DRIVEN VALUATION
What is the value of a loyal customer? What does the average customer spend per purchase a year? How long has he been a customer?
D. MARKET COMPETITION
Research into the company and its place in its sector are also relevant. Is your business in a growth industry or a declining one?
A. Hard numbers
B. Soft numbers
C. Intangible assets
D. Market competition
A. HARD NUMBERS
These are based on existing financial figures and include:
1. EQUITY BOOK VALUE
The simple formula is to subtract a company's liabilities from its assets based on historical records.
2. ADJUSTED BOOK VALUE
This is the same formula but takes into account the fair market value of assets and liabilities, which may produce a more accurate picture as historical records may be very out-of-date.
3. LIQUIDATION VALUE
This is another variation on the balance sheet theme that calculates how much money is left when assets are sold quickly and debts are paid off.
4. FAIR MARKET VALUE
This is simply the value established between a willing buyer and a willing seller.
5. MARKET VALUE
This applies to a publicly traded company.
B. SOFT NUMBERS
Soft numbers are based on estimates of future benefits and therefore contain an element of subjectivity.
1. INCOME METHOD
This is a measurement of the future benefits such as sales, profits, or cost savings.
2. DISCOUNTED CASH FLOW APPROACH
This approach brings future anticipated income to present value.
3. INVESTMENT VALUE
This takes into account the special benefits that a buyer accrues from acquiring the new entity.
C. INTANGIBLE ASSETS
Increasingly, prospective buyers are putting a greater onus on a company's intangible assets, which include people, knowledge, relationships, intellectual property, brand names, loyal customer base, copyrights or trademarks, proprietary mailing lists, long-term contracts, and franchises.
Some intangible assets can be priced using traditional approaches such as:
1. COST-BASED VALUATION
How much would it cost you to duplicate some of these assets today?
2. MARKET-BASED VALUATION
What were the sale transactions of brand-named goods in the sector?
3. CUSTOMER-DRIVEN VALUATION
What is the value of a loyal customer? What does the average customer spend per purchase a year? How long has he been a customer?
D. MARKET COMPETITION
Research into the company and its place in its sector are also relevant. Is your business in a growth industry or a declining one?
Sources of Finance for financing growth
WHAT CHOICES DO YOU HAVE TO RAISE FUNDS?
1. DEBT FINANCING involves a loan that will accumulate future interest.
2. EQUITY FINANCING involves accepting a lump sum in exchange for selling the future benefits and profits of your business to investors.
WHAT MIX OF DEBT/EQUITY IS USED IN A BUSINESS LIFE CYCLE?
1. SEED STAGE
WHAT IS IT? When your business is just a thought or an idea
FINANCIAL SOURCES:
2. START-UP STAGE
WHAT IS IT? When the company has officially launched.
FINANCIAL SOURCES:
3. GROWTH-STAGE
WHAT IS IT? When a business has successfully traded for a period.
FINANCIAL SOURCES:
4. MATURE STAGE
WHAT IS IT? When its business has an established place in the market.
FINANCIAL SOURCES:
Key terms
Angel investor: a wealthy individual, often a retired business owner or executive, who hands over capital to a new business in return for ownership equity.
Venture capitalists: commonly large institutions seeking to invest considerable amounts of capital into growing businesses through a series of invesmtent vehicles that include state and private pension funds, university endowments, and insurance companies.
Commercial paper: a money market secuirty issued by large banks and corporations for short term investments (maximum nine months) such as purchases of inventory. These unsecured IOUs are consideed safe, but returns are small.
Factoring: describes a loan by a third party (factor) given in the form of cash (often within 24 hours) for accounts receivable. The borrower pays a percentage of the invoice.
1. DEBT FINANCING involves a loan that will accumulate future interest.
2. EQUITY FINANCING involves accepting a lump sum in exchange for selling the future benefits and profits of your business to investors.
WHAT MIX OF DEBT/EQUITY IS USED IN A BUSINESS LIFE CYCLE?
1. SEED STAGE
WHAT IS IT? When your business is just a thought or an idea
FINANCIAL SOURCES:
- Family and friends
- Private savings
- Credit cards: usually much quicker than waiting for a loan approval.
2. START-UP STAGE
WHAT IS IT? When the company has officially launched.
FINANCIAL SOURCES:
- Banking, typically the first option of small business owners.
- Small, community banks.
- Leasing: paying a monthly payment for renting assets like equipment or office space.
- Factoring: paying an advance rate to a third party (factor) in exchange for cash.
- Trade credit: when a supplier allows the buyer to delay payment.
3. GROWTH-STAGE
WHAT IS IT? When a business has successfully traded for a period.
FINANCIAL SOURCES:
- Angel investor: a wealthy individual who hands over capital in return for ownership equity.
- Venture capital funds: large institutions seeking to invest considerable amounts of capital into growing businesses through a series of investment vehicles.
- Initial public offering (IPO): the sale of equity in a company, generally in the form of shares of common stock, through an investment banking firm.
4. MATURE STAGE
WHAT IS IT? When its business has an established place in the market.
FINANCIAL SOURCES:
- Capital market securities such as common stock, dividends, voting rights.
- Bonds - loans that take the form of a debt security where the borrower (known as the issuer) owes the holder (the lender) a debt and is obliged to repay the principal and interest (the coupon).
- Commercial paper - a money market security issued by large banks and corporations for short-term investments (maximum nine months) such as purchases of inventory
Key terms
Angel investor: a wealthy individual, often a retired business owner or executive, who hands over capital to a new business in return for ownership equity.
Venture capitalists: commonly large institutions seeking to invest considerable amounts of capital into growing businesses through a series of invesmtent vehicles that include state and private pension funds, university endowments, and insurance companies.
Commercial paper: a money market secuirty issued by large banks and corporations for short term investments (maximum nine months) such as purchases of inventory. These unsecured IOUs are consideed safe, but returns are small.
Factoring: describes a loan by a third party (factor) given in the form of cash (often within 24 hours) for accounts receivable. The borrower pays a percentage of the invoice.
External Form of Growth: Could your business benefit from these?
Business can grow by:
EXTERNAL FORMS OF GROWTH
Could your business benefit from an acquisition or a merger?
Again, you need to take a good look at the business to understand just where it is at the present time.
SOME OF THE QUESTIONS TO ASK ARE:
FACTORS TO CONSIDER
So what would be the reasons for considering growth either through a merger or by an acquisition?
Among the forms of external growth are:
- Internal growth: By paying attention to the internal affairs of the company, and diversifying into new products and new markets.
- Go-it-alone option:
- External growth: Through mergers and acquisitions.
EXTERNAL FORMS OF GROWTH
Could your business benefit from an acquisition or a merger?
Again, you need to take a good look at the business to understand just where it is at the present time.
- What are the strengths that you can build on?
- What do you have that would make your company attractive to other companies?
- Are there areas of weakness in the business?
- Could these be strengthened by acquiring another company or merging your business with another?
SOME OF THE QUESTIONS TO ASK ARE:
- Should we obtain more quality staff with different skils?
- What do we know about our sector of the industry or service? Could we improve our business intelligence to our advantage?
- Is our business underperforming and, if so, in which area(s)?
- Can we access funds for further development without endangering the normal business cash flow?
- Could we access a wider customer base and increase our market share without outside help? How much would it cost in extra resources?
- Could we diversify into other products or service areas? What would be the long-term effects?
- Can we reduce our cost and overhead structure without damaging our product, service, or customer base? Would there be an adverse effect on performance and quality?
- What would be the effect if we could reduce the competition?
- Would "organic growth" take too long?
FACTORS TO CONSIDER
So what would be the reasons for considering growth either through a merger or by an acquisition?
- Bigger is better?
- Image enhancement?
- Market expansion?
- Product range expansion?
- Diversification?
Among the forms of external growth are:
- Mergers
- Acquisitions
- Joint ventures
- Partnerships
- Collaborations
Mergers and Acquisitions: When not to?
When not to merge or acquire?
- When a review of the business shows that internal processes can be improved and that growth can be achieved internally.
- When the costs of either option would not be commensurate with the increased turnover and profits.
- When the cost of raising finance for an acquisition would not be covered by the sale of unwanted assets.
- When there is a danger of losing the identity of your company in either option.
- When there would be no chance of creating a working management structure for the enlarged business.
- When the market would not be able to support the planned increase in production.
- When the merger or acquisition would lead to the danger of a loss of intellectual property.
Successful Mergers and Acquisitions
- Do a company "health check." Examine every possible facet of the business.
- Discover if there any areas for improvement and prune out any waste.
- Complete an up-to-date SWOT analysis.
- Ensure that your strengths and opportunities support an external growth strategy.
- Weigh up the likely contenders for a merger/acquisition.
- Decide which strategy will be best for the company, bearing in mind that an acquisition can be a costly and sometimes bitter affair.
- Try to prevnet plans for either form of growth being made public too soon; this could build resistance.
- Decide on the future direction of the enlarged organisation and management strategies before any move is made.
- On acquiring another company, there may be parts that do not fit into future plans; have a policy for disposal.
- Decide in advance the financial limits.
Merger and Acquisitions - What can go wrong?
What can go wrong?
The extent and the quality of planning and research done before the merger or acquisition deal is done will largely determine the outcome. Thee are occasions when situations will arise that are outside your control. It is worthwhile to consider the following situations and to prepare for them.
THE DEAL COULD FAIL OR PROVE TO BE VERY EXPENSIVE IF:
1. Agreement cannot be reached on who should run the business in the case of a merger or, in the case of an acquisition, how long the previous management team will continue to remain involved.
2. Word gets out in the press that you are interested in merging or acquiring a particular business and a "bidding war" breaks out in which other determined parties are interested in buying into the business.
3. Your own business performance suffers because you have to spend too long on the deal and the transition stages.
4. Key people in either organization leave because of uncertainty.
5. The expected savings in costs do not materialize.
In 1999, the management group KPMG studied 700 mergers and acquisitions. Their conclusions found that:
In 2003, a report issued by another group, Towers Perrin, indicated that there was a considerable increase in merger and acquisition activity, but surveys of companies concerned "still admit to a high failure rate."
