The objective of your Final Project is to identify a company that might be worth much more if it were broken into pieces and valued using EVA analysis separately. The rationale for this difference can perhaps be explained by the difficult investors have valuing companies with multiple business units and/or accepting the insights of EVA analysis.
In addition to identifying a candidate for a breakup, your Final Project Report should include an EVA analysis of the combined company as well as the individual elements you recommend would be valued higher if they were separate. Also be sure to describe strategic advantages that could be gained from a breakup that are not rationalized only by EVA analysis. So, the rationale for your company selection should be based both strategic advantage and financial analysis.
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your Final Project Report should include an EVA analysis of the combined company as well as the individual elements you recommend would be valued higher if they were separate. Also be sure to describe strategic advantages that could be gained from a breakup that are not rationalized only by EVA analysis. So, the rationale for your company selection should be based both strategic advantage and financial analysis.
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To identify a company that might be worth more if it were broken into pieces and valued using EVA (economic value added) analysis separately, you will need to follow these steps:
1. Research and select a company: Start by researching and selecting a company that has multiple business units or divisions. Look for a company that may benefit from a breakup due to difficulties investors have valuing companies with multiple units. Consider companies that may not be properly valued by the market.
2. Understand EVA analysis: EVA analysis is a financial performance measure that calculates the economic profit generated by a company after deducting its cost of capital. It helps in assessing how effectively a company utilizes its assets to generate value for shareholders.
3. Perform EVA analysis on the combined company: Once you have selected a company, perform EVA analysis on the combined entity. Calculate the economic profit by subtracting the company's capital charges from its net operating profit after tax (NOPAT). This will give you an understanding of the overall value created by the company.
4. Identify potential business units for separate valuation: Analyze the different business units or divisions within the company and identify any potential units that may be undervalued or have strategic advantages if evaluated separately. Look for units with strong growth potential, unique market positions, or high-profit margins.
5. Perform separate EVA analysis: Conduct separate EVA analyses for each identified business unit. Calculate the economic profit for each unit to determine their individual value creation potential. This will help in evaluating whether a breakup could potentially unlock additional value.
6. Analyze strategic advantages: Besides financial analysis, consider the strategic advantages that could be gained from a breakup. Look at factors such as greater operational focus, improved decision-making, potential for strategic alliances, or unlocking hidden synergies.
7. Prepare your Final Project Report: Compile all your findings, including the EVA analysis of the combined company and individual business units, and the strategic advantages of a breakup. Discuss how separating the units may lead to higher valuation and provide strategic benefits.
8. Present your rationale: Explain your company selection based on both strategic advantages and financial analysis. Justify why breaking up the company would enhance value and provide benefits beyond what can be rationalized through EVA analysis alone.
By following these steps, you will be able to identify a company that could potentially benefit from a breakup and provide a comprehensive analysis supporting your recommendation.