Text Messaging Affects Language Skills English Language Essay

Text Messaging Affects Language Skills English Language Essay In recent years, there has been an enormous increase in the relativity of using cell phones to communicate. Cell phones have become the fundamental components of family life, especially for most teenagers. Appearance of unlimited texting plans offered by phone companies like Sprint, T-mobile and Verizon, texting is becoming hard to resist. IYO TXTng = Gd 4 or NME of Lang? (Text Message Dictionary) If you cannot understand the previous sentence, then you are most likely are not aware of the language of the text messaging. Who are the originators of this language? The answer is most of the teenagers in the modern society. The translation for the vague sentence above is: In your opinion, is texting good for or the enemy of language? Text messaging has provided our society with a quick means through which to communicate. It has taken out the need for capitalization, punctuation and the use and knowledge of sentence structure. However, this recent form of communication has become so promi nent that some educationists worry that it may be damaging teens literacy skills. Others, however, believe that teenagers are making their own language in the modern society and see no effect on their students language skills. I think that the one way text messaging affects language skills is that it leads to the downfall of communication. It aids the lack of intellect and flow of logic that humans possess when communicating with another human being. When I was in a McDonalds couple of days ago, I observed something that disturbed me; it also annoyed me a bit and this had to do with communication skills and texting. A table in a corner across from when I and friend were seated, there were three young people, ages that I can guess to be around 16. They each ordered drinks and French fries and they all had cell phones held in their hands. Couples had ear buds in their ears and probably listening to music that they enjoyed. They shake back and forth around in their seats to the beat when they were listening to their music and texting on their mobile phones. Every couple of seconds, one of them would eat fries and slurp his drink and they were all texting. They were seemingly texting each other from the snickering laugh and pokes I observed yet they were all sitting right there at the same table. The thing that irritated me the most was that there was literally no verbal conversation other than a casual grunt. Their communication was done on their cell phone with no face to face conversation with their friends who were sitting next to each other. Are we losing our ability to truly communicate or, use voices? When you are sitting at the same same table why werent you talking? Texting is not talking. Most teenagers in this society dont talk to other people face to face. There is no verbal communication. It is hard to make sense of the language because there is no tone, no expression, no feeling, no body language and it is easy to text about some issues rather than talk face to face. It is also easy to apprehend into a conversation which is not really there and make wrong conclusions, without fully understanding what is being communicated. I know people who not only freak out about having to give a public speech, but who worry about having a face-to-face conversation. Its a bit ridiculous. Texting lingo has already spread to speech, social networking sites and other areas of writing. Shorthand phrases such as LOL and OMG first appeared in messaging forums and transferred smoothly into text lingo. The same thing is happening in reverse. This is not a complication when youre texting or emailing your friends, but young people dont understand that you cant write LOL into an email to your boss. As American University linguistics professor Naomi Baron states, So much of American society has become sloppy or laissez faire about the mechanics of writing (Hauck). I agree with her. Check any popular forum and see for yourself what the bloodbath of spelling and grammar looks like. So when we are not forced to write out words, the rules of our language arent enforced. Recent research seems to support that texting has an adverse impact on peoples linguistic ability. Drew Cingle and S. Shyam Sundar conducted research at Penn State University. They published their research in the professional journal,  New Media and Society.  Both authors argued that the students who write in techspeak used shorthand phrases, homophones, essential and nonessential letters to compose a text message. They thought that writing in techspeak would prevent persons ability to go from techspeak to normal rules of grammar. They did research to find if text messaging affected students grammar skills. Based on their data from over 500 students from middle school, they concluded there is evidence of a decline in grammar scores. Cingle gives reader personal example from his two younger nieces. He indicates that their text messages were incomprehensible and that he had ask them what they were trying to get out of that message. The message was incomprehensible because the use o f shortcuts, he said (Cingle Sundar). Joan Lee did another study to find the impact of texting on language skills. She conducted her study for her masters thesis in linguistics. Based on her data, her results proved that the students who texted more were less open to new terminology. Her results also proved that students who read media were more open to expanding their vocabulary. Our assumption about texting is that it encourages unconstrained language, Lee argues, but the study found this to be a myth. Lee argues that reading print media exposes people to variety and  creativity  in language that is not found in text messaging used among youth (Lee). I think persons vocabulary expands upon first using communication device due to some unique words used in texting. However, the terminology size levels off as the person knows most of the words that are unique to texting. After that, the person will use same group of vocabulary over and over again. Lastly, teenagers in this society dont know exactly what listening is. They may look like they are listening, but things are going in one ear and right out the other. College students who frequently text message during class have difficulty staying attentive to classroom lectures and consequently are at risk of having poor results, according to a study by Fan-Yi Flora Wei, and his two colleagues Ken Wang and Michael Klaussner. They published their study in the journal  Communication  Education. They concluded that most college students believe they are capable of performing multitasking behaviors, such as texting during their classroom learning, but research does not support that proposition (Wei). Do I think text messaging is a bad thing? No, of course not, it is a good thing and certainly has a place in todays computer age society in a many different ways, it can even help to keep us safe and protect us but when do not use it properly, as it was meant to be used, it depletes our writing skills, cripples our communication skills, and has a negative impact on the other language skills as well. When we let computer age technology, texting become our obsession and allow it to take over our life to such an extent that we lose all our other living and language skills it becomes as dangerous as a gun in the wrong hands.

