PYA Principal Shannon Sumner co-presented “Enterprise Risk Management” at the HCCA Board Audit Committee Compliance Conference, February 27-28, 2017, in Scottsdale, Arizona.
The presentation covered:
The role of the governing Board of an organization in enterprise risk management (ERM)
Effective ERM in today’s healthcare setting
When ERM fails: “The perfect storm”
Executing value creation plans to maximize returnsEY
This slide deck was designed to accompany a video webcast that included an interactive discussion by a moderator and three panelists. To view that webcast, please go to: http://bit.ly/Xj4EIA
Executing value creation plans to maximize returns
Hosted by Ernst & Young LLP Transaction Advisory Services
Publication date: Tuesday, 2 April 2013
Leading private equity firms are maximizing investment returns by developing value creation insights before making a purchase, and executing a value creation plan from the beginning of the holding period through to exit.
Companies that faithfully execute their value creation plans throughout the investment lifecycle can enhance returns and outperform their peer group when they sell.
A panel of Ernst & Young LLP professionals and special guests discussed:
Value creation drivers
Possible steps for maximizing returns at exit
You are welcome to join the on-demand version of this interactive discussion by going to: http://bit.ly/Xj4EIA
This webcast is part an ongoing series. Register for any webcast and you will be asked if you want to receive invitations to future webcasts.
Governance Culture & Incentives- Fundamentals of Operational RiskAndrew Smart
Governance, Culture & Incentives. -Fundamentals of Operational Risk. This presentation provides some practical tools to answer three key questions and create alignment.
Integrating Strategy and Risk ManagementAndrew Smart
"A Holistic Approach to Managing Risk amidst Global Uncertainty"
The RMA/Cass Business School
10–14 February 2013
Advanced Risk Management Programme
Organised by Andrew Smart & Nicholas Hawke
In today’s fast-moving, complex environment, risk executives must cultivate an understanding across all risks and businesses. Business problems are multifaceted, interrelated, and increasingly global. Executives must possess enhanced skills to identify and address a wide range of risks with an integrated approach and enterprise-wide perspective.
The RMA/Cass Advanced Risk Management Programme, led by the faculty at Cass, one of the UK’s top business schools, exposes participants to a rigorous, yet inspiring blend of theory, practice and cutting-edge research, instilling knowledge and skills applicable to the real world of global business. In addition to its focus on the known and quantifiable risks of credit, market, and operational, the programme concentrates on the unknowable and difficult to measure risks, including business, strategic, and reputation. Cass has excellent links to the City of London firms and institutions and is able to complement Cass faculty with guest faculty and senior level business practitioners, considered by their peers to be industry thought leaders
Areas of focus for The RMA/Cass Advanced Risk Management Programme include:
• Risk management as a strategic competitive strength
• An integrated approach to risk management
• Fostering a culture and climate that openly communicates risk
• A framework for rapidly responding to known risks and unraveling the complexities of the unknown
• A focus on risk informed by global perspectives.
IFAC Senior Technical Manager Vincent Tophoff presentation during the Institute of Chartered Accountants of Pakistan's CFO Conference 2013, CFO: Meeting Future Challenges! Mr. Tophoff discusses current trends and thinking in risk management and best practices.
PYA Principal Shannon Sumner co-presented “Enterprise Risk Management” at the HCCA Board Audit Committee Compliance Conference, February 27-28, 2017, in Scottsdale, Arizona.
The presentation covered:
The role of the governing Board of an organization in enterprise risk management (ERM)
Effective ERM in today’s healthcare setting
When ERM fails: “The perfect storm”
Executing value creation plans to maximize returnsEY
This slide deck was designed to accompany a video webcast that included an interactive discussion by a moderator and three panelists. To view that webcast, please go to: http://bit.ly/Xj4EIA
Executing value creation plans to maximize returns
Hosted by Ernst & Young LLP Transaction Advisory Services
Publication date: Tuesday, 2 April 2013
Leading private equity firms are maximizing investment returns by developing value creation insights before making a purchase, and executing a value creation plan from the beginning of the holding period through to exit.
Companies that faithfully execute their value creation plans throughout the investment lifecycle can enhance returns and outperform their peer group when they sell.
A panel of Ernst & Young LLP professionals and special guests discussed:
Value creation drivers
Possible steps for maximizing returns at exit
You are welcome to join the on-demand version of this interactive discussion by going to: http://bit.ly/Xj4EIA
This webcast is part an ongoing series. Register for any webcast and you will be asked if you want to receive invitations to future webcasts.
Governance Culture & Incentives- Fundamentals of Operational RiskAndrew Smart
Governance, Culture & Incentives. -Fundamentals of Operational Risk. This presentation provides some practical tools to answer three key questions and create alignment.