In 1999, the management group KPMG studied 700 mergers and acquisitions. Their conclusions found that:
- 53% reduced the value of the companies.
- 17% produced no added value.
- Most "mergers" were acquisitions in disguise.
- 57% of "doomed deals" were caused by incompatible cultures in the companies involved.
- In 42% of cases, a clash of management styles or egos was responsible for the failure.
External growth - Acquisition
What is an acquisition?
Meaning "to gain possession of," the acquisition of all parts of another business is an alternative method to develop or expand your own business.
1. An acquisition is the most apposite option where you need specialist skills and knowledge or facilities for your own future development.
2. This is a way of filling "holes" in a company's current or future straegy; it can be very successful as long as there is a good understanding of what the knowledge gaps are and how they cna be filled effectively.
3. As is the case with mergers, the relevant questions should be asked and answered, and the correct business fit must be achieved.
Most acquisition involve businesses of unequal size with, usually, the larger or more powerful company purchasing or acquiring the smaller. In recent times, this has not always been the case, and examples can be found of relatively small companies buying out much larger ones, either to obtain resources or to gain additional assets to supplement those currently owned.
Such deals are usually financed quite heavily with loasn and other deals and are often followed by a very vigorous pruning of parts of the acquisition to repay the financing involved. This is known as asset stripping and is rarely intended to achieve growth of an established business, but rather functions as a financial dealing that will generate cash for further enlargement.
HOSTILE ACQUISITIONS OR TAKEOVERS
Many acquisitions are known as "hostile takeovers" where the management of the company being purchased actively resists the unwanted overtures of the predator company.
When talking about mergers, such phrases as: "teamwork," "sharing," and "mutual benefit" are appropriate; some expressions used when considering hostile takeovers might be:
Before any acquisition (or merger) it is essential to establish that what you think you are acquiring is real and worthwhile and to use a process such as due diligence. This includes complete studies of the business you seek to acquire, which should be carried out by specialist, univolved, third parties, who look at every part of the business and report on its viability to meet the requirements you have set before you take irrevocable action.
VALUING THE ACQUISITION
There are several valuation methods that can be used, and it is always best to seek professional expert advice before making the final decision. You will need to consider many relevant factors to obtain an overview of how healthy the business might be, these include:
THE FINANCIAL STRUCTURE OF AN ACQUISITION IS:
Company "C" shares ----> ----> ----> Company "A" shares ---->> Larger company "A" shares
Meaning "to gain possession of," the acquisition of all parts of another business is an alternative method to develop or expand your own business.
1. An acquisition is the most apposite option where you need specialist skills and knowledge or facilities for your own future development.
2. This is a way of filling "holes" in a company's current or future straegy; it can be very successful as long as there is a good understanding of what the knowledge gaps are and how they cna be filled effectively.
3. As is the case with mergers, the relevant questions should be asked and answered, and the correct business fit must be achieved.
Most acquisition involve businesses of unequal size with, usually, the larger or more powerful company purchasing or acquiring the smaller. In recent times, this has not always been the case, and examples can be found of relatively small companies buying out much larger ones, either to obtain resources or to gain additional assets to supplement those currently owned.
Many acquisitions are known as "hostile takeovers" where the management of the company being purchased actively resists the unwanted overtures of the predator company.
- "We have bought you."
- "Do as you are told."
- "Our way is best."
Before any acquisition (or merger) it is essential to establish that what you think you are acquiring is real and worthwhile and to use a process such as due diligence. This includes complete studies of the business you seek to acquire, which should be carried out by specialist, univolved, third parties, who look at every part of the business and report on its viability to meet the requirements you have set before you take irrevocable action.
Using the due diligence procedure to arrive at incisive answers to the many questions needed, to making the decision to acquire, represents the exemplary use of due diligence.
There are several valuation methods that can be used, and it is always best to seek professional expert advice before making the final decision. You will need to consider many relevant factors to obtain an overview of how healthy the business might be, these include:
- The history of the business
- The current performance
- The financial situation
- The condition of the premises
- Intangible assets
- Employees
- how much you think the business is worth, and
- how much you are prepared to offer, if you decide to proceed.
THE FINANCIAL STRUCTURE OF AN ACQUISITION IS:
External growth - Merger
What is a merger?
The dictionary definition of a merger in the business or commercial context is "the combination of two or more companies, either by the creation of a new organization or by absorption by one of the others."
The underlying logic of mergers is that the resulting enterprise will be stronger than the combined resources of the individual companies. This is described as synergy, and it offers more business possibilities. It also has the advantage that there will be less competition as a result of the merger, although this depend on the guidelines of a monopoly commission.
WHAT ARE THE MAJOR ATTRIBUTES OF A TRUE MERGER?
1. TEAMWORK
2. SHARING
3. NONDOMINATION
4. MUTUAL BENEFIT
THE FINANCIAL STRUCTURE FOR A MERGER IS:
Company "A" Shares -----> COMPANY "C" SHARES
Company "B" Shares -----> COMPANY "C" SHARES
IS THE TIME RIGHT FOR A MERGER?
Ascertaining whether the time is right for a merger depends on the state of your business relative to the market and to the competition.
The dictionary definition of a merger in the business or commercial context is "the combination of two or more companies, either by the creation of a new organization or by absorption by one of the others."
The underlying logic of mergers is that the resulting enterprise will be stronger than the combined resources of the individual companies. This is described as synergy, and it offers more business possibilities. It also has the advantage that there will be less competition as a result of the merger, although this depend on the guidelines of a monopoly commission.
WHAT ARE THE MAJOR ATTRIBUTES OF A TRUE MERGER?
1. TEAMWORK
2. SHARING
3. NONDOMINATION
4. MUTUAL BENEFIT
THE FINANCIAL STRUCTURE FOR A MERGER IS:
Company "A" Shares -----> COMPANY "C" SHARES
Company "B" Shares -----> COMPANY "C" SHARES
IS THE TIME RIGHT FOR A MERGER?
Ascertaining whether the time is right for a merger depends on the state of your business relative to the market and to the competition.
Come and have a drink with me!
Don't Trust Anyone Who Doesn't Drink
John Carney | Jan. 14, 2010,
Why do so many social and business functions involve drinking?
Because it's one of the easiest ways to properly evaluate who is trustworthy. In vino veritas and all that.
But don't take our word for it. Here's a new economics paper making the argument.
In Vino Veritas: The Economics of Drinking:
It is argued that drug consumption, most commonly alcohol drinking, can be a technology to give up some control over one's actions and words. It can be employed by trustworthy players to reveal their type. Similarly alcohol can function as a "social lubricant" and faciliate type revelation in conversations. It is shown that both separating and pooling equilibria can exist; as opposed to the classic results in the literature, a pooling equilibrium is still informative. Drugs which allow a gradual loss of control by appropriate doses and for which moderate consumption is not addictive are particularly suitable because the consumption can be easily observed and reciprocated and is unlikely to occur out of the social context. There is a trade-off between the efficiency gains due to the signaling effect and the loss of productivity associated with intoxication. Long run evolutionary equilibria of the type distribution are considered. If coordination on an exclusive technology is efficient, social norms or laws can raise efficiency by legalizing only one drug.
(Hat tip: Larry Ribstein.)
http://www.businessinsider.com/dont-trust-anyone-who-doesnt-drink-2010-1
John Carney | Jan. 14, 2010,
Why do so many social and business functions involve drinking?
Because it's one of the easiest ways to properly evaluate who is trustworthy. In vino veritas and all that.
But don't take our word for it. Here's a new economics paper making the argument.
In Vino Veritas: The Economics of Drinking:
It is argued that drug consumption, most commonly alcohol drinking, can be a technology to give up some control over one's actions and words. It can be employed by trustworthy players to reveal their type. Similarly alcohol can function as a "social lubricant" and faciliate type revelation in conversations. It is shown that both separating and pooling equilibria can exist; as opposed to the classic results in the literature, a pooling equilibrium is still informative. Drugs which allow a gradual loss of control by appropriate doses and for which moderate consumption is not addictive are particularly suitable because the consumption can be easily observed and reciprocated and is unlikely to occur out of the social context. There is a trade-off between the efficiency gains due to the signaling effect and the loss of productivity associated with intoxication. Long run evolutionary equilibria of the type distribution are considered. If coordination on an exclusive technology is efficient, social norms or laws can raise efficiency by legalizing only one drug.
(Hat tip: Larry Ribstein.)
http://www.businessinsider.com/dont-trust-anyone-who-doesnt-drink-2010-1
China Responds To Google: Go To Hell
China Responds To Google: Go To Hell
Henry Blodget |
Jan. 14, 2010,
China's initial public response to Google's threat is in, and it's what one would have expected: Go to hell.
Now the two can start negotiating quietly behind the scenes.
We still expect this war to be resolved in a compromise in which both parties declare victory and reserve the right to kill each other later. There's a substantial chance, however, that Google will be forced to actually follow through on its threat and leave the country. (Backing down at this point would be a disaster).
There's no chance, meanwhile, that the Chinese government will allow itself to appear to be pushed around by a pissant Internet company. So Google had to have expected this.
FT: One of China’s top censors on Thursday reaffirmed the state’s commitment to monitoring the internet, showing no signs of compromising in the face of Google’s threat to quit the country.
Wang Chen, head of the State Council Information Office and deputy head of the Communist party’s propaganda department, said internet media “must live up to their responsibility of maintaining internet security”, including censoring content.
“We must do our best to intensify self-discipline among internet media to guarantee internet security... Online media must treat the creation of a positive mainstream opinion environment as an important duty,” he said.
"A positive mainstream opinion environment." And we thought our media was bad.
http://www.businessinsider.com/henry-blodget-china-responds-to-google-go-to-hell-2010-1
Henry Blodget |
Jan. 14, 2010,
Now the two can start negotiating quietly behind the scenes.