When the Levees Broke Rhetorical Analysis

Chase Caldwell Professor Gwaltney English 1102 14 March 2013 When The Levees Broke Rhetorical Analysis Hurricane Katrina made landfall in Louisiana on the morning of August 29, 2005. The storm produced sustained winds of up 125 mph when it hit that morning. On that same day Katrina caused 53 different levee breaches in greater New Orleans, spilling the waters of Lake Pontchartrain into the city and flooding an overwhelming majority of New Orleans.The floodwaters destroyed countless homes and lives along the way. Some estimates of the cost of Katrina were up in the 200 billions but according to Kimberly Amadeo, â€Å"The actual cost of Hurricane Katrina's damage was between $96-$125 billion, with $40-$66 billion in insured losses. † This statistic makes Katrina one of the most expensive natural disasters to ever hit the United States. Money wasn’t the only thing that was lost; the storm killed roughly 1,500 people in Louisiana alone.Floodwaters stayed in New Orleans for weeks leaving many people stranded and fighting for their lives. Post-Katrina New Orleans was a war zone with looting, shootings, robbery, and people desperately needing help from the government. Help was slow to arriving though. People went days and days without food or any kind of help at all. Many people died from all sorts of different causes. Deaths ranged from heat exhaustion in attics to drowning in the street and even in the victims own home.The majority of citizens of New Orleans’ ninth ward feel like the government did not take the right measures in getting help to the victims of the storm and they also feel like the destruction altogether could have been avoided had the levees been built correctly. The story of New Orleans and the failing levees is right up one filmmaker’s alley. Spike Lee is known to make movies that examine race relations and political issues. The story of New Orleans during Katrina touches on both of these subjects immensely. Thus, When t he Levees Broke was born.The documentary is a heart-wrenching medley of eyewitness accounts, video news footage, and photographs of the destruction that mix together in a way that shows Lee’s dissatisfaction with what happened during Katrina. Lee was legitimately upset about what happened in New Orleans during Katrina and even toys with the idea that the U. S. government blew up the levees to rid New Orleans of poor blacks. Needless to say, Lee will not hesitate to tell anyone what he believes and is the center of many different controversies in Hollywood. His personality is best described as that of a ticking time bomb.His feelings for the people of the ninth ward coupled with his outspokenness on political affairs and race relations were the driving force behind When The Levees Broke. Lee’s intended audience is really anyone who takes the time to watch his work. He really wanted to get the story out to the public and that is exactly what he did, he let the world see exactly what was happening in New Orleans without any sugar coating. Lee does not hesitate to put a floating, swollen dead body on screen just to let the viewers know the grotesque reality of what happened.Lee uses this documentary to voice his opinion against how the government handled Katrina. He felt that the government did not do what it should have done during this time and he shows his disappointment with the federal government through the movie. Lee conveys a huge array of arguments in this film from the government blowing up the levees to George Bush not caring about black people. Throughout all of these arguments his barebones, central argument is that the federal government did not fulfill its duty to the people of New Orleans during the Katrina catastrophe.Lee conveys this argument in a number of different ways. For instance, he conveys the argument by interviewing a multitude of people that lived through Katrina and has them explain their unrest and disappointment in the government on camera. He also shows photographs of posters and paintings that read things like â€Å"Where’s Fema? † and â€Å"Fuck Bush†. These tactics make it quite easy to see that Lee is upset with the Government. He uses a number of appeals to get his argument across. He mostly uses pathos by using horrific eyewitness accounts and gruesome photographs to stab at the audience’s emotions.The audience cannot help but feel terrible for the people who had to go through this. One of the worst feelings is watching someone cry over their lost home or hear an account of someone who comes home to their dead mother. Lee undoubtedly does a good job of evoking