Chapter 9 A Stakeholder Perspective Performance Perception A Stakeholder Perspective amp Corporate Performance Satisfaction is variable Longterm Investors Shortterm Investors Shortterm Creditors ID: 748058
Download Presentation The PPT/PDF document "Welcome to Class 20 Thoughts for Today, ..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Welcome to Lecture 20
Thoughts for Today, Tomorrow, and The Future
Chapter 9
A Stakeholder Perspective
&
Assessing “Value” PerformanceSlide2
Long-term StockholdersShort-term Stockholders (e.g. Day traders)
Long-term CreditorsShort-term CreditorsTop Management Teams (TMTs)Employee UnionsTake-over Firms
Stakeholder groups include:
All stakeholders do not assess performance in the same way.
They may have diverse performance benchmarks and different methods to measure value.Slide3
Accounting
Method
Adjusted
“Accounting”
Method
Market
Method
Value Measurement Methods
Value MeasurementSlide4
Accounting Method
Net Worth
RevenuesProfits (Gross & Net)
Asset Utilization & Operating Leverage
Debt Management & Financial Leverage
Equity Returns
Cash Flows
Liquidity
Assessment based on unadjusted accounting data
Problem:
Values are frequently exaggerated or substantially understated due to variations in depreciation, depletion, and/or amortization rates; unexpected rates of credit defaults by customers, inflated value assigned to goodwill or other intangible assets.Categories used to measure Value Performance:Slide5
Adjusted “
Accounting” Method
Goodwill is removed from balance sheet valuesOther nonmarketable intangibles are removedAssets are reappraised and revaluedContingency debts reassessed & may be added to debt
Assessment based on “
adjusted
” accountings data
Problem:
Recalculated Values are based on the estimator's assessment which can be significantly incorrect.
Categories used to measure value performance are “adjusted”Slide6
Market Method
Company’s value linked to stock price…Market Capitalization
Price/Earnings ratios (TPE
,
FPE
, PEG,
PEGY
)
Beta
Other matrix tied to stock market price
Assessment based on Market valuesProblem: 1. Assessment measures are linked to stock prices.2. Stock price shifts are often emotional knee-jerk reactions to economic news. 3. Former Federal Reserve Chairman, Alan Greenspan termed this as irrational behavior. (see your text for more specific details) Categories used to measure value performance:Slide7
Market Method
Risk
of illusionary values increasing?
1. If the
market value
of a stock increases (stock price)
2. While the book value of the firm stays constant,
3. The physical collateral supporting the stock price get smaller
4. The risk to the investment may be increasing.
Market Value
Book Value
CollateralInvestment RiskSlide8
Market Method
Book Value to Market Value Ratios for corporations are decreasing steadily
Does this represent illusionary value of UNQUANTIFIABLE? Can "
value illusion
” exaggerate stock prices?
Can this injure unaware investors?
Think about it and
YOU
be the judge.
Risk of illusionary values Let the investor beware.Slide9
Caution!!
All Stakeholders should remember:
1. When using the
Market Method
to determine performance
Investors can be fickle
Investors can be prone to knee-jerk reactions
Bad news or Good news can = dramatic and rapid swings in market value2. When using the Accounting to determine performance
Historical values can be incorrect 3. When using the Adjusted Accounting method to determine performance Rate of write downs are estimates and not necessarily accurate See pages 248 – 251 in your textbook. It explains the performance points of interest to each stakeholder group. Slide10
Summary
1
) A firm’s level of performance is largely a matter of perspective
2) Perspectives differ among the 7 Stakeholder groups
3) Three primary
methods are
Accounting
,
Adjusted Accounting
& Market.4) Each of the three methods has both benefits and drawbacks5) The Market Method has become increasingly popular6) The Market Method has many benefits but also some significant dangers for misuse and abuse.Slide11
End of Lecture 20
..
Stakeholder
Perspective
&
Assessing “Value” Performance