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Articles by Nagasravan Tamma
Page 10 of 27
What are the contingent assets?
Contingent asset is that asset for a company, which has future economic benefit. This means that the asset may arise in future based on contingent events, which the company has no control over.Company discloses this type of asset, when an income flow is probable. Reasons for not recognizing this as an asset is its uncertain event and conservatism.Examples of contingent assets are as follows −Gain from lawsuit.Litigations.Legal disputes etc.Accounting treatment for contingent assets are governed by International accounting standard 37. These are not recognized, but disclosed, when it has inflow benefits. Asset is not considered as contingent, if the asset is ...
Read MoreExplain horizontal integration in strategic management
Horizontal integration is a process when a company acquires/merges/takes over another company, who are in the same product line or its competitor.Company will go for horizontal integration to increase its size and capacity, to reduce its risk and competition, increase its market share and to expand its geographical area.ReasonsThe reasons to opt for horizontal integration are as follows −Growth in industry.Due to lack of expertise.To manage operations effectively.AdvantagesThe advantages of horizontal integration are as follows −Increase in product features and market reach.Increase its global presence.Cost reduction.DisadvantagesThe disadvantages of horizontal integration are as follows −Legal restrictions (depends on country legal laws).No ...
Read MoreState the differences between copyright and patent
In simple words a patent is nothing but securing an invention and copyrights are nothing but securing original ideas. Both are governed by different rules and regulationsCopyrightsThe main objective of copyright is to secure the original idea or expression of idea of an artist. An artist's work can be a computer program, music, song, movie or any original work. Example − a book written by a cook.Others can't reproduce the same book or without permission of the book but however they can use the recipes used in it. To get copyrights, the artist first has to register with the respective ...
Read MoreDifferentiate between trademark and copyright
Copyright and trademark comes under intellectual property. Although both look the same, sometimes it creates confusion in the readers' mind. Let us give brief idea about copyright and trademark and difference between themCopyrightThe main objective of copyright is to protect the artist's original work. Work may be a photo, book, painting, software code; article etc. copyright gives the owner a right to reproduce their work or profit off their underlying work.The principle involved is pretty simple "if you create something new or original work, you have to choose what to do". To get the copyrights you have to register first ...
Read MoreExplain various types of intellectual properties
The term property means an individual or an organization owns it and it is protected by means of law. Intellectual properties are intangible assets of a business or a person. It can be a book, article in a magazine, a new design etc. which comes under intellectual properties.TypesThe types of intellectual properties are explained follows −PatentsA patent protects innovative ideas. It gives special rights to the respective owner/organization in making, selling and using the product or service period. A government authority or license conferring a right will be issued. An individual or an organization will approach the patent authority, submit ...
Read MoreExplain intellectual property valuation in mergers and acquisition
Intellectual property is a type of intangible asset owned by a company and it is legally protected from outside use without company consent.In other words, intellectual property is an asset, which has the same protective rights just like a physical asset. It includes patents, copyrights, trademarks, trade secrets etc.Intellectual property valuation matters due to the followingTime and amount spent for intellectual property registration.It involves legal costs and other costs.Amount spent for advertising brands etc.Areas that require intellectual property valuation are as follows −Licensing.Transfer pricing.Purchase/sale of assets.Financial reporting.Corporate financing.Litigations.Methods of intellectual property valuation are as follows −Factors to be considered for ...
Read MoreExplain market approach (relative value) in mergers and acquisitions
In market approach, valuation of business (intangible assets, ownership interest, etc.) are determined based on market price of similar assets/business that are sold in recent times/available in market.Sales, book value and P/E (price to earnings) are used as price indicators. After comparing with similar assets/business adjustments to qualities, quantities and size will be made.MethodsThe methods in market approach are as follows −Public company comparableThis method uses valuation metrics of publicly traded companies. Direct comparability is hard to attain in major situations. Selecting, adjusting and applying are complex processes, and need highly skilled, and experienced people to handle it. Guideline companies ...
Read MoreExplain cost approach in mergers and acquisition
Cost approach has natural appeal. If merger/acquisition of two or more companies takes place then, new company value is the difference between asset and liabilities of its combined value.This analysis has similarities to the balance sheet. In this, the cost basis balance sheet is converted to required value. This approach in breakdown of components of value, facilitate structure deal and post-sale purchase price.Specialists identify all assets and liabilities including those which are not included in the balance sheet. After identification, they assign value for each, based on fair value.Contingent liabilities, pending litigations etc. are not included in the balance sheet.Another ...
Read MoreExplain various valuation methods in mergers and acquisitions
Generally, there are two ways for a valuation of a company namely, liquidation value and going concern way. Companies prefer going concern way of valuation. If a company wants to eliminate a targeted company or wants to remove it from the market, the company goes for valuation.Some of the methods of valuations are as follows −Price − Earnings Ratio (P/E Ratio)It compares a company's current share price to earnings per share. Investors prefer high P/E Ratio, because of high earnings.P/E Ratio tells about investors willing to pay per dollar of earnings. It can be easily manipulated.P/E ratio is useful in ...
Read MoreHow are synergies calculated in the merger model?
Consider the following table −Company 1Company 2Revenue ($)1000000500000Cost of goods sold ($)750000270000EBIR ($)250000125000Growth Rate (Expected)5%9%Cost of capital11%14%Assume the following −Cost of goods sold is reduced from 75% to 60% of revenues.Tax rate = 32%.Weighted average cost of capital = 14%.Weighted average growth rate = 6%.SolutionThe solution is as follows −Before mergerCompany 1Cash flows = (1000000 – 750000) * 0.68 >= $170000Value of firm = $ 170000 * 1.05/ (0.11-0.05)= 178500/0.06 => $ 2975000Company 2Cash flows = (500000 – 270000) * 0.6 => $156400Value of firm = $ 156400 * 1.09/ (0.14-0.09)= 170476/0.05 => $ 3409520Combined (company 1 + company 2)Combined value = $ 297500 + $3409520= $ 3707020After mergerRevenue = $1000000 + $500000 => $1500000After merger cost of goods sold revenue reduced to 60% => $1500000 * 0.60 => $900000EBIT => $1500000 − $900000 => $600000Post tax => $600000 * 0.68 => $408000Value of firm = 408000 * 1.06/ (0.14-0.06) => 432480/0.08 => 5406000Value after post-merger = $ 5406000 - $3707020 = $1698980 (increased)
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