- Trending Categories
Data Structure
Networking
RDBMS
Operating System
Java
iOS
HTML
CSS
Android
Python
C Programming
C++
C#
MongoDB
MySQL
Javascript
PHP
Physics
Chemistry
Biology
Mathematics
English
Economics
Psychology
Social Studies
Fashion Studies
Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
What is the concept of Divestiture?
Divestiture is described as “a part or total disposal of an asset or a business entity through a sale, exchange, closure or a bankruptcy”. The management thinks of disposal of a unit or business entity because contribution of that unit or business entity is minimal or nothing.
Reasons
The reasons for divestiture are as follows −
- Heavy loss in units.
- Negative cash flows over a period of time.
- Unable to compete in the market.
- No technology up gradation.
- Difficult to integrate.
- Alternative for good investment.
- Legal problems.
- Less or minimum market share.
Types
The types of divestiture are as follows −
Spin offs − Subsidiary company is created.
Splits − Parent company is split into two or more subsidiaries.
Equity carve outs − Some percentage shares of subsidiary companies are issued to the public.
Disinvestment − Company liquidates its stocks.
Advantages
The advantages of divestiture are as follows −
Cash generation from non core investments.
Business expansion.
Improves Return of equity.
Shareholders get higher returns.
Disadvantages
The disadvantages of divestiture are as follows −
Future growth opportunity is eliminated.
Fluctuations of cash flows.
Reorganizations of other units.
Not for long term cash needs.
Unit can be revived.
- Related Articles
- What is split in divestiture?
- What is the concept of hedging?
- What is the concept of thread?
- What is the concept of Rolling Settlement?
- What is the concept of Monolithic kernel?
- What are the differences between spin off and divestiture?
- What is the concept of interest rate swaps?
- What is the concept of datagram packet switching?
- What is the concept of system call mechanism?
- What is the concept of Data Types in JavaScript?
- What is the concept of currency swaps (FX swaps)?
- What is the Concept of B2B and B2C Marketing?
- What is Net Concept of Working Capital?
- What is a Concept Hierarchies?
- What is the concept of 72 hoors mentioned in Quran?