We still expect this war to be resolved in a compromise in which both parties declare victory and reserve the right to kill each other later. There's a substantial chance, however, that Google will be forced to actually follow through on its threat and leave the country. (Backing down at this point would be a disaster).
There's no chance, meanwhile, that the Chinese government will allow itself to appear to be pushed around by a pissant Internet company. So Google had to have expected this.
FT: One of China’s top censors on Thursday reaffirmed the state’s commitment to monitoring the internet, showing no signs of compromising in the face of Google’s threat to quit the country.
Wang Chen, head of the State Council Information Office and deputy head of the Communist party’s propaganda department, said internet media “must live up to their responsibility of maintaining internet security”, including censoring content.
“We must do our best to intensify self-discipline among internet media to guarantee internet security... Online media must treat the creation of a positive mainstream opinion environment as an important duty,” he said.
"A positive mainstream opinion environment." And we thought our media was bad.
http://www.businessinsider.com/henry-blodget-china-responds-to-google-go-to-hell-2010-1
Jim Chanos: China Is Headed For A Huge Crash
Nov. 11, 2009,
The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos. Read the whole thing >
Chanos is reportedly attempting to short the entire Chinese economy. What's fueling the short case against China?
http://www.businessinsider.com/jim-chanos-china-is-headed-for-a-huge-crash-2009-11
- The $4.3 trillion Chinese economy is under-performing despite a $900 billion stimulus program.
- China seems to be cooking its books. For instance, it reports that car sales are surging while gasoline consumption is flat. Is that realistic? Or are state run Chinese companies just stock-piling cars?
- China may have too much capacity. The central planners built out productive capacity for a booming economy but China is stalling. In nearly every sector of the economy, China is in danger of producing huge quantities of goods with no buyers.
- China's economic and political posturing signals that its leaders have no idea what is in store for them. The result may be a surprising economic collapse, akin to what happened when the housing bubble popped in the US.
The practicalities of growth in your business
There are many resources that need to be considered when deciding to grow the business. Among these are:
FINANCE
It is unlikely that the business will have generated large reserves of cash that will enable expansion to be paid for from internal sources.
STAFF
Do you have sufficient staff to undertake the extra work, or will you need to employ more people?
PREMISES
Do you have sufficient rooms for the new production facilities and increased stock levels of both materials and finished parts?
MARKETING
Can your current marketing arrangements cope with increased sales and the new product or service?
Having posed some questions regarding the availability of finance, staff, and premises, it is necessary to know where to look for sources of supply of these.
FINANCE
It is unlikely that the business will have generated large reserves of cash that will enable expansion to be paid for from internal sources.
STAFF
Do you have sufficient staff to undertake the extra work, or will you need to employ more people?
PREMISES
Do you have sufficient rooms for the new production facilities and increased stock levels of both materials and finished parts?
MARKETING
Can your current marketing arrangements cope with increased sales and the new product or service?
Having posed some questions regarding the availability of finance, staff, and premises, it is necessary to know where to look for sources of supply of these.
The "go-it-alone" option for growth
One option for growth that falls between internal and external growth is the go-it-alone option.
- The major benefit of this option is that the business retains full control with all profits (or losses) retained in-house, as are all designs, manufacturing and marketing knowledge.
- It presupposes the business is in good financial and operational "health": and that it can supply all of the necessary resources to launch and supply into the market.
- Although the title of the option suggests that all the work is carried out in-house, this will depend on the manufacturing strategy that is operating within the company.
- Even though most businesses would like to keep control of all the processes involved in manufacturing their products or the services they offer, economics and common sense decree that some processes are best performed by outside contractors. This is referred to as a "make or buy policy" and will determine where work is performed.
- The work of the contractors is controlled to advantage through agreements and contracts.
Internal Growth through Diversification into other related products or services
Many small businesses can grow by diversifying into other related products or services. For example, an office stationery supplier might decide to add a range of computer consumables to its portfolio. This could result in existing customers now buying these items as well.
Diversification can occur in different forms, such as:
Before deciding on diversification, take the following actions:
It would be damaging if the customer orders are plentiful but the supply of the product or service is intermittent.
In early stages, diversification will rate highly in your risk assessment program, and in order to mitigate some of the risk, it is advisable to try to secure customer orders or commitments in advance of stepping up production.
Diversification can occur in different forms, such as:
- Selling similar or related new products to exisitng customers.
- Selling existing products into new markets, even overseas.
- Selling new products to new markets.
Before deciding on diversification, take the following actions:
- Thoroughly research both markets and customers for the new product or service.
- Decide on a clear development strategy.
- Do a trial run with a limited output of prototypes to test the market before committing to the new product or service.
- Ensure that the internal departments and outside suppliers can maintain a steady throughput to provide continuity.
It would be damaging if the customer orders are plentiful but the supply of the product or service is intermittent.
In early stages, diversification will rate highly in your risk assessment program, and in order to mitigate some of the risk, it is advisable to try to secure customer orders or commitments in advance of stepping up production.
Business strategy for growth
Business strategy is ... "....the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals."
This necessitates a thorough evaluation of a business to get a clear picture of its strengths, weaknesses, opportunities and threats (SWOT). This will provide important insights into the type of growth strategy that best suits the business for the immediate and long-term future.
INTERNAL GROWTH
The first thing to establish is whether you can increase your share of the market. To do this, you would have to take customers from your competitors or attract new customers. You have to understand your customer base and that of your competitors.
CUSTOMERS
Who are your existing customers?
Are there any that you ahve not yet targeted?
Are there any that no longer do business with you? Why?
Do any of them buy from your competitors? Why?
Do they have instant, alternative choices?
COMPETITORS
What are their strengths? Can you match them?
Have you lost customers to them?
What do they do better than you do?
OURSELVES
What is our sustainable competitive advantage?
What do we do that is better than our competitors?
What is our unique selling point?
How will growth affect our pricing, marketing and service levels?
Before increasing output by increasing the capacity of your processes, you need to ensure that there will be a market for your proposed additional producsts. Many companies have increased output in the anticipation that the market will follow, only to find that there is a downturn or that a competitor has already improved performance.
This necessitates a thorough evaluation of a business to get a clear picture of its strengths, weaknesses, opportunities and threats (SWOT). This will provide important insights into the type of growth strategy that best suits the business for the immediate and long-term future.
INTERNAL GROWTH
- Are there ways in which you can improve the efficiency of the business?
- The use of a system of statistical process control will show if your processes are working correctly.
- Could the quality of the product or service be improved?
- Adopting a system of Total Quality Management (TQM) may effect a change to your end product.
- Are costs as competitive as they can be?
- If these checks are carried out successfully, then it is reasonable to expect that the business will grow by its organic growth. This will make the business more competitive.
The first thing to establish is whether you can increase your share of the market. To do this, you would have to take customers from your competitors or attract new customers. You have to understand your customer base and that of your competitors.
CUSTOMERS
Who are your existing customers?
Are there any that you ahve not yet targeted?
Are there any that no longer do business with you? Why?
Do any of them buy from your competitors? Why?
Do they have instant, alternative choices?
COMPETITORS
What are their strengths? Can you match them?
Have you lost customers to them?
What do they do better than you do?
OURSELVES
What is our sustainable competitive advantage?
What do we do that is better than our competitors?
What is our unique selling point?
How will growth affect our pricing, marketing and service levels?
Before increasing output by increasing the capacity of your processes, you need to ensure that there will be a market for your proposed additional producsts. Many companies have increased output in the anticipation that the market will follow, only to find that there is a downturn or that a competitor has already improved performance.
Assess your options for growth in business
After you have completed a full assessment of your business in its current state and you feel confident that you have all departments and areas working efficiently and under control, it is time to look to the future.
Growth options can be divided into two categories, internal and external.
1. Internal growth or growth that can be achieved within your own business will involve
- What is your vision for the future?
- Does your business plan offer a realistic guide as to your future direction?
- Do you just want to consolidate your current position or do you want to find ways to make the business grow?
- Can you afford to do nothing?
- While you do nothing, your competitors will be growing and taking your market share - this will seriously damage your business's future.
- To ensure that your business remains a success, it is time to identify your options for growth.
Growth options can be divided into two categories, internal and external.
1. Internal growth or growth that can be achieved within your own business will involve
- increasing market share or
- diversification.
- by merging with or acquiring another company or
- by forming a partnership or joint venture with another business.
Gathering Information to create the budget
Once you have identified your objectives, you need to turn to the important process of gathering key information to enable you to create the budget.
ESTIMATING SALES AND REVENUE
As sales of products and services are the lifeblood of most companies, you will inevitably start with a projection of sales and revenue. This can be a tricky process because it involves guessing the future, but there are certain actions you can take to make a forecast easier.
The next part of your budget should include all the costs of operation involved in producing and delivering the product or service to customers. These are factors that need to be considered:
SPECIFIC PRODUCT COSTS
ONGOING COSTS
START-UP COSTS
CHALLENGING THE FIGURES
At this stage, you may feel confident about stating some figures (more typically expenditure because these are easier to predict) and more nervous about sales and profit figures, mainly because these are subject to
The following approaches may be helpful in allowing you to challenge the figures that you have initially compiled.
ESTIMATING SALES AND REVENUE
As sales of products and services are the lifeblood of most companies, you will inevitably start with a projection of sales and revenue. This can be a tricky process because it involves guessing the future, but there are certain actions you can take to make a forecast easier.
- USE PAST SALES
- DISTINGUISH BETWEEN PRODUCTS
- LOOK AT THE COMPETITION
- ASK SUPPLIERS
- READ SECTOR REPORTS
- STUDY INNOVATIVE PRODUCTS
- MONITOR CASH FLOW
ESTIMATING EXPENDITURE
The next part of your budget should include all the costs of operation involved in producing and delivering the product or service to customers. These are factors that need to be considered:
- DEFINE EXPENDITURE TYPES: 4 main types:-
SPECIFIC PRODUCT COSTS
ONGOING COSTS
START-UP COSTS
- DEFINE EXPENDITURE TIMING
- ESTIMATE PROFITS/LOSS
CHALLENGING THE FIGURES
At this stage, you may feel confident about stating some figures (more typically expenditure because these are easier to predict) and more nervous about sales and profit figures, mainly because these are subject to
- a number of variables such as the action of competitors or
- changes in the economy that you have not foreseen.
