Strategic Financial Management :
Strategic Financial Management Long-term financial planning & decision making through analysis of internal & external aspects of a business with wealth maximization as its objective. Elements of Financial Management: Capital Budgeting decisions Capital Structure decisions Dividend decisions Working capital management
Adjusted Book Value Approach:
Adjusted Book Value Approach Sometimes the assets stated on the company's balance sheet can be adjusted to reflected fair market value, i.e., either their replacement value or their salvage value. This method of valuation may be appropriate for asset-intensive businesses with little value from goodwill or other intangible factors. Businesses to be purchased by a competitor in the same industry. 3
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Use of adjusted book value: Book value represents the historical cost of a company's assets in excess of its liabilities. This is the accountant's preferred method for valuing a corporation, Familiar to the reader of annual reports and balance sheets. In computing adjusted book value, such intangible items as goodwill, patents and copyrights are often deducted from the net worth, Assets such as equipment, inventories, and real estate are adjusted to fair market value. This method is often considered appropriate for valuing real estate holding companies, investment companies and businesses that are anticipated to be liquidated . 4
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5 Limitations: Often a business will be worth more than the sum of its tangible assets or fixed liabilities. This method fails to account for intangible assets (reputation, quality, service) or contingent liabilities. It does not reflect discounts that may be appropriate if the valuation is of a minority interest. The value of a minority interest in a real estate partnership.
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THANK YOU 6