Strategic corporate finance Essay Example | Topics and Well Written Essays - 2000 words - 1

Strategic corporate finance - Essay Example Price-to earnings ratios as a method of share valuation aids in the determination of whether a company is undervalued or overvalued, however, P/E ratio has a number of limitations or pitfalls and is only valid in specific circumstances. Its usefulness is undermined by the following factors. The first factor is accounting. Earnings from which is it derived is an accounting figure that is determined under the guidance of accounting rules known as Generally Accepted accounting Principles, GAAP) that are subject to change and they usually vary from one country to another (Barnhart & Giannetti 2009: 79). Therefore, EPS can be squeezed, twisted and prodded into numerous numbers depending on how one decides to do the books. It is therefore subjective and the figures being compared may not be the same. The second factor that limits the usefulness of P/E ratio is inflation. During times of high inflation, P/E ratio tends to e much lower because the market normally views the earnings as bein g artificially distorted upwards (Ball 2012: 327). During such times, depreciation as well as inventory costs tends to be understated since the replacement costs of equipment as well as goods increase with the rise in general level of prices. Information therefore, makes it hard to value the shares because past information is often less useful today. P/E ratio cannot therefore give a clear picture regarding the valuation of the shares of the company in times of high inflation Another limitation is about market interpretations. The values of P/E can be interpreted in a number of ways, for instance, a low P/E ratio may mean that the company is undervalued. On the other hand, it may indicate that the market thinks that the firm in question is headed for trouble or problems in the near future. This implies that the earnings of the company will reduce lower than expected (Ball 2012: 330). It is clear that companies are able to manipulate

Summary Essay Example | Topics and Well Written Essays - 500 words - 128

Summary - Essay Example Though this theory measure the voting activity in terms of individual cost and benefits, it supports the ideological difference that exist between those willing to and those not willing to vote. This means that voting is a choice according to the theory of voting in relation to the voting calculus. This article depicts the reasons behind peoples’ participation or lack of participation in voting activities. According to the article, voting is a choice based on the level of commitment, civic knowledge, and finance to support the process. The three mentioned factors are grouped under resources and any of these determines whether an individual is ready to vote. A person with poor civic skill sees no need of voting and tends to calculate its benefit in line with spent time. Again, a person engaging in a more beneficial activity apart from voting sees no need in the process and continues with a more beneficial activity. This is a clear indication that voting is a choice based the costs and benefits according to the information displayed in this article. This article explains the voting process as a choice propelled by self-interest. According to the given information, nobody can participate in an activity without an interest. Voting is a public activity that involves many people though only few people benefit from the entire process (Riker & Peter, 36). For instance, the candidates and their family relations tend to benefit largely from the voting process and this explains self-interest and the level of benefit as a motivating factor. Apart from self interest, some people vote to save a magnitude without considering their interests. Voting without self-interest is a choice as explained in this article. This makes it difficult to determine whether voting is a choice or a fundamental activity. Social Identity, Political participation, and Altruism are choices that determine the voting