emotion from the audience. Lee interviews a melting pot of people in this documentary. It seems like there is an interviewee from almost every walk of life. In fact HBO explored just how many people Lee interviewed: Lee and his team selected close to 100 people from diverse backgrounds and representing a w ide range of opinions to nterview, including Governor Kathleen Blanco; Mayor Ray Nagin; residents Phyllis Montana LeBlanc, Kimberly Polk, Shelton â€Å"Shakespeare† Alexander and Rev. Williams; activists Al Sharpton and Harry Belafonte; CNN's Soledad O'Brien; and musicians Wynton Marsalis, Terence Blanchard and Kanye West. This works in his favor and adds to the ethos of the film. Since he is getting the opinions of a number of different people it shows more of the bigger picture and does not focus on only one person or one group of people.Diversity and unifying people under their disappointment with the government is a key part of his argument. This shows that he is not the only person that feels this way about the government, in fact everyone in the movie feels the same as he does. This can cause some speculation. Spike’s argument is not perfect. There are multiple flaws in the argument that can cause it to be discredited. For one, the opinions of his interviewees ar e so one-sided that the audience does not see a single glimpse of the other side of the spectrum.Not one person in the film seems satisfied with how the government handled the situation. In a way this discredits Spike Lee’s argument because it seems as if he is only showing you what he wants to show you. He shows you nothing good that the government did or people that are satisfied with how the government helped. The audience only sees the people who are disgruntled by Katrina who just want more and more help. It is hard to believe that there is not a single person in New Orleans who was not satisfied with the help that they received from the government.Mr. Lee simply does not show the satisfied citizens of NOLA. If he had shown these people then his argument would be much stronger. Also, Lee does evoke emotion in the audience but after a while it just becomes too much. After 4 hours of seeing wreckage and dead bodies you almost grow tired of feeling sorry for people. The fir st time you see a destroyed home or a dead body you want to cry for the victims but after hours and hours of seeing the same thing you become used to seeing it.Spike lee definitely evokes emotion but he should have done so more in moderation so the audience would not tire of feeling sorrow for the victims. Lee’s background as an outspoken critic that really just seems to love controversy also discredits his argument. It is as if Lee could be making this film to just stir up controversy in Hollywood because that is what he seems to love to do. He has had countless run-ins with almost every director in the business from Tarantino to Tyler Perry. He imply loves controversy so why would he not take this story and blow it up and make a huge controversy out of it? It would not be out of character for him to do so. That is why his argument can be somewhat discredited by his background. It is not unlikely that Lee took this story and made it a huge ordeal just to stir up controversy in Washington and against Bush, whom he does not support. The story is really just a perfect opportunity to pin people against Bush. His background, one-sidedness, and excess of pathos all hurt his argument greatly.When the Levees Broke is a Spike Lee documentary that tells the story of the destruction that Katrina and a failed levee system had on New Orleans, Louisiana. The creator uses the film in an attempt to argue that the federal government did not do its part to help the people of New Orleans after the disaster. However, he fails at arguing that point due to his one-sidedness and his personal background. During the film, interviewees all agree on the consensus that the government did not help out how they should have but no one thinks that they did a good job of helping out.This just shows that Lee is only showing the audience what he wants them to see. If he had shown both sides of this argument and disproved the opposing side his argument would have been much stronger. Also , Lee’s personal identity as one who loves controversy discredits his argument in that it appears to be just another one of his critiques. He has so many critiques of things that this argument really just gets lost in the sea of them all. Works Cited Amadeo, Kimberly. About. com. The New York Times Company. n. d. Web. 12 Mar. 2013. HBO. com. n. p. n. d. Web. 12 Mar. 2013.

