Wednesday, April 29, 2009

why understanding value company is important?

valuing companies is usually seen more as a task for the stockbroker,merchant banker or financial analyst than the humble lending banker. But understanding company value and how it is created can be very important to undertaking a proper credit assessment of a company because:
- good management teams manage their businesses to increase their value and it is helpful to know whether they are succeeding or not. A management team that seems to be disinterested in improving the value of the business is one that should be questioned.
- a business that is increasing in value is likely to be a better credit risk than one that is falling.
- a business that has a value as a going concern can be sold-the ultimate test of the value of security.
- a number of banking propositions involve the acquisition of a business or parts of a business and the banker should be able to have a view on whether such deals make sense or not. The same can be said about the impact of disposals.
- it is a topic that the fully educated banker should be able to discuss in an informed way with customers in order to have a meaningful contribution to a debate on their business.

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