VCFS-4DC: VALUATION AND CORPORATE FINANCIAL STRATEGY FOR DIVERSIFIED COMPANIES

George A. Haloulakos, CFA, is a university instructor, author and entrepreneur [DBA Spartan Research and Consulting]. His published works utilize aviation as a teaching tool for Finance, Game Theory, History and Strategy.

Abstract

Value is the key performance measure in a market economy because it encompasses the long-term interests of all stakeholders in a company. In highly competitive global businesses – especially with diversified companies — it is essential for a firm to be effective in all three phases of managing cash flow — operations, investing and financing – to generate cash at a return exceeding its cost of capital. The concept of stakeholder management has broadened the responsibility of management to include financial stakeholders (i.e., equity owners and creditors) and non-financial stakeholders such as customers, employees and suppliers. This task is magnified for diversified companies whose corporate structure is based on a mix of different types of product or business groups having a variety of financial requirements. Corporate financial strategy for diversified companies based on a portfolio management style may benefit from a stakeholder approach in order to cope with a myriad of challenges including, but not limited to, achieving economy of scale, diversification and growth in difficult or less predictable environments. Two different eras – the “stagflation” period from the mid-1970s to the very early 1980s and the “globalization” decade of the 2000s – provided extremely competitive market conditions where diversified companies achieved mixed results with divergent stock price performance. The case studies reviewed here offer a study in contrast in how the stock market values diversified firms with different corporate financial strategies.

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The other elephant in the room (and every room in the whole world)

Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com, Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation, Adjunct Professor(ret.), Ross School of Business, University of Michigan.

Gather a roomful of people with vague ideas that our millions of displaced workers can return to jobs remotely resembling what they used to do—“Let’s get America moving forward again”—and technology will be an elephant in that room. I didn’t even mention globalization, which might be an even larger elephant. Domestic competition and new technology alone would drastically alter our future society even if Americans were the only residents of the planet began Earth. But globalization alone also is a sufficient force to set our old economy and workforce paradigm on its head. With Mumbai or Tokyo or Stuttgart or Singapore virtually as nearby as an industrial park here in the U.S., nothing will ever be the same again. Elephants are the world’s most powerful work animals, and we have a pair in tandem pulling us into the 21st Century. Unlike a tractor, they can’t back up. And the sum of these two elephants, technology and globalization, is greater than their parts. Globalization is the one most commonly thought to be reversible, at least in part. The only way to beat it is to join it, and be competitive.

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Why progress always ‘puts people out of work’

Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com, Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation, Adjunct Professor(ret.), Ross School of Business, University of Michigan.


Let’s refine our definition of “the employment problem” by understanding that the biggest, most labor-intensive companies—the kind that absorbed all those farm laborers and created the 20th-Century middle-class—were inevitably destined to become not “centers of employment,” but centers of unemployment.

Here we begin by recounting my Grand Rapids speech and go on to explain the Vector One and Vector Two phenomenon, the entire phenomenon of ever-more-efficient companies and organizations (or entire sectors, like our friends the farmers) becoming smaller and smaller in terms of employment. Meanwhile, new technologies and new products and new market forces breed “job creation” elsewhere in the economy. A company or even an entire sector must do things better and more efficiently, or die. They eventually will die anyway unless they reinvent themselves as producers of new goods and services rather than inevitably obsolete goods and services.

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