Archive for the 'Finance' Category
Valuation of companies - A communications perspective
Valuation - “The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.”
Communication - “Communication is a process that allows organisms to exchange information by several methods. Communication requires that all parties understand a common language that is exchanged.”
I have been back at University last week for a course on company valuation. It really served to demystify the valuation process, which is something I think anyone working within a communications role should make the time and effort to understand. There often isn’t a common language across Comms and Finance, an area where there really should be.
While a great deal of the valuation process involves complex formula and mathematics which might make you want to run for the hills, I found out from this course there is a lot more to valuation that meets the eye and it is a lot more exciting than a few mathematical equations.
A valuation model is only as strong as its assumptions and fundamental to any valuation exercise is an understanding of a company’s business, strategy, competitive advantages and drivers that affect its cash flows. The more people involved with these insights and expertise, the deeper the scope and depth of the valuation.
For those focusing on a career within communications, I believe there is a lot to be gained from being able to read a valuation report from front to back and not being blinded by any terminology, acronyms, art or science. If you understand how your company (assets, operations, competitive advantages, opportunities) are valued then you will know what it is important to communicate to the market and in what way. We communicate externally to communicate the value of the business.
This way you also have a strong enough understanding to be able to ask critical questions and challenge the model and the assumptions that lie behind the formula. This is not a negative thing but a key iterative process to get to an optimal end point.
During the course we looked at such things as principles of valuation, different valuation methods, relationships between different methods, how to derive the cost of capital and how to apply appropriate discounts in arriving at a final valuation.
I have written before about self teaching and how in this information/online age all the content we need to upskill is at our fingertips. In this instance, with completely new and foreign content I found it was great to have the solid focus of a classroom setting under the instruction of an expert, so if you get the opportunity to do it this way take it.
Alternatively, I just came across a good series of articles on the Motley Fool Website. I quite liked this quote in the intro,
“Supposedly, only sell-side brokerage analysts have the requisite experience and intestinal fortitude to go out into the churning, swirling market and predict future prices. Valuation, however, is no abstruse science that can only be practiced by MBAs and CFAs. Requiring only basic math skills and diligence, any Fool can determine values with the best of them.”
Introduction to valuation (Motley Fool)
This white paper opens with a quote contradicting the Motley Fool idea above, “What is the business worth?” Although a simple question, determining the value of any business in today’s economy requires a sophisticated understanding of financial analysis as well as sound judgment from market and industry experience.” Which do you agree with?
Read Valuation Methodologies (Wall St Training) (in context of M&A)
I think I will be talking about valuation of companies and interrelationships with communications (both online and offline) a lot more here in the future. I am still getting my head around all the concepts and where the pieces fit but it is a very fascinating area and one I want to learn much more about.
BusinessWeek on how Social Media will change your business and….
Some other Social Media developments applicable to a business setting.
The verdicts: Time to invest in both in web technologies and web people. Read more Here
Jim Balsillie believes that 2009 will be the year of the enterprise adopting social networks.. This is best communicated in the words of Andrew McAfee of Harvard Business School who said… (In this presentation)
“We need to keep in mind that most E2.0 tools are new, and that their acceptance depends on shifts in perspective on the part of business leaders and decision makers, shifts for which the word ‘seismic’ might not be an overstatement. Enterprise 2.0 tools have no inherent respect for organizational boundaries, hierarchies, or job titles. They facilitate self-organization and emergent rather than imposed structure. They require line managers, compliance officers, and other stewards to trust that users will not deliberately or inadvertently use them inappropriately. They require these stewards to become comfortable with collaboration environments that “practice the philosophy of making it easy to correct mistakes, rather than making it difficult to make them” as Jimmy Wales has said. They require, in short, the re-examination and often the reversal of many longstanding assumptions and practices. It is not in the least disrespectful or contemptuous of today’s managers to say that it will take them some time to get used to this.”
A Forrester survey recently showed that larger enterprises are “almost twice as likely to pilot or deploy Web 2.0 technologies in 2008 compared to the small and medium flavors.” Which makes sense, but adoption will be impossible to avoid, and why not when in a marketing sense is free monetary investment wise, although time and attention investment is key.
I found this interesting, a description of an emerging role titled “Community Manager”, the role involves managing a firms social networks.
As a Community Manager, my main task is to make sure people are happy—this includes my client as well as my community members. Each day we’re actively in our communities, reading posts, replying to messages, and noticing trends.