Integrating Strategy and Risk ManagementAndrew Smart
"A Holistic Approach to Managing Risk amidst Global Uncertainty"
The RMA/Cass Business School
10–14 February 2013
Advanced Risk Management Programme
Organised by Andrew Smart & Nicholas Hawke
In today’s fast-moving, complex environment, risk executives must cultivate an understanding across all risks and businesses. Business problems are multifaceted, interrelated, and increasingly global. Executives must possess enhanced skills to identify and address a wide range of risks with an integrated approach and enterprise-wide perspective.
The RMA/Cass Advanced Risk Management Programme, led by the faculty at Cass, one of the UK’s top business schools, exposes participants to a rigorous, yet inspiring blend of theory, practice and cutting-edge research, instilling knowledge and skills applicable to the real world of global business. In addition to its focus on the known and quantifiable risks of credit, market, and operational, the programme concentrates on the unknowable and difficult to measure risks, including business, strategic, and reputation. Cass has excellent links to the City of London firms and institutions and is able to complement Cass faculty with guest faculty and senior level business practitioners, considered by their peers to be industry thought leaders
Areas of focus for The RMA/Cass Advanced Risk Management Programme include:
• Risk management as a strategic competitive strength
• An integrated approach to risk management
• Fostering a culture and climate that openly communicates risk
• A framework for rapidly responding to known risks and unraveling the complexities of the unknown
• A focus on risk informed by global perspectives.
IFAC Senior Technical Manager Vincent Tophoff presentation during the Institute of Chartered Accountants of Pakistan's CFO Conference 2013, CFO: Meeting Future Challenges! Mr. Tophoff discusses current trends and thinking in risk management and best practices.
Integrating Risk into your Balanced Scorecard Andrew Smart
Pulling together into a single framework the two separate disciplines of strategy management and risk management, and how it is possible to integrate it with Balanced Scorecard. This presentation provides a practical guide for organizations to shape and execute sustainable strategies with full understanding of how much risk they are willing to accept in pursuit of strategic goals.
Please contact andrew.smart@stratexsystems.com for more details about the presentation or to have a talk about our software solutions.
In continuation to our earlier presentations of the Business Risk Management series & case studies, we show here how the time cycles must be determined for tracking market based, credit based and operational risk.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
Business Pulse - Dual perspectives on the top 10 risks and opportunities 2013...EY
Business Pulse explores the top 10 risks and opportunities faced by global organizations over the next few years.
Ernst & Young’s Business Pulse report is based on a large sample survey of companies in 21 countries and across various industry sectors.
The report takes the pulse of:
• Current thinking on risks and opportunities and emerging challenges
• Dual perspective on the themes arising from the top 10 lists
• Expectations from industry executives and Ernst & Young specialists
Read this presentation to conduct a self-assessment for your business and download the report at: http://goo.gl/CSKGQ
Enterprise Risk Management provides decision makers with a
realistic picture of likely
outcomes to their strategic initiatives by integrating risk into the cost benefit analysis of
all strategic investments.
Secrets of Breaking the Glass Ceiling for Women EntrepreneursVerticalResponse
Special Guest: Geri Stengel, Ventureneer
The startup rate of women-owned businesses is soaring, but the percentage who break through the glass ceiling to more than a million dollar in revenue is flat. What’s blocking their upward momentum? Learn how women leaders of growth businesses kept growing, well beyond the million-dollar milestone
Drawn from interviews with leading women entrepreneurs and her work as a mentor and coach to start-up businesses, Geri Stengel will pinpoint what women need to break through the glass ceiling and keep their businesses on a high-growth track.
Integrating Risk into your Balanced Scorecard Andrew Smart
Pulling together into a single framework the two separate disciplines of strategy management and risk management, and how it is possible to integrate it with Balanced Scorecard. This presentation provides a practical guide for organizations to shape and execute sustainable strategies with full understanding of how much risk they are willing to accept in pursuit of strategic goals.
Please contact andrew.smart@stratexsystems.com for more details about the presentation or to have a talk about our software solutions.
In continuation to our earlier presentations of the Business Risk Management series & case studies, we show here how the time cycles must be determined for tracking market based, credit based and operational risk.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
Business Pulse - Dual perspectives on the top 10 risks and opportunities 2013...EY
Business Pulse explores the top 10 risks and opportunities faced by global organizations over the next few years.
Ernst & Young’s Business Pulse report is based on a large sample survey of companies in 21 countries and across various industry sectors.
The report takes the pulse of:
• Current thinking on risks and opportunities and emerging challenges
• Dual perspective on the themes arising from the top 10 lists
• Expectations from industry executives and Ernst & Young specialists
Read this presentation to conduct a self-assessment for your business and download the report at: http://goo.gl/CSKGQ
Enterprise Risk Management provides decision makers with a
realistic picture of likely
outcomes to their strategic initiatives by integrating risk into the cost benefit analysis of
all strategic investments.
Secrets of Breaking the Glass Ceiling for Women EntrepreneursVerticalResponse
Special Guest: Geri Stengel, Ventureneer
The startup rate of women-owned businesses is soaring, but the percentage who break through the glass ceiling to more than a million dollar in revenue is flat. What’s blocking their upward momentum? Learn how women leaders of growth businesses kept growing, well beyond the million-dollar milestone
Drawn from interviews with leading women entrepreneurs and her work as a mentor and coach to start-up businesses, Geri Stengel will pinpoint what women need to break through the glass ceiling and keep their businesses on a high-growth track.