JCS Technology Essay

I. Introduction JCS Technology is a small IT company that is owned by Steve Puzder. Steve employs ten employees of which six are full time, two are part time, and two are contractors. JCS Technology has been in business for 5 years. All the employees have been with JCS Technology for 5 years. The six full time employees are paid an hourly rate along with completion bonuses, the part time employees are paid an hourly rate, and the contractors are paid per job along with completion bonuses. JCS Technology has a small office and most of the work is done outside of the office. There is one full time person in the office all the rest of the employees work 95% of their time outside the office. Employees are paid every week with monthly bonuses. The IT field is always changing therefore JCS Technology offers education reimbursement which also includes any tests that need to be taken to get certifications that will keep the employees up to date in their skills. Each employee has a company issued laptop and cell phone. Flex scheduling is also offered along with one week paid vacation. We are going to look at adding paid mileage as most employees have to travel to get to the job site and the job site can change more than once a day. We will also look at medical care as we don’t know what is going to happen with Obama Care. Then lastly we are going to look at a 401k. All of JCS Technology’s employees are fairly young so we are going to see what it is going to take to make this company grow as they grow. I. Statement of Issues JCS Technology is a very small and young company which does not have a very high profit margin. Along with being a young company the employees are also young and all single males. With only ten employees and six of them are full-time Steve has not researched a benefit package other than the things that are needed to perform the tasks to complete their job. After looking at three other small IT companies JCS Technology seems to offer about the same benefits as his competitors. I did find that most IT companies do offer some type of car allowance as there is a lot of travel time. I did a survey of all the employees that Steve employs and found that there are some benefits that the employees would like to see and others that are not of immediate concern. I asked the employees to rank a group of benefits in order of importance to them. These benefits include more vacation time, flex scheduling, car allowance, health care, bonuses, and a retirement plan. II. Literature Review There is a wide range of benefits that may be offered such as educational, family, lifestyle, recreational, retirement, savings, and transportation. Other benefits that are mandatory are Social Security, Medicare, unemployment insurance, worker’s compensation, COBRA, and FMLA. Benefits are incentives to attract and keep good employees and are also a way of meeting the needs and wants of employees. Another role of benefits is to provide income protection to workers lacking income. Five principal types of income protection delivered by benefits are: (1) disability income replacement, (2) medical expense reimbursement, (3) retirement income replacement, (4) involuntary unemployment income replacement, and (5) replacement income for survivors. (Dave Mote, 2011) Many consumers make random choices, follow the advice of others, or pick a plan that may include a particular medical group. A survey was conducted of 1,800 enrollees and patient in Iowa. It was conducted by the Health Institute at the New England Medical Center Hospitals, Boston, with a grant from the John A. Hartford Foundation. None of the plans received excellent ratings.†I think we’re headed toward more consumer choice among competing health plans, and the choice will be largely determined by survey results such as this one,† says Paul Pietzsch, HPCI president. Blue Cross and Blue Shield of Iowa are reviewing the study and would like participate in another study but would like to revise some of the questions. [ (Bergman, 1993) ] Do consumer-driven health care plans offer a more affordable health care plan? Myth has it that CDH plans do not reduce the costs but rather shifts them. Data found that there was almost a 14% difference in favor of the CDH plans he study also showed that CDH plans do not â€Å"cherry pick† the youngest, healthiest, and richest. The data also shows that enrollment in CDH covers healthy along with chronically ill. It also looked at two chronic conditions and showed that the medical costs tend to less for customers of a CDH plan. [ (Reindl, 2010) ] III. Issue Analysis JCS Technology is a small company that does not offer any health care plans. Steve feels that he is a small company and cannot afford offer this type of benefit. With Obama care in the near future we looked at if heath care is something that can be offered now or in the near future. Right now the tax credit is 35 percent of the cost that a company paid premiums that increasing to 50 percent in 2014. After interviewing the six full time employees of JCS Technology I found that health care is not a major concern of the men right now. Bob, Joe, and Sam being the oldest of the group stated that they would like to have some type of retirement plan verses health care. Jesse, Cody, and Richard being the youngest of the group stated that they would like more vacation time. Over half the guys said they would like a fitness program. All of the employees stated that they would like a car allowance as there is a lot of travel time involved in their jobs. IV. Issue Analysis We are going to look into maybe offering AFLAC in the place of health care coverage right now. The employees are being paid a modest pay for the size of the company, but the men have expressed that they are not really sure about pay anything towards health care at this time. We have time before Obama care goes into