Firm value and share price strategy Essay

BAE facing ch eitherenges on Intensive competition and budget defence force cuts by their major customers should focus on increasing treatholders justice by reduction of prices, adapting capabilities to the changing priorities of their customers and improve their Programme execution. Directors should monitor working seat of government expenditures to check into that unnecessary further debt would be incurred that inevitably has an effect on book cherishs. Higher book determines (stockholders honor) act as a positive in a buyers assessment of grease ones palms price, to some extent providing at least the illusion of a groundwork in value (Nations Business 2006).4) Recommendations dealing with corporate constitution Currently BAE Systems has faced problems facing its shareholders receivable to its criticism received on corporate governance and ethical conduct (Daily Mail 2010). As a recommendation, BAE should follow the monetary reporting council (FRC) proposition on put ting great emphasis on the principles of UKs corporate governance code, and apply the one- year shareholder re-election. This would have a significant impact a wider exercise for the companys shareholders.A necessary midyear review process should be conducted by an external facilitator to help in the evaluation process, metrics much(prenominal) as board effectiveness by dealing with issues in a timely manner should be considered. Having a wide and complex influence of surgical procedures, information dissemination in a timely manner is actually important to ensure appropriate decisions. Key performance Indicators should be the road map across all the managing directors and their performance will be evaluated by similitude of their actual results from targets.5) Critical evaluation of the model used Using pecuniary models can provide actual figures for projection analysis that can make believe awareness for a companys board of directors (Palmgren 1999). The Residual Income ride can be used as a valuation of the firm, found on its total book value and relief income ( fiscal Education 2010). During new-fashioned years it has been used as the primary valuation method due(p) to its measurement of internal corporate performance and feasible estimation of the built-in value of common stock.The difference between a residual income and traditional financial statements are for the latter its purpose of preparation is to reflect pay available to its owners, charges incurred for equity roof and dividends are not included, while the antecedent adds the component of cost of equity capital for its calculation (Dodd 2001). Another limit point of the traditional income model is that it may not actually reflect the value of certain business activities.Such in our case with BAE systems numerous acquisitions, on its accounting model it seems that BAE have significantly better profitability on its strategies, however this could not be all false, besides using the residual income approach some of the acquisitions doesnt have the kindly of effect, due again to the cost of equity capital (Bild, Guest,Cosh and Runsten 2002). 6) Conclusion BAE Systems beingness in an industry where intense competition exists should apply necessary strategies to ensure profitability in the coming years both for continuous operation and maximizing shareholders equity.Their current strategies for acquisition may have benefited them but the cost of violation of regulation procedures have definitely impacted over all operations. Using financial models like the residual income model, the board of directors can see, what would expire if they continue with their current policies on corporate strategy and governance, it has shown a ban impact on present firms value, thus the recommendation for consideration of a new effective strategy to be implemented across the board. List ofReferences BAE Systems (2010) yearly Report 2009.PDF operable from http//bae-systems- investor- relations-2009. production. investis. com/results-reports-and-presentations. aspx 09 May 2010. Brylawski, M. (1995). underdeveloped a circumstance-based Innovation Strategy for a Midsized Aerospace ManufacturerFostering Entreprenuership, theory Boundaries and Seeding Disruption. PDF functional from . 09 May 2010. Bild, M. , Guest,P. , Cosh, A. , and Runsten, M. (2002). Do takeovers create value? A residual income approach on UK data. PDF Daily Mail (2010).BAE flies into storm with shareholders. functional from . 09 May 2010. Dodd, J. (2001). Operating income, residual income and EVA Which metric is more value relevant. journal of Managerial Issues. Financial Education (2010). The Residual Income Valuation Model. Available from http//financial-education. com/2007/10/30/the-residual-income-valuation-model/ 09 May 2010. Financial Times (2010). FT Market selective information BAE Systems.Available from http//markets. ft. com/ft/tearsheets/analysis. asp? s=BA.LSE. 09 May 2010. Nations Business (1996). 10 ways to increase your firms value scratch Worth. Available from http//findarticles. com/p/articles/mi_m1154/is_n11_v84/ai_18818240/. 