The following approaches may be helpful in allowing you to challenge the figures that you have initially compiled.
- "WHAT-IF" SCENARIOS: by working on the assumption that the final result is not as favourable to the company as you had hoped. To avoid becoming too negative, you could include two sets of figures, underlying which you place your initial set of projected figures.
- ZERO-BASED BUDGETING: the process whereby a company decides what target it wants to achieve, how this can be achieved, and what resources it needs to implement the result; also known as bottom-down budgeting.
- ACTIVITY-BASED COSTING: costing by activities that define any actions that a company takes regularly as part of its day-to-day operations.
Creating a cash budget
Planning for a final (commonly called master) budget will be incomplete without a cash budget. This will show how money will be mvoed to and from the business account to make it possible to finance the company's activities.
BENEFITS
1. PLANNING TOOL
A cash budget shows the cash effect of all plans made in the budget. If the cash flow is negative, the company knows it either
2. WARNING SIGNAL
A cash budget may also give management a sign of the potential problems that could emerge and gives them time to take action to avoid such problems.
An example of a cash budget
http://spreadsheets.google.com/pub?key=thlpxQ9A0KkLx27yOw9nvBQ&output=html
BENEFITS
1. PLANNING TOOL
A cash budget shows the cash effect of all plans made in the budget. If the cash flow is negative, the company knows it either
- has to put more pressure on debtors or
- seek further sources of finance.
2. WARNING SIGNAL
A cash budget may also give management a sign of the potential problems that could emerge and gives them time to take action to avoid such problems.
An example of a cash budget
http://spreadsheets.google.com/pub?key=thlpxQ9A0KkLx27yOw9nvBQ&output=html
Start-up Budget Objectives
For start-ups, it may be useful to try to answer the following set of questions to help you make some reaonable assumptions about your business and its early days of operating and trading:
- How many products/services do you expect to sell in the first year?
- Can you predict a rate of sales growth for the next three years?
- How will you price your products/services?
- What will be the cost of producing your product/service?
- What will your operating expenses be?
- How many employees do you intend to hire and how much will you pay them?
- Have you established whether your business will be a proprietorship, a partnership, or a corporatin? The tax consequences of each form will vary considerably.
- Will you be leasing/renting/buying an office? What will the costs be?
- How much finance will you need to raise? What is the interest rate on funds that you are borrowing?
- Will you sell on credit? Have you established what payment terms you will get from suppliers and what you will offer customers?
Market strategy: Moving from recovery to expansion
The cyclical run in the market remains firmly intact throughout 1H2010 on three counts below:
The present rally is now coming to 10 months from lows seen in March 2009.
Cyclicals are expected to deliver the strongest earnings rebound as end-demand and margin recovery kick in to accentuate the growth trajectory off a low base in 2009 where earnings were diluted by writeoffs and pre-emptive loss provisions.
Overweight stance maintained on the Glove sector, with buys on both Top Glove and Kossan
Despite meteoric share price appreciation for glove manufacturer stocks, valuation remains undemanding given robust earnings performance. At current share prices, both Top Glove and Kossan are trading at PE of 11x and 10x FY10F earnings, well below its respective peaks of 30x and 18x.
Solid earnings growth as supplanted by
Key risks include
Benny Chew
AmResearch
Published in the Edge Jan 18, 2010
- Market performance historically strongest when GDP accelerates
- Earnings-driven re-rating cycle never been shorter than 12 months from trough.
- Risk to earnings on upside, as economic growth accelerates.
The present rally is now coming to 10 months from lows seen in March 2009.
Cyclicals are expected to deliver the strongest earnings rebound as end-demand and margin recovery kick in to accentuate the growth trajectory off a low base in 2009 where earnings were diluted by writeoffs and pre-emptive loss provisions.
Overweight stance maintained on the Glove sector, with buys on both Top Glove and Kossan
Despite meteoric share price appreciation for glove manufacturer stocks, valuation remains undemanding given robust earnings performance. At current share prices, both Top Glove and Kossan are trading at PE of 11x and 10x FY10F earnings, well below its respective peaks of 30x and 18x.
Solid earnings growth as supplanted by
- capacity expansion, and
- positive newsflow
Key risks include
- a sudden surge in latex price,
- energy input costs or
- an unfavourable ringgit/US$ foregin exchange rate movement.
Benny Chew
AmResearch
Published in the Edge Jan 18, 2010
Monitoring the budget
After a budget has been written and approved, the task of monitoring the budget begins. Inevitably, actual events will produce results that vary from the budget. These are recommended steps to monitor the results.
1. SET A TIME PERIOD
With an annual budget, you will have to wait a couple of months after the end of the yar. However, most budgets allow for quarterly, if not monthly, observations based on monthly projections.
2. REGISTER ACTUAL RESULTS
The first step is to write down the results achieved by the company and compare them with projections. Any discrepancies are typically called variances. When the variances are over 10 percent, it is worth looking into the reasons.
3. CATEGORISE VARIANCES
It is easier to assess the variances that concern you by categorizing them into price, volume and timing.
4. ANALYSE VARIANCES
With each variance, ask what could have led to the miscalculation. The causes are usuallly budget errors, the result of poor preparation, or changes that result from external factors such as economic change.
5. TAKE CAUTIOUS ACTION
Sometimes it's better not to take swift action. Blaming staff for not forecasting an event, when in reality they had a few ways of predicting a result, can damage morale. Be cautious. If you can make amends, look at the expense and find out if there are ways of reducing overhead.
6. REVIEW TARGETS
Some variances may be the result of overly optimistic revenue projections. Were the sales targets unattainable? Study performance of competitors and analyze whether targets were realistic.
7. REVIEW PROCESS
You should review the way the budget was put together. Were the objectives set by top management in a top-down fashion? Were middle and lower ranking directors encouraged to provide their opinions on the company goals?
1. SET A TIME PERIOD
With an annual budget, you will have to wait a couple of months after the end of the yar. However, most budgets allow for quarterly, if not monthly, observations based on monthly projections.
2. REGISTER ACTUAL RESULTS
The first step is to write down the results achieved by the company and compare them with projections. Any discrepancies are typically called variances. When the variances are over 10 percent, it is worth looking into the reasons.
3. CATEGORISE VARIANCES
It is easier to assess the variances that concern you by categorizing them into price, volume and timing.
4. ANALYSE VARIANCES
With each variance, ask what could have led to the miscalculation. The causes are usuallly budget errors, the result of poor preparation, or changes that result from external factors such as economic change.
5. TAKE CAUTIOUS ACTION
Sometimes it's better not to take swift action. Blaming staff for not forecasting an event, when in reality they had a few ways of predicting a result, can damage morale. Be cautious. If you can make amends, look at the expense and find out if there are ways of reducing overhead.
6. REVIEW TARGETS
Some variances may be the result of overly optimistic revenue projections. Were the sales targets unattainable? Study performance of competitors and analyze whether targets were realistic.
7. REVIEW PROCESS
You should review the way the budget was put together. Were the objectives set by top management in a top-down fashion? Were middle and lower ranking directors encouraged to provide their opinions on the company goals?
Defining budget objectives
Budget are made primarily to help meet objectives.
As a result, the type of budget you devise will vary considerably depending on the ultimate purpose of the plan. The following steps will help you define your objectives:
1. UNDERSTAND YOUR COMPANY
Identify your company's Strength, Weaknesses, Opportunities and Threats ( a particular technique known as SWOT) can help you amass valuable facts that will help you identify necessary action to take:
2. LISTEN TO COMPANY SECTIONS
If you are a small company, it will be easier for you to identify the core strengths, weaknesses, opportunities, and threats but in a larger company, these may vary significantly.
3. SUMMARIZE CORE AIMS
Summaries of the core objectives of the company and the different departments, or mission statements, could include
4. SET FINANCIAL TARGETS
Make sure you have taken into account the financial targets of every department, including
As a result, the type of budget you devise will vary considerably depending on the ultimate purpose of the plan. The following steps will help you define your objectives:
1. UNDERSTAND YOUR COMPANY
Identify your company's Strength, Weaknesses, Opportunities and Threats ( a particular technique known as SWOT) can help you amass valuable facts that will help you identify necessary action to take:
- STRENGTH: What advantages does your company have over rivals?
- WEAKNESSES: Where is the company underperforming and what are competitors doing better and why?
- OPPORTUNITIES: Where are the biggest chances for growth?
- THREATS: What are the biggest obstacles facing you: for example, competition, or shortage of investment capital?
2. LISTEN TO COMPANY SECTIONS
If you are a small company, it will be easier for you to identify the core strengths, weaknesses, opportunities, and threats but in a larger company, these may vary significantly.
- You need to gather information from different deparments to ensure their needs are met by the budget.
- For instance, marketing and advertising may be understaffed, and this could negatively affect overall sales, no matter how much time you've put into improving the core product.
3. SUMMARIZE CORE AIMS
Summaries of the core objectives of the company and the different departments, or mission statements, could include
- "We are trying to increase revenue."
- "We want to raise market share by xx."
- "We need to focus on cutting costs."
- "We need to research new product lines."
4. SET FINANCIAL TARGETS
Make sure you have taken into account the financial targets of every department, including
- marketing and advertising
- purchasing/inventory
- personnel
- administration
- finance department
- sales
- customer service
TIMING OF A BUDGET
TIMING OF A BUDGET
1. There are no fixed time periods a budget should cover. The longest range budgets can cover a period of between three and five years, although the most typical period is one year, to coincide with the company's financial year. This is called a fixed budget.