effect so the men will begin to look more heavily at heath care next year maybe in place of the bonuses that they are getting right now. Since all the employees have been with the company for five years we will look at adding one more week of vacation also we may also give the men an opportunity to buy extra vacation days. We are going to look at the gas mileage that each of the employees are getting with their car and look at getting a company gas card for the crew to use. If the gas mileage is low on average then we will figure out a fair amount to pay per mile that each employee drives on monthly bases. Next we are going to look into a fitness program for the employees. Since all the employees are young and male we are going to hire a nutritionist and add a quit smoking program. We are going to check the local recreation center and the local gyms to get the best offer for memberships for all the employees this will also include the part-time employees. V Issue Solutions After some research we have found that there is wide range of health care programs. Rather than try to set up a company program we looked at individual plans. The plans run from 93 dollars a month for a very high deductable ($10,000) to $610 a month for a low deductable. The men are young and healthy, but are on the road for about 30% of their time. It would be nice if the men had a health care plan just in case but do we offer the high deductable with the company paying the premium or offer a lower deductable with the employees paying part of the premium. When questioning the men they did not want to give up any pay to get better health benefits. If the company stops the bonus program then there is room for some health care. If we stop the bonus program the men will be up-set as each one of them as expressed that they do not want to give up any money for health care. Bob, Jesse, Richard, and Cody said that they would really like a fitness program, Frank, Sam, Terry, and Jack said that they would like a car allowance of some kind. All the men expect for Richard and Bob would like more vacation time. None of the men are interested in a retirement plan. Five of the men smoke and only two would like to quit. With little impact to the bottom line we can add a fitness program. For the men that wish to quit smoking we are going to offer them and incentive to reward them upon them completing one year of non-smoking. VI Solution and its Implementation I have found it hard to work out a plan that all the men would be happy with. With an annual salary of $50,000 plus a year the men are quite happy the way things are as far as their salary goes. As of January 1, 2012 the company will no longer be offering completion bonuses which will equal to about $5,000 a year. Each man will be offered a yearly membership to the gym of their choice. The men that smoke will be offered help to quit smoking. We have decide that if the men are interested in a health care plan that they can get one on their own and the company will pay 50% of the premium up to $3,000 a year. Each of the men will be given a $100 a month gas allowance as we found that each person drives about 500 miles a month. Those employees that choose not to get health insurance the company will reimburse 50% of their car insurance as a replacement. We have decided not to add any more paid vacation time at this present time but we are going to offer a buy vacation time: each employee will be able to buy three vacation days at the rate of $50 per pay period. The men are giving up a little when it comes to the bonus that they will not longer receive but Steve and I feel that we have come up with a plan that everyone can live with. VII Justification Steve really wanted to try and offer his men the best things that he could and things that would make a difference to each one of the men. The men that work for Steve are like family to him and he tries to make his company one that each man can take pride in working for. We fell that we took what each person had to say and applied it to the decisions that we made. The men really did not want to give up any cash that they were making but we think that what we are offering will make up any money that we may have taken away. We looked to see what the changes would cost the company and the benefits to each the company and the employees and feel that we did the best for everyone. VIII Reflection Meeting with Steve and his employees was very enjoyable. I have not had the chance to meet with a company and discuss things that could change a year or more of a person’s life. The thought of making life changing decisions for someone else is pretty scary. You try to make everyone happy but you can’t you have to make the best decisions for the company. If you make the wrong choices for the company it could be devastating. I have learned that it would be wonderful if you could please everyone which for a small company like the one that I looked at it may be possible but not probable. Large companies have to look at the bottom line where I think that some smaller companies may have lee way in their thinking. All the men that work for Steve were get in giving me their honest feed back about what they would have like see happen with their benefits. I had to take a step back and stop and think what was best for the company in the end. I wanted to give the men what they were asking for but then I knew it was my job to do the best thing for the company. I know that it was a small company that I worked with and a larger company is going to have more issues to look at and I look forward to the day that I can put to work what I have learned in this class and doing this project. I know that my research will not end here because there are so many more benefits that I want to take a closer look at. Such as the tax credits for health care and other credits that larger companies receive.

