THE COMPANY IS AMAZON. YOU CAN FIND INFORMATION ONLINE. Use your confirmed Compa

Question

THE COMPANY IS AMAZON. YOU CAN FIND INFORMATION ONLINE.

Use your confirmed Company Selection (Amazon) for case study of the following discussion questions. AMAZON. INC

1. Questions to Ask CEO About Valuation – If you were directed to make a visit to a company’s CEO for the purpose of obtaining information in addition to the 10K to complete a valuation of that company’s common stock, what questions would you ask and why?

2. Non-Operating Assets – Is it important to address the value of non-operating assets in arriving at an estimate of the value of equity per share? Why? Offer an example from your company?

3. Increasing Value of Firm – Assume the board of directors of the firm where you are CEO is calling for an increase in the value of the firm, what would you do to respond positively to that direction?

Explanation / Answer

1.Valuation of shares

In case of the valuation of shares and its transactions concerning relatively common stocks or small stocks in an exchange generally the average price will be provide the basis

Basically two methods provide the valuation of shares Net Assets Method and another is Yield method.

In case of Net Assets Method:

Net Assets attributable to equity dhare holders/No of Equity shares

For this Calculation of net assets involves the Valuation of Intangible Assets involves Goodwill,valuation of tangible assets and valuation of liabilities.

For valuation of goodwill

Steps involved are

Step 1 : Calculation of Average Capital Employed-It requires the Balabce sheets of current year and past year

Capital Employed =Assets-Outside Liabilities which is made after the certain adjustments

Averagre Capital Employed =(Opening Capital Employed+Closing Capital Employed)/2

Step 2 : Future Maintainable profit

Future maintainable profit is ascertained by taking either simple or weighted average of the past profits or fitting trends.If there is no particular trend then simple average is considered and if there is particular trend then weighted average is considered.

Step 3 : Calculation of Super Profit

Normal Profit=Average Capital EMployed*Normal Expectation rate

Super Profit=Future MAintainable Profits-Normal Profits

Step 4 :Calculation of Goodwill

Super profit+No of years of Purchase

Net Assets=Tangible Assets+Intangible Assets-Liabilities

Hence Questions to ask CEO are

1.Is company earning required return on invested capital(can be known in Future Maintainable Profuts Step)

2.Is the Company Gaining Market Price(can be known in Market expectation rate usdd in calculation of Normal profit)

3.What is the trnding of turnover and expenses which are operating (used in Future MAintainable Profits)

4.What are the assets involved in the balance sheet mainly the cash equivalents to raise the funds and its growth

5.What part of the aspect of the business is giving you the most trouble now?

6.Do you have any plans to promote the stock?

Question 2: In calculation of Goodwill Non operating assets are to be excluded as it involves the main busness operations

Question 3.Ways to increase value of the firm

Diversify the customer base

Competitive Advantage

Financial foresight and controls

Good and improving cash flow

Demonstrated Strategies

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