Learn more about the anti-spam laws like CAN-SPAM and CASL. Find out how these laws impact your emails in this free 30-minute webinar. We’ll explain why opt-in lists are better for your email marketing and tips on how to create your email to avoid spam filters. This webinar is geared toward intermediate attendees.
Mexico's Infrastructure Creation and Why it Matters for North American Compet...Omar Del Valle Colosio
It shows current levels of infrastructure investments, competitiveness, and it depicts where infrastructure is needed in Mexico. Finally, it discusses what would be the next steps to get programs and projects right.
Present an overview of water infrastructure market in Latin America:
- Infrastructure spending as a catalytic tool to overcome the financial-economic crisis
-Structuring the process “getting it right!”
-Strengthening the Water Sector: Confronting The Challenges
Discuss the role/participation of private sector:
- Finance projects in distressed markets
- Emerging new opportunities
How to Be Good Studentpreneur - Akademi Berbagi BekasiArry Rahmawan
Slide yang saya bawakan dalam sesi kelas Akademi Berbagi Bekasi yang diselenggarakan pada tanggal 14 September 2013. Materi ini membahas tentang bagaimana cara menjadi seorang studentpreneur yang sukses dan berprestasi. Materi diambil dari buku STUDENTPRENEUR GUIDEBOOK.
America Means Business Presentation: 4 Quick Ways to Make the Most out of Ema...VerticalResponse
This presentation will break down social media and email marketing into actionable strategies and tactics that nearly any small business, regardless of your level of marketing or tech knowledge, can implement immediately.
From the VerticalRespnse Spring Webinar Series
Everyone is saying you need to use Twitter for your business, but how do you get started? Join VerticalResponse's Marketing team members as they teach you:
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This discussion has 2 partsYou are working as a financial.docxjwilliam16
This discussion has 2 parts:
You are working as a financial analyst at a brokerage firm and a colleague says to you “the Potts Corporation had a return on equity (ROE) of 20% last year. We should recommend the stock to our clients.” How would you respond to your colleague? (Note: Your response for this question should be no more than 100 words)
A corporation’s earnings and associated ratios, such as earnings per share, are metrics that investors and other stakeholders use when making decisions. The SEC recently began investigating corporations for manipulating earnings via rounding errors. In the early 2000s, it became clear that corporation’s rarely missed earnings estimates provided by financial analysts. Offer your opinion on the ethics underlying these practices, any possible broader implications of such behavior, and any real-life experiences you may have come across that are similar.
See Assigned Readings “Related to agency theory and the goal of financial management”
Submission Instructions:
Your initial post for each question should be approximately 100 to 200 words (unless the discussion question specifically provides a different guideline), formatted and cited in current APA style with at least one source other than the required textbook. Your initial posts are worth 8 points each.
You should respond to two of your peers by extending, refuting/correcting, or adding additional nuance to their posts. Your reply posts are worth 2 points (1 point per response.)
4 Posts by classmates are:
Post 1.
Note1: Response to Colleague
As one of the brokerage firm's financial analysts, I would respond to my colleagues by pointing out that higher ROE is considered positive for a firm, but there should be a close Examination when it increases. For instance, if the value of an item decreases more than the net income, the ROE will increase though this is not positive for a firm. The firm can respond by issuing a debt to repurchase equity, which reduces the item value of equity and increases the ROE ( Steger, 2017). However, it also increases the risk of the firms’ shares because of financial leverage.
Note 2: Opinion on Corporation’s practices
According to SEC, companies are allowed to round up the earnings of the estimates to the next whole numbers if the digit following the decimal is five and above. The figures less than four have to be reported in the lowest integers. The regulators, therefore, probed whether companies have been unlawfully rounding up the earnings. The agency theory is concerned with different stakeholders that have different ideas which do not match the company’s growth. The managers of various companies are trying to gain personal wealth by projecting the companies in a better way to increase market values.
The investment managers are also continually looking for institutional investors to increase their bonuses at the end of each year. A higher dividend per share translates to a confident forecast in .
Explain the various categories of ratio analysis and provide example.pdfarchanenterprises
Explain the various categories of ratio analysis and provide examples of at least two ratios in
each category. If you were an investor, which category would you be most interested in? Why?
Solution
Part-1
Ratios are used by lenders and business analysts to determine a company\'s financial stability and
standing.It\'s important to understand that financial ratios are time sensitive; they can only show
a picture of a business at a given time. There are five catagories of Financial ratios and those are
as follows :
Part-2 :
There are a large variety of ratios out there, but for an investor using financial ratios which are
broken up into four major categories: profitability ratios, liquidity ratios, solvency ratios and
valuation ratios. As an investor he should consider Profitability ratio because Profitability ratio is
a key piece of information that should be analyzed when you\'re considering investing in a
company. This is because high revenues alone don\'t necessarily translate into dividends for
investors unless a company is able to clear all of its expenses and costs. In general, the higher a
company\'s profit margin, the better, but as with most ratios, it is not enough to look at it in
isolation. It is important to compare it to the company\'s past levels, to the market average and to
its competitors.