“Among the most important aspect of this role is doing just that—noticing trends or patterns. That’s how we make this work. By listening to what customers have to say and streamlining this information into a series of more digestible community “sound bites” we’re able to bridge the gap between what the customer wants and is talking about, and, what the client wants and is also talking about.” Read more here
Global Innovation Index launched by S&P and BusinessWeek
Today the S&P/BusinessWeek have launched a Global Innovation Index to let investors track the performance and participate in the growth of “leading edge, innovative public companies.”
The 25 companies within the index are the winners of the BusinessWeek/Boston Consulting Group Most Innovative Companies Rankings
Methodology
-Based on a senior management survey about innovation and was distributed electronically to executives.
-The survey consisted of 20 general questions on innovation and an optional 12 questions focused on innovation metrics.
-Stock returns, revenue growth, margin growth and patent citation index was looked at in the selection process.
-The patent citation index reflects how often the company’s patents filed over the past five years have been cited as a basis for other innovation. The number is calculated by adding, for all patents filed between 2001 and 2005, the number of times each patent or application has been cited or mentioned by other patents up until December 31, 2006.
The Innovation Index’s rise or fall is calculated at the end of each trading day, and the results are posted online the next morning.
“Innovation is proving to be the key defining factor for the world’s most successful corporations, and the Global Innovation Index is a new measure of that success.”
See Here:
BusinessWeek - Slideshow: 50 Most Innovative Companies
On another index note, Project for excellence in journalism run a great news index:
“Over time, the PEJ news coverage index will tell us how stories ebbed and flowed, how the character or narrative focus of the story changed, and, stepping back one level further, what broad topic categories get more coverage than others (does global warming get more coverage than land use).”
See PEJ news index for week Jan 28 - Feb 3 Here
Read full methodology here
Dealipedia - “Lets build the best business wiki ever”
Launched on 5 Feb 2008, is a new business wiki, Dealipedia. Dealipedia is aiming to streamline and organise all the information that is released about global business deals. If focuses on providing succinct content, company names, transaction details and $ amounts without the noise of company press releases.
Founder Michael Robertson said, “I’d like to share my motivation for doing Dealipedia. I like to keep up to date on the latest business dealings, but it’s a challenge because I continually have to scan a wide range of print and online sources. I’ve always thought there should be one place I can go to get information on significant business transactions. I’m not referring to company background information or commentary, but the actual deals themselves.”
No commentsWIreD - And not my 3 Espressos
A bit of well rounded news for the early morning:
Some Science - Skin Cell to Stem Cell Hack is like turning ‘lead into gold’
This is huge..
Google News Check - 737 Articles (most in last hour)
Some Tech - Futurists pick Top Tech Trends
And From the Markets - The New Market Bubble Theory
The Missing Post!
I really must have been busy of late - How could I have forgotten to mention this, although I am sure noone missed it
News Watch - 3,171 News Articles on this topic!
Drumroll…
News Corporation (NWS) Stock Watch
NWS versus DJ Charts in the last 6 months and last 12 months and last 5 years and Long Term
Economics of Attention, ReadWriteWeb, The Big G and the Big FB
I was doing some surfing on economics of attention and came across a great site/blog. Read/WriteWeb, then had a pleasant surprise to learn the editor of this site, with contributors from all over the world including Silicon Valley experts, is from Wellington, NZ.
I recall reading about this guy in the Herald earlier in the year. Yes - Something else that is nice, to earn enough $$ to pay your mortgage from blog advertising before you get out of bed.
An excerpt from ReadWriteWeb on the economics of attention:
“The news that used to last a day now lasts just a few hours, simply because we need to pay attention to the new news. So it is becoming increasingly difficult to juggle all the news sources and keep on top of things. Which brings us to the law of information, stated first by Herbert Simon: the rapid growth of information causes scarcity of attention.” Read more - The Attention Economy: An Overview
Still on attention, Google and Facebook dominating in 2007. Read the HY 2007 Web Technology Report on RWW here
Will this FaceBook growth continue, the next big tech IPO?
Read “Facebook opens it pages as a way to fuel growth” - Wall St Journal
No commentsGoogle vs Yahoo Finance - FXJ & MMG
Google Finance - Fairfax (ASX) and now Yahoo Finance
Google Finance - Macquarie Media Group
I think I prefer the Google Portfolo watch capabilities. I think I will set up a portfolio to watch the global media stocks, there is some pretty awesome charting functionality.
Media Stock Directory - The Rogue Investor
Watch the industry - Hollywood Reporter - Showbiz 50 Index
Read solid first half for media stocks here - Hollywood Reporter
Read Media stocks disappoint - Mergers fail to lift media stocks here - CNN Money
Shaping Events - Social Mood and Market Behavior
Which came first, the chicken or the egg? Can’t answer that classic conundrum? Then, how about this: Which comes first, the news event or the social psychology? - Interview with Bob Prechter (Classic excerpts and how they apply today) - from the Elliot Wave International.