The Techniques Involved In Financially Valuating A Company Finance Essay - Free Essay Example

Sample details Pages: 18 Words: 5371 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? In the past thirty years, mergers and acquisitions of companies have seen a constant rise. Companies seem to feel that the fastest and the most effective way to rapidly expand is by acquiring other companies. Even in India, the merger and acquisition business deals amounted to $40 billion during the initial 2 months in the year 2007. Don’t waste time! Our writers will create an original "The Techniques Involved In Financially Valuating A Company Finance Essay" essay for you Create order The total estimated value of mergers and acquisitions in India for 2007 was greater than $100 billion, which doubles the amount of mergers and acquisitions in 2006. Some of the most popular acquisitions in the recent past have been that of acquisition of Legendary British car brands Jaguar and Land Rover by Tata Group at the cost of 4.2 billion dollars. Any form of acquisition or merger can occur via three ways. It can be a pure cash deal or a pure stares deal or a hybrid deal (partial cash and partial stares). Whichever be the case, the correct valuation of the company being acquired plays a major role in determining the success or failure of the deal. While evaluating any company, not only its monitory value, but also its synergy value is considered to be of utmost importance. Synergy refers to the potential additional value from combining two firms, either from operational or financial sources. Operating Synergy can come from higher growth or lower costs Financial Syne rgy can come from tax savings, increased debt capacity or cash slack. Correct calculation of the synergy value is the most important part of valuation for any acquisition. This value can be different for different company bidding for the same company. Having a correct estimation of the synergy value and the physical value of the company prevents the acquiring company from overpricing, thereby saving the companys resources, both financial and other. Statement of the problem In this paper, I would like to discuss problem of choosing the method to evaluate the company accurately. There are several methods to estimate different aspects of value for the same company, the combinations of these would tend to give an estimate of the value of the company which will be in accordance with the objective of the company going for the acquisition. Purpose of the study Any company opting for a merger or acquisition is taking a very calculated risk. Apart from the fact that significant resources accompany any acquisition, there are various internal and external factors involved with any acquisition. Hence, it is important to create fail safes. From this, it can be said that any merger or acquisition involves a continuous thought process and innovation at any required. Even after doing so, most of the acquisitions fail to deliver. There can be a lot of factors involved and responsible for the failure of any acquisition. But 90% of acquisitions fail because the company paid too much. It could have been that in the heat of a hostile takeover, the company overpriced its offer. But there can also be a second possibility that the company was not valuated properly. Hence from this study, I would like to: Understand the techniques involved in financially valuating a company Analyse each of the techniques for the advantages and their limitation s Conclude on my findings about the effectiveness of the current practices for valuation. Review of Literature Sources of Value To create any organisation is to actually create value. This value can be of several types. Employees, office, even the furniture are a source of value for the company. These sources can be divided into four main categories (Fig 1). Physical Capital- this forms the base of the pyramid. For any organisation be too formed, it first need to have a basic infrastructure in place. Its assets like building, land, machinery, etc. are the physical capital which is required to start building value for the company. Working capital- value is also created by the revenue generated by the organisation. The working capital mainly constitutes for the revenue and also the inventory turnover ratio of the company. It comes above the physical capital and is of vital importance since the main objective of any organisation is to make profit. Human Capital- to make any organisation work, employees are needed. And a significant investment is required to procure and train employees to align them wi th their work and also the main objectives of the organisation. They tend to become a source of value for the company. Although their worth is not physical in nature, it is an important constituents while calculating the synergy value of the organisation for an acquisition. Brand capital- this form of value can be a major profit generator for a company. Brand value is the value of the company products in the mind of the customer. If the brand value is high, customer surplus increases thereby increasing the value of the organisation. To create such a value for an organisation, significant resources are required. Value of a Company Although the company can be evaluated from its four sources of income, any company goes through the procedure of differentiating them into several sections and also considering the stakeholders opinion while valuating a company. There are several parts to assessment of the value of a