Profitability Ratios : The profitability ratios are just what the name implies. They focus on the
firm\'s ability to generate a profit and an adequate return on assets and equity. They measure how
efficiently the firm uses its assets and how effectively it manages its operations and answers
questions like how efficiency his business and it helps to compare with other competitor.
Examples of Proftitablity ratios are Gross profit ratio, Net profit ratio, Operating profit ratio and
Return on investment ratio.
Market Value Ratios : The market value ratios can be calculated for publicly traded companies
only as they relate to stock price. There are many market value ratios, but a few of the most
commonly used are price/earnings (P/E), book value to share value and dividend yield .
LEVERAGE RATIO /Capital Structure ration : The term capital structure refers to the
relationship between various long term forms of financing such as debentures (long term),
preference share capital and equity share capital including reserves and surpluses. Leverage or
capital structure ratios are calculated to test the long term financial position of a firm. Generally
capital gearing ratio is mainly calculated to analyse the leverage or capital structure of the firm.
Example of ratios are total debt ratios, the debt/equity ratio, the long-term debt ratio, the times
interest earned ratio, the fixed charge coverage ratio, and the cash coverage ratio.
Asset Efficiency or Turnover Ratios : The asset efficiency or turnover ratios measure the
efficiency with which the firm uses its assets to produce sales. As a result, it focuses on both the
income statement (sales) and the .
There are many different things that can cause a company’s actual .docxrorye
There are many different things that can cause a company’s actual value to be skewered in real life from what an investor would perceive it to be on paper. One key thing to consider when evaluating a company’s worth is their market value compared to book value. As our text explains, market value is what the company is essentially worth in the stock market. Book value is the value of the company on paper according mainly to the balance sheet. A key ratio when determining worth is the companies Price-to-book ratio which will show you how much the company is worth based on the stock market compared to their balance sheet. A high ratio would indicate the company is worth much more than their assets alone which is what any investor would demand. A number falling under one could reflect that the company isn't performing up to a break even, or up to what they are even worth on paper. Other key ratios include ROA (return-on-assets) and ROE (return-on-equity) which are key indicators of how the company performs given its financing. Efficiency is another key area for many investors which shows how much money or how well a company can operate on what they have. If two companies are in the same industry, and company A can produce $100M in NOI with four employees, while it takes company B six employees to meet the $100M mark, then company A will have a higher efficiency ratio. The same principal goes for machinery that is being considered for purchase. A financial manager will consider the cost it takes to run the machine compared to its production load. Investors looking at efficiency essentially want to know their investment is being “maximized” to its fullest potential. High efficiency ratios create value for shareholders with maximized profits on assets (Fundamentals of corporate finance). This value isn't always reflected in the financial statements as efficiency ratios can be high or low regardless of the size of the company or the income it brings in.
Also discussed in our book, price to earnings or the P/E ratio is a key ratio that should be evaluated before any investor invests in a company. Once again, the income statement and balance sheet does not directly reflect this ratio, as fluctuations of income from company to company lead to different ratios. A company with very small income can have a high P/E ratio while a multi-billion dollar corporation can have a smaller ratio. It is up to the company executives to create value for all shareholders regardless of income, and make sure the dividends show growth. Many investors are not interested in companies that grow. Most would invest in a company today with a smaller dividend that will grow, than in a company that has a larger dividend but isn't growing (Between the numbers).
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2018). Fundamentals of corporate finance (9th ed.). New York, NY: McGraw-Hill Education.
Chapter 4 measuring market value
Oberoi, R. (2014, September 01). Between the numb.
Panel Data Regression Analysis on Factors Affecting Firm Value in Manufacturi...Trisnadi Wijaya
Judul: Panel Data Regression Analysis on Factors Affecting Firm Value in Manufacturing Companies
Jurnal: Journal of Applied Business, Taxation and Economics Research (JABTER)
URL: https://equatorscience.com/index.php/jabter/article/view/119
Private Equity Valuation Methods improve active equity portfolio by valuing a business/company that is the core task of the financial analyst. Most PE/VC firms estimate a company’s value with the help of Equity Valuation Methods. To evaluate an organization, there should be enough understanding of Venture Valuation, which is considered as the most holistic evaluation approach.
Fundamental Analysis is defined as “researching the fundamentals”, that doesn’t convey the whole in the absence of knowledge about what fundamentals are. The big problem with defining fundamentals is that it can include anything related to the economic well being of a company. Thus, fundamentals include everything from a company’s market share to the quality of its management
Fundamental analysis is the cornerstone of investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis. Because the subject is so broad, however, it's tough to know where to start. There are an endless number of investment strategies that are very different from each other, yet almost all use the fundamentals.