2. Even an annual budget is typically split into quarterly or monthly statements to make the process more manageable and easier to follow. A fixed bduget that is regularly updated to keep up with rapid changes in the company's particular sector is sometimes called a rolling budget.
3. Some businesses budget on a 1-4 week cycle, but these are most effective when they work within a longer time framework.
4. For a one-year cycle, it is best to set the next budget at least three months before the end of the current budget. For a shorter-term budget (one month, for instance), the process should have started at least by the third week of the current budget.
1. There are no fixed time periods a budget should cover. The longest range budgets can cover a period of between three and five years, although the most typical period is one year, to coincide with the company's financial year. This is called a fixed budget.
2. Even an annual budget is typically split into quarterly or monthly statements to make the process more manageable and easier to follow. A fixed bduget that is regularly updated to keep up with rapid changes in the company's particular sector is sometimes called a rolling budget.
3. Some businesses budget on a 1-4 week cycle, but these are most effective when they work within a longer time framework.
4. For a one-year cycle, it is best to set the next budget at least three months before the end of the current budget. For a shorter-term budget (one month, for instance), the process should have started at least by the third week of the current budget.
Sunday 17 January 2010
Why budget?
The key to successful financing of daily operations is to budget.
These are some of the key benefits of a well-planned budget:
1. ANTICIPATE PROBLEMS
The process of budgeting forces you to anticipate and prevent problems. It demands that you estimte how much capital you are going to need for your daily operations and how you will meet these financial obligations without facing a cash flow crisis.
2. PERSUADE BACKERS
With a budget that anticipates potential bottlenecks in your operations and delays in cash flows, you will be in a better position to make a case for a loan from your bank or investment fund.
3. MEASURE RESULTS
A budget or plan helps you keep score: effectively you are meeting your objectives because you have a concrete list of landmarks or targets against which you can measure results.
4. IDENTIFY PROBLEMS
Budgets try to create the most ideal scenario for your business to follow, but they can also throw up any potential challenges or obstacles that you might otherwise have ignored in your pursuit of preferred results.
5. IMPROVE DECISION MAKING
When you lay out a template of what the company can achieve and how much it will cost, you are in a better position to make some tricky decisions such as dropping a favourite project because the figures won't add up or to pursue a strategy that you had written off initially.
6. MOTIVATE STAFF
A budget helps staff to understand what direction the company is going and the parameters in which it is working. Workers can follow targets, such as sales figures or number of new customers recruited, and measure how well they are performing.
7. SAVE TIME
While many managers feel that the research and paperwork involved in preparing a budget can cause unnecessary delays to the core operations of the business, the opposite is in fact true. Lack of planning will inevitably lead to stalled projects while directors grapple with problems that could have been anticipated at an earlier stage.
8. CREATE STRATEGY
You may have a clear idea of what the business needs to achieve in the short term, but you may have overlooked how the company and the sector you are working in may change in 12 months' time. A budget can help develop a picture of the future and force you to implement relevant strategies to cope with any adverse conditions.
These are some of the key benefits of a well-planned budget:
- ANTICIPATE PROBLEMS
- PERSUADE BACKERS
- MEASURE RESULTS
- IDENTIFY PROBLEMS
- IMPROVE DECISION MAKING
- MOTIVATE STAFF
- SAVE TIME
- CREATE STRATEGY
1. ANTICIPATE PROBLEMS
The process of budgeting forces you to anticipate and prevent problems. It demands that you estimte how much capital you are going to need for your daily operations and how you will meet these financial obligations without facing a cash flow crisis.
2. PERSUADE BACKERS
With a budget that anticipates potential bottlenecks in your operations and delays in cash flows, you will be in a better position to make a case for a loan from your bank or investment fund.
3. MEASURE RESULTS
A budget or plan helps you keep score: effectively you are meeting your objectives because you have a concrete list of landmarks or targets against which you can measure results.
4. IDENTIFY PROBLEMS
Budgets try to create the most ideal scenario for your business to follow, but they can also throw up any potential challenges or obstacles that you might otherwise have ignored in your pursuit of preferred results.
5. IMPROVE DECISION MAKING
When you lay out a template of what the company can achieve and how much it will cost, you are in a better position to make some tricky decisions such as dropping a favourite project because the figures won't add up or to pursue a strategy that you had written off initially.
6. MOTIVATE STAFF
A budget helps staff to understand what direction the company is going and the parameters in which it is working. Workers can follow targets, such as sales figures or number of new customers recruited, and measure how well they are performing.
7. SAVE TIME
While many managers feel that the research and paperwork involved in preparing a budget can cause unnecessary delays to the core operations of the business, the opposite is in fact true. Lack of planning will inevitably lead to stalled projects while directors grapple with problems that could have been anticipated at an earlier stage.
8. CREATE STRATEGY
You may have a clear idea of what the business needs to achieve in the short term, but you may have overlooked how the company and the sector you are working in may change in 12 months' time. A budget can help develop a picture of the future and force you to implement relevant strategies to cope with any adverse conditions.
What is a budget?
A budget is a tool for converting plans into reality.
It covers the process of
A budget should include the following components to be effective:
It covers the process of
- defining objectives;
- forecasting expectations of sales, profits, and expenses of every sort;
- deciding what actions will best help the company achieve these targets;
- determining how much money will be needed to support these actions; and,
- finally, providing a way to monitor whether the actions chosen are the most appropriate at the current time, or whether they need to be modified in some way.,
A budget should include the following components to be effective:
- Clearly defined objectives, both short- and long-term.
- Estimates of revenue amounts.
- An analysis of revenue payments: how far do they lag behind payment of expenses?
- Estimates of expense amounts and timing of expense payments.
- A list of ongoing direct and indirect costs.
- A cash budget to predict cash flow over time.
- Procedures to monitor the progress of the budget.
Budgeting for Future Success
Why budget?
Budgeting forces companies to anticpate and prevent problems, create strategy, measure results, motivate staff, and save time.
What is it?
A budget covers the process of :
There are no fixed time periods a budget should cover. The longest range budgets can cover a period of between three and five years. A more typical period is one year, to coincide with the company's financial year.
How should a budget be created?
DEFINE OBJECTIVES by
GATHERING INFORMATION by
CREATE A CASH BUDGET. No final (or master) budget can be complete without a cash budget that will
How should a budget be monitored?
SET A TIME PERIOD. Although some companies operate on an annual budget, most allow for quarterly, if not monthly, observations.
REGISTER ACTUAL RESULTS. Write down the results achieved by the company and compare them with projections.
CATEGORIZE VARIANCES. Divide into price, volume, and timing.
ANALYZE VARIANCES. Ask yourself in each of the categories, what could have led to the miscalculation.
REVIEW PROCESS. Finally, review the way the budget was put together. It may be that the objectives were unrealistic or not defined specifically enough.
Budgeting forces companies to anticpate and prevent problems, create strategy, measure results, motivate staff, and save time.
What is it?
A budget covers the process of :
- defining objectives;
- forecasting expectations of sales, profits, and expenses of every sort;
- deciding what actions will best help the company achieve these targets;
- deciding how much money will be needed to support these actions; and
- finally, providing a way to monitor whether the actions chosen are appropriate or whether they need to be modified.
There are no fixed time periods a budget should cover. The longest range budgets can cover a period of between three and five years. A more typical period is one year, to coincide with the company's financial year.
How should a budget be created?
DEFINE OBJECTIVES by
- understanding your company,
- listening to company sections,
- summarizing core aims,
- setting financial targets, and
- defining strart-up objectives.
GATHERING INFORMATION by
- estimating sales and revenue,
- estimating expenditure,
- estimating profits/loss, and
- challenging the figures.
CREATE A CASH BUDGET. No final (or master) budget can be complete without a cash budget that will
- show how money will be moved to and from the business bank account.
How should a budget be monitored?
SET A TIME PERIOD. Although some companies operate on an annual budget, most allow for quarterly, if not monthly, observations.
REGISTER ACTUAL RESULTS. Write down the results achieved by the company and compare them with projections.
CATEGORIZE VARIANCES. Divide into price, volume, and timing.
ANALYZE VARIANCES. Ask yourself in each of the categories, what could have led to the miscalculation.
REVIEW PROCESS. Finally, review the way the budget was put together. It may be that the objectives were unrealistic or not defined specifically enough.
Saturday 16 January 2010
Facing threats from market forces
Consider a small-town five-and-dime store that saw its business start to erode when the first Wal-Mart moved to town 40 years ago. Think of the 75 year old family bookstore that started to see fewer customers when the first Barnes & Noble superstore opened at a nearby shopping center.
Even for multigenerational businesses, times change. Most importantly, the players change, too. All business owners must keep valuation in the back of their minds when they sense that a game-changing company has moved into their marketplace.
But competitors aren't the only market forces that change a company's fortunes. Look at what outsourcing and more modern technologies have done to established companies. If they haven't kept up, they have three choices:
Many business owners may not see the end coming, whereas the best valuation professionals do. Valuation is not all about that final dollar figure; it's about measuring a business's short- and long-term viability as well. A valuation expert with knowledge of your industry - or access to outsider experts who have that knowledge - is as much a central business advisor as your accountant or attorney.
Even for multigenerational businesses, times change. Most importantly, the players change, too. All business owners must keep valuation in the back of their minds when they sense that a game-changing company has moved into their marketplace.
But competitors aren't the only market forces that change a company's fortunes. Look at what outsourcing and more modern technologies have done to established companies. If they haven't kept up, they have three choices:
- modernise (often though for smaller companies to afford),
- put themselves up for sale (to a market that may not be ready to buy), or
- simply fade away.
Many business owners may not see the end coming, whereas the best valuation professionals do. Valuation is not all about that final dollar figure; it's about measuring a business's short- and long-term viability as well. A valuation expert with knowledge of your industry - or access to outsider experts who have that knowledge - is as much a central business advisor as your accountant or attorney.
Main principles of business valuation
The concept of value and some of the main principles of business valuation.
1. Value differs from price
"Price is what you pay. Value is what you get." Buffett once said.