09 May 2010.Palmgren, B. (1999). The Need for Financial Models. Available from http//www. ercim. eu/publication/Ercim_News/enw38/palmgren. html. 09 May 2010. Smith, T & Frost,L. (2008). BAE Buys Tenix Defence to Double gross revenue in Australia. Online Available from 09 May 2010. Wachman, R. (2010). BAE Systems hit by defence cuts.Available from http//www. guardian. co. uk/business/2010/mar/22/bae-systems-defence-spending-cuts 09 May 2010. West, K (2010). BAE goes top of the international arms league. Online Available from 09 May 2010. Appendices Appendix 1 Five year Summary Income Statement of BAE Systems. pedigree retrieved 9 May 2010 Extract from yearly Report 2009 http//bae-systems-investor-relations-2009. production. investis. com/financial-information/five-year-summary. aspx Appendix 2 gathering Income Statement. denotation Extract from Annual Report 2009 for the year ended 31 declination. Retrieved 10 May 2010 http//bae-systems-investor-relations-2009. production. investis. com/financial-information/group-income-statement. aspx Notes 2009 ?m Total 2009 ?m 2008 ?m Total 2008 ?m Continuing operations Combined sales events of Group and equity accounted enthronements 3 22,415 18,543 Less share of sales of equity accounted investments 3 (2,041) (1,872) Revenue 3 20,374 16,671 Operating cost 4 (20,060) (15,386) different income 5 465 415 Group operating profit excluding amortisation and impairment of intangible assets 2,038 2,003. amortisation 11 (286) (247) Impairment 11 (973) (56) Group operating profit 779 1,700 Share of results of equity accounted investments excluding finance costs and tax income outlay 233 132 Financial (expense)/income of equity accounted investments 6 (7) 44 Taxation expense of equity accounted investments (23) (37) Share of results of equity accounted i nvestments 14 203 139 Goodwill impairment in respect of equity accounted investments 14 (121) Contribution from equity accounted investments 203 18 EBITA1 excluding non-recurring items 2,220 1,897 improvement on disposal of businesses2 9.68 238 Pension curtailment gains2 261 Regulatory penalties3 (278) EBITA1 2,271 2,135 Amortisation (286) (247) Impairments (973) (177) Financial (expense)/income of equity accounted investments 6 (7) 44 Taxation expense of equity accounted investments (23) (37) Operating profit 3 982 1,718 Finance costs 6 Financial income 1,573 3,380 Financial expense (2,273) (2,727) (700) 653 value before taxation 282 2,371 Taxation expense 8 UK taxation (105) (351) Overseas taxation (222) (252) (327) (603) (Loss)/profit for the year (45) 1,768 ascribable toBAE Systems shareholders (67) 1,745 Minority interests 22 23 (45) 1,768 (Loss)/earnings per share 10 rudimentary (loss)/earnings per share (1. 9)p 49. 6p Diluted (loss)/earnings per share (1. 9)p 49. 5p Ap pendix 3 Group Balance Sheet as at 31 December. Source Extract from Annual Report 2009. Retrieved 10 May 2010 http//bae-systems-investor-relations-2009. production. investis. com/financial-information/balance-sheet. aspx Notes 2009 ?m 2008 Restated ?m Fixed assets Tangible assets 2 4 5 Investments in marcher undertakings 3 7,070 5,663 7,074 5,668 Current assets Debtors due deep down one year 4.7,468 9,339 Debtors due after one year 4 14 3 Other financial assets due within one year 262 703 Other financial assets due after one year 5 179 478 exchange at bank and in hand 5 2,804 1,988 10,725 12,511 Liabilities falling due within one year Loans and overdrafts 6 (37) (49) Creditors 7 (14,490) (12,873) Other financial liabilities 5 (255) (598) (14,782) (13,520) network current liabilities (4,057) (1,009) Total assets less current liabilities 3,017 4,659 Liabilities falling due after one year Loans 6 (233) (258) Creditors 7 (3) (6) Other financial liabilities 5 (327) (574).(563) (838) P rovisions for liabilities and charges 8 (61) (120) (2,393) (3,701) Capital and reserves Issued share capital 10 90 90 Share premium account 12 1,243 1,238 Statutory reserve 13 202 202 Other reserves 12 119 164 Profit and loss account 12 739 2,007 Equity shareholders funds 2,393 3,701 Appendix 4 Group exchange Flow for the year ended 31 December. Source Extract from Annual Report 2009. Retrieved 10 May 2010 http//bae-systems-investor-relations-2009. production. investis. com/financial-information/ currency-flow. aspx Notes 2009 ?m 2008 ?m (Loss)/profit for the year (45) 1,768.Taxation expense 327 603 Share of results of equity accounted investments 14 (203) (139) Net finance costs 700 (653) Depreciation, amortisation and impairment 1,600 755 Gain on disposal of property, plant and equipment 4, 5 (17) (33) Gain on disposal of investment property 5 (5) Gain on disposal of businesses 5 (68) (238) greet of equitysettled employee share schemes 52 51 Movements in provisions 52 (115) De crease in liabilities for retirement benefit obligations (657) (272) Decrease/(increase) in working capital Inventories 6 46 Trade and other receivables 52 (5).Trade and other payables 433 246 gold influx from operating activities 2,232 2,009 Interest salaried (250) (249) Interest element of finance direct rental payments (2) (5) Taxation give (350) (261) Net cash inflow from operating activities 1,630 1,494 Dividends received from equity accounted investments 14 77 89 Interest received 66 156 Purchases of property, plant and equipment (483) (520) Purchases of intangible assets (42) (32) Proceeds from sale of property, plant and equipment 36 44 Proceeds from sale of investment property 5 Purchase of subsidiary undertakings 27, 29 (357) (1,078). bills and cash equivalents acquired with subsidiary undertakings 27 33 2 Purchase of equity accounted investments 27 (1) (12) Proceeds from sale of subsidiary undertakings 9 2 131 Cash and cash equivalents disposed of with subsidiary und ertakings (60) Proceeds from sale of equity accounted investments 9 70 16 Net proceeds from (purchase)/sale of other deposits/securities (209) 164 Net cash outflow from investing activities (808) (1,095) Capital element of finance lease rental payments (13) (18) Proceeds from issue of share capital 5 16 Purchase of own shares (25) (43) Equity dividends paid 28.(534) (478) Dividends paid to minority interests (5) (11) Cash inflow/(outflow) from matured derivative financial instruments 36 (440) Cash (outflow)/inflow from movement in cash collateral (11) 106 Cash inflow from loans 920 Cash outflow from repayment of loans (133) (306) Net cash inflow/(outflow) from financing activities 240 (1,174) Net increase/(decrease) in cash and cash equivalents 1,062 (775) Cash and cash equivalents at 1 January 2,605 3,046 Effect of foreign exchange rate changes on cash and cash equivalents 11 334 Cash and cash equivalents at 31 December 3,678 2,605.