Have you ever looked at the news, or at a company’s results, and have had no idea what they mean or how to interpret it?
You know there’s information lurking deep down in the results that you could use to profit from, but you’re never sure where to look. Or exactly what to look at!?
And with reporting season around the corner, just imagine the profit opportunities you could uncover before any other investor if you knew how.
That’s why I want to give you the reporting strategy that you could use to read financial results like a pro.
Building Your Employer Brand with Social MediaLuanWise
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Company Valuation webinar series - Tuesday, 4 June 2024FelixPerez547899
This session provided an update as to the latest valuation data in the UK and then delved into a discussion on the upcoming election and the impacts on valuation. We finished, as always with a Q&A
Affordable Stationery Printing Services in Jaipur | Navpack n PrintNavpack & Print
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Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
1. 1M&A Deal Evaluation: Challenging Metrics Myths
M&A Deal Evaluation:
Challenging
Metrics Myths
In the world of mergers and acquisitions, emphasis
is often placed on evaluation metrics that look as if they
tell the story, but they can be misleading.
2. 2M&A Deal Evaluation: Challenging Metrics Myths
The presentation was over. The CEO of a global business-services group had been part of a due
diligence process to advise on whether or not to proceed with a major European acquisition.
Our job was to help the CEO and the board answer some important questions: Was the target
company a good fit? How did synergies stack up against the risks? Did the target company’s
sector show potential for growth?
Our findings were less than encouraging. They suggested limited growth going forward, and
even though the potential for synergies was good, the risks were significant, and there were
doubts about the company’s ability to deliver those synergies.
As we walked out of the meeting, the CEO was digesting all that he had just heard and contem-
plating the board’s likely reaction to our findings. Then he spoke: “Well, there’s one thing we can
say about this acquisition—it’s highly earnings accretive.”
An argument to support the myth
that EPS accretion equates to value
creation is that “some people believe
it does”—a misperception that
is then priced into the stock.
What does that mean? Does the fact that a deal is accretive necessarily mean that it’s a good
move? Conversely, are deals that dilute earnings per share (EPS) necessarily bad moves?
Should we even use EPS as a measure by which to evaluate an M&A transaction?
In this paper, we discuss findings from our research into the metrics and analyses most frequently
used to evaluate proposed mergers and acquisitions. The research introduced a surprising
insight: The impact on EPS is by far the most emphasized metric used to evaluate proposed
M&A transactions between public companies.
With this in mind, we look at two common and related myths surrounding EPS and demonstrate
why these are at best unhelpful and at worst potentially misleading. We also examine what
business leaders and market analysts should focus on instead. As always, our advice is pragmatic:
Stick to the business fundamentals.
How Do They Get It So Wrong?
It is widely recognized that a significant percentage of M&A transactions fail to deliver value
to shareholders. What goes wrong? How is it that acquisitions on average seem to create
negligible returns? It can be tempting to blame poor merger integration for the meager returns,
and certainly the execution of an integration can have a major impact on whether or not
a transaction is regarded as successful. However, it may also be useful to consider if the deal
was worth doing in the first place. Maybe some transactions should never have happened.
With this in mind, A.T. Kearney joined forces with the UK’s Investor Relations Society (IR Society)
to understand exactly which metrics and analyses get the most emphasis in evaluating proposed
3. 3M&A Deal Evaluation: Challenging Metrics Myths
M&A transactions. Maybe the solution to the question of “what goes wrong” lies in the tools used
to filter (and one would hope eliminate) value-destroying transactions from those that create value.
Investor Relations professionals were surveyed to gauge the views of key stakeholders—
company executives, sell-side analysts, and investors—on 10 frequently used metrics and
analyses (see sidebar: M&A Metrics—Why the Difference in Emphasis? on page 4). We found
that EPS analysis is used most, and by a wide margin: 75 percent of respondents ranked it in the
“strong emphasis” category, fully 26 points ahead of enterprise value/EBITDA, the number two
rated metric (see figure 1).
All stakeholders
(% respondents)
EPS
accretion/
dilution
6%
10%
4%
10% 10%
6%
Enterprise
value/
EBITDA
Price
earnings
ratio (P/E)
Debt ratio
analyses
DCF
valuation
Price/book
value
Cultural fit
assessment
Cost of
capital
analysis
Core
capabilities
assessment
Enterprise
value/
revenues
Note: Stakeholders include company executives, sell-side analysts, and investors; EPS is earnings-per-share; DCF is discounted cash flow.
Source: A.T. Kearney and Investor Relations Society, 2013
Figure 1
EPS accretion/dilution analysis is given the most emphasis in evaluating proposed
M&A transactions
2% 2% 2% 2%
2%
22%
6%
8%
16%
41%
33%
29%
65%
4%
20%
49%
29% 27%
47%
22% 8%
57%
25%
22%
53%
16% 22%
53%
20%
45%
45%
39%
49%
75%
Strong emphasis Some emphasis No emphasis Don’t know
What Exactly Is EPS Accretion and EPS Dilution?