What is the Elliot Wave Theory - Late 1920’s?
Over the years, you’ve extended your stock market studies to the economy, popular culture and social trends. On Wall Street, it is common for observers to consider the market’s performance to be a by-product of politics in Washington or the latest global crisis, with such phenomena cited as causal explanations for market behavior. According to you, the correct temporal relationship is the other way around. The market precedes social change, because the market is a “coincident register of mass emotion.” Is there really a foundation for making such sweeping observations?
Bob Prechter: Yes. Exactly. Almost everyone believes that social actions cause changes in social psychology. If that is true, then events must be so perfectly determined that they create the Elliott wave patterns we see in the markets. For people to claim that the latest idea from the White House or the latest law passed by Congress or the latest statistic on the trade deficit or earnings or war or natural disaster has any effect on the market’s pattern, that such things are determinants of stock prices in any way, is suggesting a far more radical view of the harmony of the universe than I am. In other words, to argue that events cause the state of social psychology is to argue that events are patterned, which is determinism. In that case, free will is invalid, in which case no one could make money from the Wave Principle, which we have shown can be done.
On the other hand, if social psychology guides the tenor of social actions, then it is only mass psychology, which is apparently a process governed by the unconscious mind, that need be patterned to produce structure in markets. Its patterns underlie social behavior, and behavior ultimately produces results in the form of social action that are viewed as important events.
So given moods, or wave counts as you call them, always produce the same events or similar junctures in the count?
Bob Prechter: No. Social events are manifestations of a patterned social mood, but the moods may be manifest in countless ways. Social actions are an outlet for the patterns of mass psychology, expressing it in diverse ways that give rise to the myriad events of human history.
You don’t consider fundamentals?
Bob Prechter: On the contrary, socionomists, as I call us, are the only ones who do so properly. The patterns of social psychology that occur naturally are the fundamentals of the market. They are what cause what most people think are the fundamentals.
On Wall Street, analysts contemplate the ramifications of events in Washington, Tokyo and all points in between as much as the people who make their livings there. Then they proceed to build a market opinion from an initial observation about a political or social event that they see happening. They say, “The Democrats are going to win, and the president is going to do such-and-such, and that’s going to cause stock prices to….”
Bob Prechter: Right. And they have about as much success predicting markets as economists have predicting the economy.
Isn’t it possible that there is no pattern – that the five-wave subdivisions in the market since 1932 are an accident?
Bob Prechter: That’s the typical response from Wall Street observers: “Another coincidence.” When patterns of this tremendous size continue to work out time after time, it becomes a matter of faith to continue to believe that the Wave Principle is not reflective of stock market behavior.
It’s an elegant idea, but in the workaday world of Wall Street, the average broker or economist or reporter is going to say, “Ellio-huh? The Fed just raised interest rates.”
Bob Prechter: And what do they say when the market goes up despite a rise in rates?
They don’t talk about it.
Bob Prechter: Right. They find a different event they perceive as positive and say the market went up today because of that. It’s easier than saying it’s because a given wave pattern may or may not be in effect. A rise in rates is a matter of fact. That’s something a broker can sell, an economist can speculate upon, a reporter can write about and an investor can grasp, all without doing any research.
The logic may be compelling, but the implications that flow from this idea demand an enormous re-ordering of one’s mindset.
Bob Prechter: Yes, and accepting it as depicting reality is a bigger step. I am confident that people will take this step, though. I may present a radical theory of social causality, but it is the only one that makes sense.
The Wave Principle presents a profound truth: sometimes the dynamics of social psychology are impelling the mass mood toward optimism, and sometimes toward pessimism, regardless of all news. Events do not shape the market: it’s the forces behind the market that shape events. Events are results, and when you know what they result from, that is, social mood trends, you can often predict the general tenor of such behaviors. If one knows the species of a tree, he can predict what kind of fruit it will bear. Events are the fruits of a bull or bear market in social mood.
No commentsDow Jones and Dividends.
There is much debate in the newspaper publishing business about whether family ownership is better than public ownership, whether a two-tiered stock structure is better than giving all shareholders the same voting rights.Here’s one thing: Dow Jones has been overpaying the dividend for years to the long-term detriment of the company and for the principle benefit of the Bancrofts. Read it Here at the Columbia Journalism Review
View results of this here with NewsCorp and DowJones share price movements in the last five years here
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