But, only if you do your homework.
Getting to the right price in any deal involves understanding what business assets are truly worth and then structuring a deal around financing and tax realities.
2. Planning drives value
Creating value involves business planning and execution.
Creating value - long term growth in asset value in a company you've built - is something you need to focus on, because a company is the sum of real and tangible assets, investments, ideas and management talent.
If you can look at all those working parts of a business through the prism of value, the desire to determine and create value in a company can become a much more important driving force in its growth than simple profits and losses.
3. No two valuations are exactly alike
No two businesses are exactly alike; neither are the goals and circumstances of business owners.
Valuation isn't an exact science for another reason as well: "The risk inherent in any business situation is far from static. Depending on the economy and the state of the industry the business operates in, the company may be under tremendous prssure to stay afloat, or it may have great opportunities for growth. Any time the economy goes through a major convulsion, people take a fresh look at what value means and at the realities of any deal. In 2008, US was in the grip of a worldwide credit crisis - an economic slowdown that is redefining the values of a host of assets, from companies to private homes.
Proper business valuation takes a lot of practice. People with finance degrees and long experience in accounting or other numbers-related fields aren't always natural at valuation, either. You should learn the ins and outs of business valuation and know the areas in which you can handle valuation on your own - and those for which you should hire some help.
4. Valuation isn't a one-time deal
Most tax, business, and personal finance experts say that even if you're years away from retirement - or years away from your next business idea - keeping your valuation numbers current is a good idea. This way, you can make changes and investments in the business so you can leave the business with the highest valuation possible.
How often should you run valuation numbers? It varies based on need.
If you're working with a business or tax planner, discuss the creation of a valuation system for your business, whether it's something you access yourself or have an expert handle at regular intervals.
1. Value differs from price
"Price is what you pay. Value is what you get." Buffett once said.
But, only if you do your homework.
Getting to the right price in any deal involves understanding what business assets are truly worth and then structuring a deal around financing and tax realities.
2. Planning drives value
Creating value involves business planning and execution.
Creating value - long term growth in asset value in a company you've built - is something you need to focus on, because a company is the sum of real and tangible assets, investments, ideas and management talent.
If you can look at all those working parts of a business through the prism of value, the desire to determine and create value in a company can become a much more important driving force in its growth than simple profits and losses.
3. No two valuations are exactly alike
No two businesses are exactly alike; neither are the goals and circumstances of business owners.
Valuation isn't an exact science for another reason as well: "The risk inherent in any business situation is far from static. Depending on the economy and the state of the industry the business operates in, the company may be under tremendous prssure to stay afloat, or it may have great opportunities for growth. Any time the economy goes through a major convulsion, people take a fresh look at what value means and at the realities of any deal. In 2008, US was in the grip of a worldwide credit crisis - an economic slowdown that is redefining the values of a host of assets, from companies to private homes.
Proper business valuation takes a lot of practice. People with finance degrees and long experience in accounting or other numbers-related fields aren't always natural at valuation, either. You should learn the ins and outs of business valuation and know the areas in which you can handle valuation on your own - and those for which you should hire some help.
4. Valuation isn't a one-time deal
Most tax, business, and personal finance experts say that even if you're years away from retirement - or years away from your next business idea - keeping your valuation numbers current is a good idea. This way, you can make changes and investments in the business so you can leave the business with the highest valuation possible.
How often should you run valuation numbers? It varies based on need.
If you're working with a business or tax planner, discuss the creation of a valuation system for your business, whether it's something you access yourself or have an expert handle at regular intervals.
Everything has a value.
Everything has a value. Putting value in dollar terms is the cornerstone not only of running a business but also of investing in almost any form. Knowing how to arrive at a value for the physical and intrinsic characteristics of a business is essential to building wealth of all kinds.
People who invest in companies need to look beyond the current state of the business they own (or want to own) and consider what decisions they need to make to boost value. People who have experience in those industries are often best equipped to make those decisions, but it often helps to engage a business valuation expert for guidance.
People who invest in companies need to look beyond the current state of the business they own (or want to own) and consider what decisions they need to make to boost value. People who have experience in those industries are often best equipped to make those decisions, but it often helps to engage a business valuation expert for guidance.
Why Now's the Time to Get Defensive
Why Now's the Time to Get Defensive
By Todd Wenning
January 13, 2010
Do you hear that?
To steal a phrase from Simon and Garfunkel, it's the sound of silence in the market. And it's making me nervous.
Remember just 12 months ago, when the CBOE Volatility Index, the "VIX," was comfortably over 40, implying significant investor uncertainty? Those were indeed scary times, a few months after Lehman Brothers collapsed in September 2008, but as an investor I was actually more comfortable then than I am right now. There were a lot of great stocks on sale!
You haven't heard about the "VIX" for a while now because, guess what, it's back below 20 -- implying investor complacency. We haven't been this low since (gulp!) August 2008, before the Lehman Brothers debacle.
Scared yet?
Even though the stock market has charted a steady upward course since last March, I have a hard time believing that all is well enough in the global economy to justify complacency.
That's why now is the time to get defensive. That means:
Traditional defensive maneuvers would typically include increasing your bond exposure, though with yields so low and interest rates inching higher, I don't think this is a great place to put new money right now.
My best friends call me "Cash"
Thanks to the government's policy of low interest rates and quantitative easing, there's been (by design) little reason to hold a lot of cash. That's helped fuel both the bond and stock markets, as investors looking for even a tiny profit needed to put their cash to work somewhere.
Still, cash isn't trash and there's simply no substitute for quickly seizing opportunities in the market. If you're 100% invested and the market loses value, you need to sell something (at a lower price, of course) before you can buy anything else. That's a tough position to be in when stock values become much more attractive.
In our Motley Fool Pro portfolio, for instance, we took advantage of last year's market downturn by using our cash to pick up solid companies like Intel (Nasdaq: INTC) and Autodesk (Nasdaq: ADSK) at very attractive prices. Today, we've strategically left a large cash balance in the portfolio to grab future bargains the market may throw our way.
Yes, you have options
Market volatility plays a major role in the pricing of options (calls and puts). This is because investors perceive "risk" as volatility and when volatility is low there's simply less demand from options buyers (who have the right to buy and sell a stock) who seek to improve returns with big moves in stock prices.
All of this is to say that when options prices are low and the market's been rallying, consider protective puts on stocks and exchange-traded funds that have made you big money.
Let's say you bought 100 shares of SPDR Gold Trust (GLD) ETF in November 2008 for $75 -- a $7,500 investment. The ETF currently trades for about $113 -- a nice 50% gain for you. By purchasing a March $110 put for $2.75, you can lock in a sales price of $110 for your 100 shares through March 19, 2010, for $275 per contract.
One scenario: The ETF doesn't fall below $110 by March 19 and you're out $275 (4% of your original investment). But hey, you can still enjoy any upside left in the ETF. The other scenario: The ETF falls well below $110, but you can still sell for $110 (minus the $2.75 per-share cost) thanks to the protective put you bought.
Think of buying protective puts on your big winners as insurance against the chance of losing those gains in a market downturn. Even though you may grumble when you pay the premium for the put, just as with your auto insurance, you'll be glad you did if something bad happens. At the very least, it can give you some peace of mind in an uncertain market.
Make a list, check it twice
U.S. stocks have made a huge recovery from their March 2009 lows, and while I don't think they're anywhere near bubble territory, good values have become harder to find. That doesn't mean you should stop researching, though.
Here are five S&P 500 stocks with returns on equity over 15%, price-to-free cash flow ratios below 20, and manageable debt levels -- in other words, strong companies worth buying if the market does take a downturn.
Company
Price-to-FCF
Return on Equity
Total Debt to Equity
Coach (NYSE: COH)
15.9
38.7%
1.37%
Gilead Sciences (Nasdaq: GILD)
16.0
49.4%
24.40%
Cisco Systems (Nasdaq: CSCO)
18.0
15.2%
25.70%
Stryker (NYSE: SYK)
18.3
17.7%
0.30%
Automatic Data Processing (NYSE: ADP)
17.1
25.4%
0.70%
Data provided by Capital IQ, as of Jan. 12, 2010.
Great companies don't always make great investments -- they still need to be bought at the right price.
Cisco Systems, for instance, has doubled its net income over the past decade, but remains 50% off its January 2000 prices. That's because investors were paying too dearly for Cisco's prospects during the dot-com bubble and, even though Cisco is a much better company today than it was in 2000, its 10-year stock chart doesn't reflect this progress.
That's why it's so critical to buy great companies only at the right prices. Another market dip could give us that opportunity, so prepare yourself now with a good watch list.
Get started now
When the market grows complacent, you need to get defensive -- no matter where you think it's going. It's only a matter of time before something spooks the herd and volatility once again ensues. By having adequate cash on hand to buy solid stocks at good prices and using options strategies to protect your gains, you can set yourself up for better long-term investment success.
That's our aim at Motley Fool Pro, where we use stocks, ETFs, and options to help investors make money in all types of markets. If you'd like to learn more about Pro, simply enter your email address in the box below.
http://www.fool.com/investing/general/2010/01/13/why-nows-the-time-to-get-defensive.aspx
By Todd Wenning
January 13, 2010
Do you hear that?
Even though the stock market has charted a steady upward course since last March, I have a hard time believing that all is well enough in the global economy to justify complacency.
- Having cash available to invest.
- Considering options strategies to protect your gains.
- Building a watch list of stocks you'd want to buy at 10%-15% below current prices.
Traditional defensive maneuvers would typically include increasing your bond exposure, though with yields so low and interest rates inching higher, I don't think this is a great place to put new money right now.
Thanks to the government's policy of low interest rates and quantitative easing, there's been (by design) little reason to hold a lot of cash. That's helped fuel both the bond and stock markets, as investors looking for even a tiny profit needed to put their cash to work somewhere.
Market volatility plays a major role in the pricing of options (calls and puts). This is because investors perceive "risk" as volatility and when volatility is low there's simply less demand from options buyers (who have the right to buy and sell a stock) who seek to improve returns with big moves in stock prices.