Before we go any further, let’s define what we mean by EPS accretion and EPS dilution.
A company’s EPS—again, earnings per share—is simply the total profit allocated to each
outstanding share.
EPS growth can be achieved either organically or inorganically through M&A activity, and few
would argue that organic EPS growth is anything other than a positive indicator. EPS growth
delivered through M&A activity, that is, EPS accretion, is fundamentally different. Yet there
4. 4M&A Deal Evaluation: Challenging Metrics Myths
are some commonly held beliefs—or, more accurately, myths—to suggest this distinction is not
fully understood by many experienced investment professionals, including some company
executives (see sidebar: The Lingering Myth of EPS Accretion on page 8).1
Two myths are widely believed:
• EPS accretive transactions create value.
• EPS dilutive transactions destroy value.
As we will see, neither of these preconceptions stands up to scrutiny. Why then do so many
executives and others persist in using EPS analysis to evaluate M&A transactions?
1
Not all M&A transactions grow EPS. Some transactions reduce EPS, resulting in EPS dilution.
Company
executives
Sell-side
analysts
Investors
Source: A.T. Kearney and Investor Relations Society, 2013
Figure
How much emphasis is given to EPS accretion or dilution analysis in evaluating
proposed M&A transactions?
41%
88%
18%
76%
59%
Strong emphasis
Some emphasis
No emphasis
Don’t know
6%6%
6%
M&A Metrics: Why the Difference in Emphasis?
To learn how different stake-
holder groups view earnings-
per-share (EPS) analysis as a
metric for evaluating mergers
and acquisitions, members of the
UK-based Investor Relations
Society were surveyed regarding
the emphasis that key stake-
holders (company executives,
sell-side analysts, and investors)
give to 10 frequently used
metrics and analyses. All stake-
holders have “skin in the game”
but, as it turns out, significantly
different perspectives on the
extent to which they emphasize
EPS analysis. The biggest
contrast was among those
who strongly emphasize EPS—
company executives (59 percent)
and investors (88 percent).
Sell-side analysts were in the
middle at 76 percent (see figure).
Perhaps these results are not so
surprising. Company executives
are likely to take a more all-
encompassing, or perhaps more
strategic, view of a merger’s
impact. But should that be the
case? Shouldn’t all parties be
striving for the same objective
assessment of a deal’s benefits
and the extent to which it will
strengthen competitive position
and ultimately, generate share-
holder value through increased
cash flow?
This raises an interesting
question: Which group is more
correct? Our answer is that while
company executives place
significantly less emphasis on
EPS analysis, all three groups pay
far more attention to the metric
than it merits.
5. 5M&A Deal Evaluation: Challenging Metrics Myths
The answer comes down to views about valuation. A company’s stock is frequently valued on
the basis of its EPS by applying a price-to-earnings (P/E) ratio. Based on the assumption that
an acquiring company’s P/E ratio will stay the same after an acquisition, if earnings per share
increase, then the company’s overall value will increase, ostensibly as a result of the deal.
What’s the Catch?
But, there’s a catch. To understand it you need to consider the fundamentals of why one
company has a higher P/E ratio than another in the first place. It is because the market believes
the earnings of the company with the higher P/E ratio—call it Company A—will rise faster than
those of the company with a lower P/E ratio (Company B).2
Now suppose Company A buys
Company B, using its stock as the acquisition currency. As a result of the purchase the EPS of
the combined company will be higher than that of Company A had it not made the acquisition—
thus the transaction is EPS accretive for Company A.
They call it the “bootstrap game.”
If companies can fool investors by buying
a company with lower P/E rated stocks,
then why not continue to do so?
But being EPS accretive comes with a downside—and that’s the catch. The newly combined
company will also have a lower earnings growth rate than Company A would have had as a
standalone company. So while the EPS of the post-acquisition company will be higher than
that of the pre-acquisition Company A, its P/E ratio will be lower due to its acquisition of the
lower-P/E rated Company B.
In fact, the reduction in the P/E ratio, all other things being equal, will exactly counterbalance
the impact of the higher EPS. The result is that the valuation of the newly combined company
will reflect the blended higher EPS and lower P/E ratio of the two original companies. In other
words, no value is created.
A key reason for doing an M&A deal is, of course, the synergies that can result. By increasing
the new entity’s combined earnings, synergies can add enough value to make the combined
company worth more than the two individual companies were before the merger. It is important
to note that the increased value results from the synergies created, not from the deal being EPS
accretive or dilutive. It is quite possible that highly dilutive deals offer the greatest opportunities
for delivering synergies.
An argument sometimes put forward to support the myth that EPS accretion equates to value
creation is that “people believe it does.” This becomes reality as the misperception is priced
into the stock.
2
Alternatively, it believes that earnings are more sustainable than the earnings in the lower-rated company. This paper adheres
to the idea that earnings will grow faster in the company with the higher P/E ratio. In reality, the two ideas relate to the same thing—
the strength of the earnings stream a company generates.
