The Case of Janice Corporation UK Janice Corporation UK is a corporate company that manufactures technology, and the changes like introducing a new product line and redesigning the package will not directly appear on the company’s financial statement, but these changes can improve the company’s competitive advantages in the market. Therefore, the investors look into the company’s future cash flow and assume that will be higher going forward by calculating the fair value. Calculating the fair value, the company and investors estimate future growth rates, profit margins and other risk factors that can influence the company’s cash flow. This paper will address about the economic consequences, the advantages and disadvantages of fair value, and …show more content…
According to CSU-Global (2016), fair value is defined to be the price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, there are advantages and disadvantages of fair value, and the three-level hierarchies play the main role in fair value. According to Whittington and Pany (2014), level I is about inputs of observable quoted prices in active markets for identical assets or liabilities, level II is inputs of other observable quoted prices, general for similar assets or liabilities in active markets, and level III is inputs that are unobservable for the assets or liabilities. The hierarchy gives the highest priority or more advantage to quoted prices in active market, level I, and lowest priority or the least advantage to unobservable data, level III. Therefore, the company management must appropriately categorize fair value measurement within the hierarchy and record any disclosures relating to fair value in the notes of the financial statement. According to Shelly (2014), one major advantage of fair value is that it is a clear concept; when the value of an asset goes up the company makes an adjustment of the …show more content…
Janice Corporation use large number of assets and depending on the types of financial assets the fair value is required. However, if the market is not active for trading the asset, it will be difficult to determine the fair value for an asset. Especially, when market can be so erratic, the methods can be used to determine fair value. The fair value measures require applying market price and referring to prices of similar securities; if there is no alternative, the companies employ models to determine fair value (Nally, 2008). In addition, the recommendations for Janice is that they must identify or include all the assets in valuation, base their business valuation on realistic cash flow forecast and business risk assessment, and recasting historic financial reports for valuation (Valuadder, 2007). In unstable market, the fair value measurement provides guidance on estimating the fair value of an asset when the volume for the asset is decreased, assessing a debt security, and improving disclosures. Financial assets are subject of the accounting and vary in degrees. Fair value can be used ongoing basis, and the changes in fair value go through earnings but only for trading securities and derivatives. The company should report the changes in the fair value of available for sale securities in the
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
Earlier 2002, the stock price of Agnico-Eagle Mines sharply decreased by $1 finally closed at $13.89. This price has reached one of the lowest level, from the company's historical perspective. As a professional equity portfolio manager, who has a large number of AEM stocks on hand. Acker and his team are necessary to find a proper way to estimated the fair value of AEM as well as its equity. Discounted Cash Flow (DCF) has been chosen to do this job. The theory behind DCF valuation approach is that the firm's value can be estimated by using the expected future free cash flow discounted by an appropriate discounted rate (Koller etc 2005). However several assumptions need to be clearly examined within this approach. The following sections are showing the process of DCF step by step.
Valuation refers to the procedure of converting forecast into an estimation of company assets or equity value. The four available models have been used to for JB HI-FI are including the discounted dividends (DDM), discounted abnormal earnings (RIM), discounted abnormal operating earnings (ROIM) and discounted cash flow (DCF).
Numerous studies have suggested that there is a strong positive correlation between additional years of schooling undertaken and average wage returns (see Card 1999, 2001, Kane et al 1999, Kirby and Riley 2008, Silles 2007 and Park 1996). However, more recent UK research has focused upon returns related to the type of qualifications attained (Croucher et al, 2006). It has been found that most typically there are higher wage returns to academic qualifications than that of vocational qualifications whereas low level vocational qualifications bring little return - (see Dearden et al, 2002 and Sianesi, 2003). Suggesting then that low level vocational qualifications are in fact not worth pursuing and instead it is more beneficial to pursue an academic qualification.
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
A qualitative assessment is performed to determine whether it is more likely than not that the fair value of the reporting unit is impaired. If it is not, the fair value is compared to the carrying value in order to identify impairment. While they are several similarities between U.S. GAAP and IFRS regarding goodwill impairment there are major differences. As indicated in our class materials and discussions, both standards require the testing of goodwill and intangible assets with indefinite lives for impairment least annually, and more frequently if impairment indicators are present. However, U.S. GAAP has a two-step impairment test and any loss recognized is not permitted to exceed the carrying amount of goodwill while IFRS has a one-step impairment test and any impairment loss is recognized in operating results as the excess of the carrying amount over the recoverable
Obviously, this case aims to evaluate Joanna’s analysis. Throughout the analysis, we will estimate the cost of debt, cost of equity, and cost of capital through different financial analysis models.
In this chapter there were presented three basic discounted cash flow methods for firm valuation that are often used in practice and which explicitly or implicitly include the value of the tax shield of debt. It should be mentioned, as Bertoneche and Federici (2006) and Fernandez (2007a) prove, that the different valuation methods give the same result for total value of the firm as well as for the value of the tax shield of debt, as long as the valuation methods rely on the same hypotheses and do not implicitly include any additional assumptions. Indeed, Fernandez (2007a) notes: “This result is logical, as all the methods analyze the same reality under the same hypotheses; they differ only in the cash flows taken as a starting point for the valuation.”
Accounting profit can serve as an alternative to intrinsic value. But Buffett states that “...we do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress.” Accounting reality was conservative, backward looking, and governed by GAAP (measures in terms of net profit), therefore Buffett rejects this alternative. According to the world’s most famous investor, investment decisions should be based on economic reality, not on accounting
What legal defenses might Fred and Sally raise with regard to the checks written by Jane and Don? Why do you believe they will be successful or unsuccessful?
...ccurately reflects the intrinsic value of the company from the shareholders point of view and their expectations of future earnings.
Princess Anne Contracting, Inc. is a general contracting business that is located in Virginia Beach, Virginia. Princess Anne Contracting is a company with over 30 years experience in home repair and remodeling. Their services include roofing repairs / leaks, roof installation / new construction, skylights / skylight repair, siding / repairs / leaks, and home repair / renovation. Princess Anne Contracting is licensed and
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Second: The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties (IVS 2013).This price takes into consideration what is the right price of commodity without any hidden agendas in the price, as opposed to Investment Worth, Fair value is calculated as the price of the end product which is fair to both suppliers and buyer. Also opposed to market value, here the supplier or buyer might not be willing to buy or sell at this price but other factors such as government policies might force them to sell and buy at this price. This price is mostly set by government and other regulatory bodies to protect consumers from monopoly market, and protect suppliers from