U.S. stocks have made a huge recovery from their March 2009 lows, and while I don't think they're anywhere near bubble territory, good values have become harder to find. That doesn't mean you should stop researching, though.
Price-to-FCF
Return on Equity
Total Debt to Equity
15.9
38.7%
1.37%
16.0
49.4%
24.40%
18.0
15.2%
25.70%
18.3
17.7%
0.30%
17.1
25.4%
0.70%
When the market grows complacent, you need to get defensive -- no matter where you think it's going. It's only a matter of time before something spooks the herd and volatility once again ensues. By having adequate cash on hand to buy solid stocks at good prices and using options strategies to protect your gains, you can set yourself up for better long-term investment success.
Feud over family company is better avoided through careful planning
Saturday January 16, 2010
Feud over Syed Kechik’s millions goes to High Court
By NURBAITI HAMDAN
KUALA LUMPUR: The children of the late Tan Sri Syed Kechik Syed Mohamed Al-Bukhary have gone to court to fight over the RM400mil estate he left behind.
The High Court granted an injunction applied by his two daughters – Sharifah Zarah and Sharifah Munira – to prevent their half-brother Syed Gamal from interfering in Syed Kechik Holdings Sdn Bhd’s affairs yesterday.
Syed Gamal, 45, who is Syed Kechik’s only son from his first marriage, is not allowed to intervene in the administration, enter the premises and access the records and accounts of the company.
He is also barred from interfering in the duties of the company directors.
The sisters, who are directors of the company, were not present but were represented by laywer Datuk Vijay Kumar.
This is the second injunction granted by a court in the family saga that started after Syed Kechik’s death last year.
Syed Gamal had obtained an ex-parte injunction at the Syariah Court on Sept 14 to stop his 44% stake in the company from being sold or liquidated.
Justice K. Anantham, who presided over the High Court case in his chambers at the Jalan Duta court complex here, ruled that the Syariah Court had no jurisdiction over the company because it is a corporate entity.
Syed Gamal, who was with his cousin Syed Azman Syed Mansor Al-Bukhary, said his lawyers would appeal against the decision.
“I will continue with my struggle to pursue my rights according to Faraid law. My rights have been denied almost all my life. This is not a struggle for myself but also for my family,” he said when met outside the courtroom.
Syed Gamal was represented by his three lawyers – Atan Mustaffa Yussof Ahmad, Az-mi Tan Sri Dr Mohd Rais and Zulkifli B.C. Yong. Syed Kechik died at the age of 81 on April 10 last year.
His son-in-law is Al-Bukhary Foundation chairman Tan Sri Syed Mokhtar Al-Bukhary.
http://thestar.com.my/news/story.asp?file=/2010/1/16/nation/5483928&sec=nation
Feud over Syed Kechik’s millions goes to High Court
By NURBAITI HAMDAN
KUALA LUMPUR: The children of the late Tan Sri Syed Kechik Syed Mohamed Al-Bukhary have gone to court to fight over the RM400mil estate he left behind.
The High Court granted an injunction applied by his two daughters – Sharifah Zarah and Sharifah Munira – to prevent their half-brother Syed Gamal from interfering in Syed Kechik Holdings Sdn Bhd’s affairs yesterday.
Syed Gamal, 45, who is Syed Kechik’s only son from his first marriage, is not allowed to intervene in the administration, enter the premises and access the records and accounts of the company.
He is also barred from interfering in the duties of the company directors.
The sisters, who are directors of the company, were not present but were represented by laywer Datuk Vijay Kumar.
This is the second injunction granted by a court in the family saga that started after Syed Kechik’s death last year.
Syed Gamal had obtained an ex-parte injunction at the Syariah Court on Sept 14 to stop his 44% stake in the company from being sold or liquidated.
Justice K. Anantham, who presided over the High Court case in his chambers at the Jalan Duta court complex here, ruled that the Syariah Court had no jurisdiction over the company because it is a corporate entity.
Syed Gamal, who was with his cousin Syed Azman Syed Mansor Al-Bukhary, said his lawyers would appeal against the decision.
“I will continue with my struggle to pursue my rights according to Faraid law. My rights have been denied almost all my life. This is not a struggle for myself but also for my family,” he said when met outside the courtroom.
Syed Gamal was represented by his three lawyers – Atan Mustaffa Yussof Ahmad, Az-mi Tan Sri Dr Mohd Rais and Zulkifli B.C. Yong. Syed Kechik died at the age of 81 on April 10 last year.
His son-in-law is Al-Bukhary Foundation chairman Tan Sri Syed Mokhtar Al-Bukhary.
http://thestar.com.my/news/story.asp?file=/2010/1/16/nation/5483928&sec=nation
This Is What a Real Growth Opportunity Looks Like
This Is What a Real Growth Opportunity Looks Like
By Tim Hanson
January 15, 2010
If you wanted to add some growth to your portfolio, you might consider the Vanguard Growth Equity fund. After all, it's an "aggressive" fund that seeks "long-term capital appreciation." And yes, its top holdings do seem like they'd be good ways to get growth:
Stock
Weight Within Fund
Baxter International
3.2%
Cisco Systems (Nasdaq: CSCO)
3.1%
PepsiCo (NYSE: PEP)
2.6%
Walgreen
2.6%
Berkshire Hathaway
2.5%
Progressive
2.4%
Google (Nasdaq: GOOG)
2.4%
Johnson & Johnson (NYSE: JNJ)
2.3%
Oracle (Nasdaq: ORCL)
2.3%
Apple (Nasdaq: AAPL)
2.1%
Data from Vanguard.
(My Comment: Only good quality stocks)
But now let's take a look at just how much growth analysts actually expect from these companies:
Stock
Analyst 5-Year Growth Estimate
Baxter International
11.5%
Cisco Systems
11.25%
PepsiCo
10.75%
Walgreen
14.22%
Berkshire Hathaway
5%
Progressive
6.53%
Google
21.34%
Johnson & Johnson
7.54%
Oracle
12.19%
Apple
18.16%
Average
11.85%
Data from Yahoo! Finance.
Now, we all know that securities analysts are notoriously off in their projections, but let's assume that when we average together dozens of forecasts for these high-profile stocks, we at least end up in the ballpark. Assuming that, is 11.85% really the magnitude of growth you'd like to get out of your aggressive growth stocks?
If you're happy with 11.85%, then you can stop reading and stick with your high-profile "growth" stocks. But if you're looking for more, I recommend you read on.
Still with me?
The recipe for truly high growth has a handful of necessary ingredients. They are:
Let me introduce you to one that does
Now consider something like the pharmaceutical industry in India. Today, on average, Indians spend $10 per person per year on drugs. Americans, on the other spend, more than $750! That means the Indian pharmaceutical market needs to grow some 7,400% in order to be as big as the U.S. market is today.
This won't happen next year, or even over the next 10 years. Furthermore, because of discrepancies in purchasing power, the Indian pharmaceutical market may never reach the size the U.S. market is today. But let's assume it takes 25 years for the Indian market to reach half the size of the U.S. market. That would mean industry tailwinds of 15.6% annual growth ... for 25 years!
As for who benefits, think about a company like Dr. Reddy's Laboratories (NYSE: RDY). Although this Indian company is earning most of its revenue today in Europe and the United States selling low-cost generics, it's positioned extremely well to benefit from sales in the Indian market as it grows. It's a domestic company, so it knows the market well, and it specializes in marketing the low-cost drugs that are likely to sell best in India.
This, in other words, is what a real growth opportunity looks like. Dr. Reddy's is a small company with a wide market opportunity that stands to benefit from meaningful macroeconomic tailwinds.
Looking for more?
At Motley Fool Global Gains, we believe that real growth opportunities are available over and over again in the world's emerging markets, simply because these markets are creating so many meaningful economic tailwinds these days.
http://www.fool.com/investing/international/2010/01/15/this-is-what-a-real-growth-opportunity-looks-like.aspx
By Tim Hanson
January 15, 2010
If you wanted to add some growth to your portfolio, you might consider the Vanguard Growth Equity fund. After all, it's an "aggressive" fund that seeks "long-term capital appreciation." And yes, its top holdings do seem like they'd be good ways to get growth:
Stock
Weight Within Fund
Baxter International
3.2%
Cisco Systems (Nasdaq: CSCO)
3.1%
PepsiCo (NYSE: PEP)
2.6%
Walgreen
2.6%
Berkshire Hathaway
2.5%
Progressive
2.4%
Google (Nasdaq: GOOG)
2.4%
Johnson & Johnson (NYSE: JNJ)
2.3%
Oracle (Nasdaq: ORCL)
2.3%
Apple (Nasdaq: AAPL)
2.1%
Data from Vanguard.
(My Comment: Only good quality stocks)
But now let's take a look at just how much growth analysts actually expect from these companies:
Stock
Analyst 5-Year Growth Estimate
Baxter International
11.5%
Cisco Systems
11.25%
PepsiCo
10.75%
Walgreen
14.22%
Berkshire Hathaway
5%
Progressive
6.53%
21.34%
Johnson & Johnson
7.54%
Oracle
12.19%
Apple
18.16%
Average
11.85%
Data from Yahoo! Finance.
Now, we all know that securities analysts are notoriously off in their projections, but let's assume that when we average together dozens of forecasts for these high-profile stocks, we at least end up in the ballpark. Assuming that, is 11.85% really the magnitude of growth you'd like to get out of your aggressive growth stocks?
If you're happy with 11.85%, then you can stop reading and stick with your high-profile "growth" stocks. But if you're looking for more, I recommend you read on.
Still with me?
The recipe for truly high growth has a handful of necessary ingredients. They are:
- A small company
- A wide market opportunity
- Meaningful macroeconomic tailwinds.
Let me introduce you to one that does
Now consider something like the pharmaceutical industry in India. Today, on average, Indians spend $10 per person per year on drugs. Americans, on the other spend, more than $750! That means the Indian pharmaceutical market needs to grow some 7,400% in order to be as big as the U.S. market is today.