6. 6M&A Deal Evaluation: Challenging Metrics Myths
Richard A. Brealey and Stewart C. Myers write about this idea in their seminal textbook, Principles
of Corporate Finance. They call it the “bootstrap game.” If companies can fool investors by buying
a company with lower P/E rated stocks, then why not continue to do so? The flaw in the bootstrap
game is the need to keep the market fooled, hoping it doesn’t notice that the acquiring company’s
earnings growth potential is becoming progressively more diluted.
The inevitable result of pursuing such a strategy to its logical conclusion by continuing to acquire
lower P/E rated companies is clear: In the same way a Ponzi scheme must eventually fail due
to the lack of underlying value creation, the P/E multiple of the acquiring company must fall
as it becomes increasingly evident to the market that no value is created.
What’s the Alternative for Evaluating Proposed Mergers?
Our advice for evaluating a proposed merger is characteristically pragmatic: Stick to the funda-
mentals. M&A can deliver significant competitive advantage and value to shareholders, but the
criteria by which to assess just how much must answer fundamental business questions:
• Is the proposed merger strategically logical?
• Will it deliver cost, revenue, or other financial synergies?
• Will it build management or other capabilities?
• Is the combined company capable of delivering the synergies?
A thorough, fact-based due diligence is the best way to answer these questions (see figure 2).
To understand the business
fundamentals of a proposed deal
Activities
and
analysis
Source: A.T. Kearney analysis
Figure 2
Transaction due diligence overview
Strategic
options
Commercial
due diligence
Operational
due diligence
Financial
due diligence
Legal
due diligence
• Market dynamics
• High-level trends
• Business portfolio
analysis
• Target identifi-
cation
• Market and
customer
attractiveness
and dynamics
• Industry structure
and dynamics
• Competitive
position
• Distribution
channel dynamics
• Top-line oppor-
tunities
• Business plan review
• Risks and oppor-
tunities
• Cost structures
and drivers
• Operational
improvement
potential
• Cost synergies
assessment
• Integration
capabilities
• Risks and oppor-
tunities
• Review financial
statements and
management
accounts
• Basis for future
business plans
• Valuation
• Deal financing
• Target liabilities
and potential risks
• Competition
authority
implications
• Transaction
mechanics,
execution, and
closing
Typical
parties
involved
• Senior managers
(CEO, board)
• Strategic advisors
(consultants,
bankers)
• Senior management
(CEO, strategy director, business
development director)
• Consultants
• CFO
• Accountants
• Input from
commercial and
operational due
diligence
• Company general
counsel
• Legal advisors
Fact-based
assessment
of value
creation
potential
7. 7M&A Deal Evaluation: Challenging Metrics Myths
Typical opportunity areas Typical synergy value
Source: A.T. Kearney Merger Integration Framework
Figure 3
Merger synergies originate from three value creation areas
Top-line growth,
commercial
optimization
Operations
productivity
improvement
Asset and capital
investment
rationalization
• Cross selling
• Product development and innovation
• Brand portfolio optimization
• Price realization and service offer
• Combined innovation pipeline
• Leverage sales capabilities
• (Negative synergies: customer retention)
• Capital investment rationalization
• Working capital reduction
• Sale of rationalised assets
• Operations and supply chain
— Manufacturing footprint
— Warehouse and logistics footprint
• Procurement
— Price leveling
— Volume consolidation
— Strategic sourcing
— Procurement transformation
• SG&A
— Office consolidation
— Finance, HR, IT consolidation
— Sales and marketing cost reduction
— Leverage capabilities and best practice
Net 2-3%
of combined
sales year one
10-15%
of combined
cost base
10-15%
excluding
asset sales
Merger
synergies
Accretion or dilution is a fact of
doing deals, but is not a measure
of potential value creation.
For that, you need to examine
the deal’s business fundamentals.
Of course, there is also a role for using many of the M&A metrics and analyses described in
figure 1 as part of an overall assessment. These can play a complementary role in developing
a full perspective on a transaction. Used in isolation, however, and without a clear understanding
of their limitations, they have a tendency to give a very limited view of the real potential for
value creation.
Ultimately, any value an M&A transaction creates must translate into future cash flow, resulting
from synergies in three value-creation areas: topline growth, operations productivity, and asset
and capital investment rationalizations (see figure 3).3
3
The synergies ultimately delivered in a merger are influenced by a number of factors, including the transaction’s strategic goals
and the proportion of total spend that is addressable for synergy purposes.
8. 8M&A Deal Evaluation: Challenging Metrics Myths
And then there’s the crucial question of how much to pay for a deal and who will realize the
value it creates. If the net present value (NPV) of future synergies is paid to the selling share-
holders in an acquisition price premium, even the most synergistic of mergers can result in
value destruction for the acquirer’s shareholders.5
Always consider who will be the winners
in an M&A transaction—the final outcome is rarely the same for all parties.
