In many occasions, for takeover to be successful, a company must evaluate its financial sustainability during its time of the operation. Notably, there are cases where a company's market value can be of essence when they are about to make takeover decisions. In addition, the value of the enterprise is also inclusive when about to make the same financial decision. This implies that, the market value of assets or equity instruments during the time of evaluation should always be comparable with the value of the corporate (Chen et al. 2018). Therefore, the comparison of the two can help a company to discover its worth when about to make takeover investment decision.
For instance, the summary financial valuation done on the chosen corporate, the Microsoft can prove that it is at a position of engaging in a takeover deal. Microsoft potentiality comes about considering the amount of annual cash flow they experience. For instance, in the year 2016, Microsoft was able to experience a sales revenue growth of about 30 percent. According to (Schmidt, 2015), revenue growth will automatically put the company in a better position because of the sales revenue volumes and costs that may lead to better profitability. However, with the profits, the target company assets and shareholder equity would be affordable.
The current market value of Microsoft has helped in identifying the size of the business. In most cases, several businesses might think that higher share price determines the value of a company. Generally, it might not be the case as the worth of a company is necessarily established by its current market value (Lebedev et al., 2015). For instance, the market value of Microsoft was considerably high as compared to its own value..For Microsoft Company to take over another company with higher earning, it must ensure that it has a higher enterprise value. Thus at this state, the acquired companies stock would be easily bought and it would be part of their investment. In reference to the stated price of stock, only the range that exists would determine the value of the company. When they are combined, then capitalization value would be considered another determinant of strengthening the stability or the position of take over.
Apart from that, considering the abnormal growth on shareholders equity it is a better choice of investment when acquiring a target company. For instance, having an average shareholders' equity of $63.3 million in the beginning of the year is like an additional earning for the company. Therefore, in the case of a takeover decision, there would be enough capital for investment option in case they need to.
The value of the company when investing can be used to identify the most underrated companies. The company after identifying the position of the other companies then it would measure its position of acquiring the same company. However, since Microsoft has abnormal earnings from shareholders equity of around $ 69.3 million, can possibly be more appealing to the investors. In addition, the forecast period abnormal earnings were at $156.97 billion meaning, the company is capable of gathering a good share value for investors to ask for more.
However, the analysis done on the corporates value was more appealing than the current market value. Notably, this increased the prices the prices of the stock resulting to an exceptional performance in terms of its market value (Schmidt, 2015). A higher market value is considered as a better factor for taking up several investments. However, inclusive of the stock price when investing on a target company, there would be higher earnings which would lead to greater revenues. The company having a final share amount of $530.65 is considered a greater chance of increasing its value in the market.
Solid dividend for investors leads to a large current market value of a company. Furthermore, when a company has a large market value, it would be easier to calculate its value in general. And in many instances, it is preferable that the value of the corporate to be calculate to find its position on debt obligation (Chen et al., 2018). The company has a constant 10 percent growth of dividends. This means, it can easily attribute to its value when acquiring other companies for investment.
In 2017, Microsoft's target was to grow its investments from $912million to 956million. Considering that takeover was part of the investment plan, their total equity value had to increase. Their current total equity value was determined to be at $3.37 billion. The value would be of significance when investing in companies that can also recover the amounts easily (Lebedev et al., 2015). In comparison with corporate value, the equity values are more reliable in paying off debts and determining cash balances.
Finally, in comparison of the two, the value of the market and the value of the enterprise, it has been noted that Microsoft can easily purchase a target company. The factors that they would put into consideration include the current market share and the cost which enables investors put more efforts in adding up equity.
Chen, C. W., Collins, D. W., Kravet, T. D., & Mergenthaler, R. D. (2018). Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), 164-202.
Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651-662.
Schmidt, B. (2015). Costs and benefits of friendly boards during mergers and acquisitions. Journal of Financial Economics, 117(2), 424-447.
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