This won't happen next year, or even over the next 10 years. Furthermore, because of discrepancies in purchasing power, the Indian pharmaceutical market may never reach the size the U.S. market is today. But let's assume it takes 25 years for the Indian market to reach half the size of the U.S. market. That would mean industry tailwinds of 15.6% annual growth ... for 25 years!
As for who benefits, think about a company like Dr. Reddy's Laboratories (NYSE: RDY). Although this Indian company is earning most of its revenue today in Europe and the United States selling low-cost generics, it's positioned extremely well to benefit from sales in the Indian market as it grows. It's a domestic company, so it knows the market well, and it specializes in marketing the low-cost drugs that are likely to sell best in India.
This, in other words, is what a real growth opportunity looks like. Dr. Reddy's is a small company with a wide market opportunity that stands to benefit from meaningful macroeconomic tailwinds.
Looking for more?
At Motley Fool Global Gains, we believe that real growth opportunities are available over and over again in the world's emerging markets, simply because these markets are creating so many meaningful economic tailwinds these days.
http://www.fool.com/investing/international/2010/01/15/this-is-what-a-real-growth-opportunity-looks-like.aspx
Friday 15 January 2010
Setting your family meeting structure
Nothing is wrong with the living room for an annual family business meeting if you're talking about your immediate family, but consider these guidelines as your business evolves:
- Always have a formal agenda that all participating memebrs contribute to in advance. As in any business meeting, you should be prepared with facts and exhibits, if necessary. Distribute this agenda before the meeting so everyone can review it.
- Designate a facilitator for the meeting - in small groups, the responsibility can move around (it's good training for the kids), but as the group gets larger, you may want to work with a professional facilitator or someone who can manage the event without a stake in it.
- Appoint someone to act as the meeting secretary to keep a running history of discussion in these meetings.
- Make it a priority to increase the growth and value of the company, and devote at least part of the meeting to report on how that's going.
- Set ground rules about anger and conflict, in family businesses, emotions run high, and unchecked emotion in family meetings can derail other critical business.
- As more family memebrs join the business, consider neutral territory if doing so makes the crowd more comfortable and facilitates discussion.
- Always have a formal agenda that all participating memebrs contribute to in advance. As in any business meeting, you should be prepared with facts and exhibits, if necessary. Distribute this agenda before the meeting so everyone can review it.
- Designate a facilitator for the meeting - in small groups, the responsibility can move around (it's good training for the kids), but as the group gets larger, you may want to work with a professional facilitator or someone who can manage the event without a stake in it.
- Appoint someone to act as the meeting secretary to keep a running history of discussion in these meetings.
- Make it a priority to increase the growth and value of the company, and devote at least part of the meeting to report on how that's going.
- Set ground rules about anger and conflict, in family businesses, emotions run high, and unchecked emotion in family meetings can derail other critical business.
- As more family memebrs join the business, consider neutral territory if doing so makes the crowd more comfortable and facilitates discussion.
So your kids are in grammar school? Plan anyway
Considering how the transfer of assets will go in a family can never start early enough.
Your objective is to preserve the value of the business and personal assets you've created, no matter how old you and your kids are.
The uncertainty over the estate tax exemption (US) in the next few years means that the best idea is to discuss strategy now rather than later.
Most financial experts advise that you revise your estate plan every five years or as lifestyle issues change.
Remember, the estate and valuation issues with your business don't exist in a vacuum. To ensure that the value of your business will benefit your kids and future generations, you need to do some very prescient planning.
Your objective is to preserve the value of the business and personal assets you've created, no matter how old you and your kids are.
The uncertainty over the estate tax exemption (US) in the next few years means that the best idea is to discuss strategy now rather than later.
Most financial experts advise that you revise your estate plan every five years or as lifestyle issues change.
Remember, the estate and valuation issues with your business don't exist in a vacuum. To ensure that the value of your business will benefit your kids and future generations, you need to do some very prescient planning.
Succession conspiracy in family company
Does your business look like this?
Ivan Landsberg, a Yale University expert in family businesses, coined the term succession conspiracy - how business owners, their spouses, their family members, and non-family co-workers either consciously or unconsciously make damaging decisions that foil the effective succession of the busines to the next generation.
He described three general types of family business management structures back in the 1980s:
Controlling owner: A single owner is involved in every aspect of the business and makes critical decisions. Typically little or no planning occurs for this owner's departure.
Sibling partnership: Siblings may share leadership, or a lead sibling may be designated - or designated by default - to make most of the business's key decisions.
Cousin consortium: This structure is common among some of the biggest family fortunes in the world. When the business has been passed on to the children of prior sibling owners, eventually several branches of the family share ownership, and coalitions may be formed to create blocks of stock that represent more voting power.
Aligning with any of these ownership structures doesn't mean your family company is necessary sliding off the rails. But if you recognise yourself in any of these structures, ask yourself whether the following also applies:
Ivan Landsberg, a Yale University expert in family businesses, coined the term succession conspiracy - how business owners, their spouses, their family members, and non-family co-workers either consciously or unconsciously make damaging decisions that foil the effective succession of the busines to the next generation.
He described three general types of family business management structures back in the 1980s:
Controlling owner: A single owner is involved in every aspect of the business and makes critical decisions. Typically little or no planning occurs for this owner's departure.
Sibling partnership: Siblings may share leadership, or a lead sibling may be designated - or designated by default - to make most of the business's key decisions.
Cousin consortium: This structure is common among some of the biggest family fortunes in the world. When the business has been passed on to the children of prior sibling owners, eventually several branches of the family share ownership, and coalitions may be formed to create blocks of stock that represent more voting power.
Aligning with any of these ownership structures doesn't mean your family company is necessary sliding off the rails. But if you recognise yourself in any of these structures, ask yourself whether the following also applies:
- The owner has created a succession plan that not only sets benchmarks for who the next generation leadership will be but also comes with full buy-in from all family memebrs, young and old, with a stake in the business.
- The owner and top family officers have spoken with family members recently either separately or in a group about their feelings about the business and whether any conflicts or issues need to be worked out. Better yet, is there a formal meeting structure?
- The owner has helped craft - with experienced legal and tax professionals - a quality transition plan that allows her the money and freedom to work in the family business if she's asked or to comfortably start retirement or a new phase of her career.
Facts about family-owned companies
The following statistics were collected by the Boston-based Family Firm Institute:
The leadership of 39 % of family-owned businesses changed hands by the end of 2008.
34% of family firms expected the next CEO to be a woman; 52% of participants hired at least one female family member full time, and 10% employed two female family members of the same status.
Of CEOs age 61 or older and due to retire in 2008, 55% had not yet chosen thier replacement.
The leadership of 39 % of family-owned businesses changed hands by the end of 2008.
34% of family firms expected the next CEO to be a woman; 52% of participants hired at least one female family member full time, and 10% employed two female family members of the same status.
Of CEOs age 61 or older and due to retire in 2008, 55% had not yet chosen thier replacement.
Deciding What to do about the Family Company
Need to understand the followings:
Why parallel planning for the family and the business is crucial
Facts about family-owned companies
How families hurt their business's valuation without even knowing it
Ways to constructively manage family conflicts
Why parallel planning for the family and the business is crucial
Facts about family-owned companies
How families hurt their business's valuation without even knowing it
Ways to constructively manage family conflicts
Family friction and the need for valuation
When a founder dies
When a founder dies, families can go to war for reasons far more emotional than economical. Relationships forged in childhood don't always translate into effective working relationships in a shared business concern. At the same time, family members who have been longtime employees in a business may feel that they have a deeper stake in the business than cousins and siblings who have worked elsewhere.
Divorce
Likewise, divorce breaks up more than a few family businesses. Both partie in a divorce frequently do valuation if a family business is involved as a prime asset.
Family matters are critical drivers for valuation.
When a founder dies, families can go to war for reasons far more emotional than economical. Relationships forged in childhood don't always translate into effective working relationships in a shared business concern. At the same time, family members who have been longtime employees in a business may feel that they have a deeper stake in the business than cousins and siblings who have worked elsewhere.
Divorce
Likewise, divorce breaks up more than a few family businesses. Both partie in a divorce frequently do valuation if a family business is involved as a prime asset.
Family matters are critical drivers for valuation.
Activities boosting valuation
Numbers reveal behaviour. So what exactly is value building behaviour in a company? Here are some ideas:
- A strong management team with longevity.
- Hot products with plenty more in the pipeline - research and development spending that's paying off.
- Customers in a love affair with the company.
- A plant and equipment in top shape.
- Consistent upward trends in revenues and earnings - no big swings or extremes.
- Low employee turnover and high marks for its workplace.
- A wide variety of customers without anyone accounting for more than 5 percent of the company's sales or earnings.
- A history of an appropriate level of advertising.
e.g. Nestle Malaysia.
Acceptable debt
Is debt bad? This is a controversial topic!
Although a solid credit record is a good thing for people and businesses to have, it's best for businesses to think in terms of how they can fund their operations from money they make doing what they do.
How do you know when a company has too much debt?
Generally, if a company has solid cash flow and a return on investment (ROI) that's significantly greater than the percentage it is paying on borrowed funds, it's probably going to be okay.
A balance sheet loaded with debt will devalue your business over time. Therefore, if you find that you have to take on debt, treat it as a short-term expense to be extinguished quickly. (That's not a bad idea for your personal finances, too.)
Although a solid credit record is a good thing for people and businesses to have, it's best for businesses to think in terms of how they can fund their operations from money they make doing what they do.
How do you know when a company has too much debt?
Generally, if a company has solid cash flow and a return on investment (ROI) that's significantly greater than the percentage it is paying on borrowed funds, it's probably going to be okay.
A balance sheet loaded with debt will devalue your business over time. Therefore, if you find that you have to take on debt, treat it as a short-term expense to be extinguished quickly. (That's not a bad idea for your personal finances, too.)
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