EPS Myths Revisited
The moral of the story is this: Too often, too much emphasis is placed on whether a deal is EPS
accretive or dilutive. These are time-honored metrics that appear sensible but in reality do not
answer the most important question: Should we do the deal? Let’s review the two commonly
held myths and why they don’t work as M&A evaluation measures.
EPS-accretive transactions create value. Not necessarily. Accretion is a relative measure that
simply shows the company being acquired has a lower P/E rated stock.
EPS-dilutive transactions are value destroying. Again, not necessarily. In fact, EPS-dilutive
transactions can increase value when the target company has good growth potential and the
strategic logic for the deal is strong.
The fact is that EPS analysis is not a useful tool for evaluating the merits of proposed M&A
transactions. Accretion or dilution is a fact of doing deals but is not a measure of potential value
creation. For that, you need to examine the deal’s business fundamentals.
Our research reveals one more insight: how the emphasis given to the different metrics and
analyses has changed over the past decade. Two measures, core capabilities and cultural fit,
The Lingering Myth of EPS Accretion
In an examination of 30 acquisi-
tions performed and announced
by publicly owned companies,
68 percent referred to the
merger’s potential impact on
EPS.4
The prominence given to
thismetricattheannouncement
reinforcesthelingeringbeliefthat
EPSisaproxyforvaluecreation.
The EPS accretion myth has
lingered for a long time. Here’s
why. At first glance, EPS accre-
tion appears to be a simple, and
therefore appealing, way to
determine or communicate
whether or not a transaction will
create value. In fact, it is logically
and mathematically flawed.
Large mergers and acquisitions
almost always involve the high
drama of risk and reward for the
parties involved. M&A can
make—or break—an executive’s
reputation or career, and
multimillion-dollar fees and
bonuses can be won or lost.
Given all that, no wonder every
possible argument supporting
M&A deals is applied by those
trying to make them happen.
This is precisely why analysts and
other stakeholders need accurate
evaluation tools: to make sure all
theargumentsformakingthedeal
hold water. Despite the frequency
with which EPS accretion is
alluded to or used to bolster
argumentsforthedeal,themetric
doesn’t stand up to scrutiny.
4
Companies were randomly selected from a group of transactions in which the acquiring company was U.S.- or UK-based and the
transaction satisfied a set of criteria, including deal value of more than $1 billion and 100 percent of the target was acquired.
The examination included a review of press releases and transcripts of press conferences where the acquirer announced the deal.
5
The acquisition price premium is typically 20 to 30 percent over the pre-announcement trading price, although this premium
is perceived to have fallen in recent years.
9. 9M&A Deal Evaluation: Challenging Metrics Myths
the most qualitative among the 10 examined, are among the top measures that have “become
more important” in the past decade (see figure 4). This suggests stakeholders are becoming
increasingly aware of the conditions necessary for merged organizations to deliver sustained
value after the deal has closed and the merger integration process begins.
Quick and Easy Shortcuts Can Be Misleading
This is not to say a proposed transaction’s impact on EPS isn’t important. It is something that
needs to be understood and communicated to investors. The fact remains, however, that doing
an EPS-accretive deal is easy—simply buy a company with a lower P/E-rated stock than your
own. So the next time someone says or implies that an M&A deal is a good one because it is EPS
accretive, ask why the market gave the target company’s stock a lower rating in the first place.
To truly understand whether a proposed acquisition will create value requires evaluating the
strategic rationale for making the deal, and if it will deliver enough synergies to create value.
As with many things in life, quick and easy answers can be misleading.
Core
capabilities
assessment
19%
13% 13% 13% 13% 13%
Cultural fit
assessment
Enterprise
value/
EBITDA
Cost of
capital
analysis
Debt ratio
analyses
EPS
accretion/
dilution
DCF
valuation
Price
earnings
ratio (P/E)
Enterprise
value/
revenues
Price/book
value
Notes: EPS is earnings-per-share; DCF is discounted cash flow. Figures may not resolve due to rounding.
Source: A.T. Kearney and Investor Relations Society, 2013
Figure 4
How has the relative importance of each metric and analysis changed over the past 10 years?
25%
19%
13%
25%
19%
13%
31%
44% 44%
25%
13%
19%
38%
31%
13%
69%
6%
19%
56%
13% 13%
50%
25% 25%
56%
6%
38%
44%
38%
44%
50%
More important Unchanged Less important Don’t know
+50 +44 +44 +31 +31 +13 +6 -6 -13 -19
Net change in perceived importance
(percentage points)
10. 10M&A Deal Evaluation: Challenging Metrics Myths
Authors
Bob Haas, partner, New York
robert.haas@atkearney.com
Angus Hodgson, principal, London
angus.hodgson@atkearney.com
The authors wish to thank their colleagues Oliver Lawson and Olga Wittig and the Investor Relations Society for their
support in the preparation of this paper. The IR Society is the professional body for those involved in investor relations
and the focal point for investor relations in the United Kingdom. For more information, visit www.irs.org.uk.