company (fig 2). They are as follows: Intrinsic Value: This is the most basic value of a company. It is the future forecast of its cash flow and increase in revenue if the company continued to run under the same management without being acquired. In a nut shell, it can be said that the intrinsic value of a company is its present value on the expected future cash flow without any acquisition. Market Value: It is also commonly referred to as current market capitalisation. For an acquisition to be successful, sometimes the company have to pay a premium over the actual value so as to outbid their competitors. The market value is hence determined by the value in the minds of the competitors. Here, the company must determine the highest value of the competitor and compare its own assessment of value and make a decision. Purchase Price: Also known as the anticipated takeout value, it is the anticipated by the bidder for a company which will also be accepted by the target shareholders. While acquiring any company, it is important to consider the implications for the shareholders of the company since their approval is also necessary. It is therefore necessary to consider the value of the company in the shareholders mind, and how they should be compensated for the acquitition. Synergy Value: the most important and the most difficult to predict is the synergy value of the company. It is different for different bidders. Synergy value of a company depends upon the objective of acquisition. It is net present value of the cash flow that will result from the improvements made when the companies are combined. Most mergers fail because companies are not able to correctly anticipate thi s value and tend to overbid. Value Gap: It is the difference between the intrinsic value of the company and its purchase price. Usually in todays market, companies have to pay a premium to acquire another company, sometimes in a hostile takeover the bidding companies tend to pay more, here is where the value gap comes into play. This gap should therefore always be kept in mind while quoting a price for acquiring a company. Methods of Corporate Evaluation Asset-Based Methods: It starts with the calculation of total book value of the companys equity. It is the total value of company assets minus its debts. Equity is something which a company has which includes both tangible and intangible assets. Tangible assets are the cash, building, machinery, etc. and the intangible assets are the companys brand value, management, etc. The Balance Sheet: Cash Working Capital The process of evaluating a company by asset based methods starts by looking at a companys cash and equivalents and short-term investments. Divide it by the total number of outstanding shares and this will give the percentage of cash in the current share value of the company. Acquiring companies with excess cash can be very profitable in terms of acquiring capital for new product development and the capital needed to be infused to set up a new facility. Companies which are forecasted to have a bad future can also improvise and improve tremendously after having good cash at hand. The ratio of working capital to the capitalisation can also give a fair assessment of the company. Working capital is the difference between current assets and the current liabilities. market capitalisation can also be called the capital structure Working capital represents the funds that a company has ready access to for use in conducting its everyday business. If you buy a company for close to its w orking capital, you have essentially bought a dollar of assets for a dollar of stock price, not a bad deal, either. Shareholders Equity Book Value: Shareholders equity  is the actual book value of the company. It includes everything that a firm has on its books of accounts from its liquid assets like cash, office, real estate assets, its retained earnings to everything. It is the measure of the degree of liquidity which a company has if all of its assets were to be sold off. To calculate book value per share, take a companys shareholders equity and divide it by the current number of shares outstanding. This can then be used for the calculation of price to book ratio. Book value is a simple and a straightforward concept and it is considered to be better when the cost incurred for the acquisition is closer to the book value of the company. The shareholders equity can also be used to find the return on equity. Return on equity is a measure of earnings a company generates in four quarters compared to its shareholders equity. It is measured as a percentage. ROE can be used by companies to find whether profit s are possible with little capital investment. Coca Cola, for instance, does not require constant spending to upgrade equipment the syrup-making process does not regularly move ahead by technological leaps and bounds. In fact, high ROE companies are so attractive to some investors that they will take the ROE and average it with the expected earnings growth in order to figure out a fair multiple. This is why a pharmaceutical company like Merck can grow at 10% or so every year but consistently trade at 20 times earnings or more. Intangibles Intangibles are assets of a company like brand, which although not quantifiable form a very important part of the organisation. IBM Balance Sheet Assets $Mil Cash 5,216.6 Other Current Assets 32,099.4 Long-Term Assets 46,640.0 Total 83,956.0  Liabilities and Equity $Mil Current Liabilities 30,239.0 Long-Term Liabilities 31,625.0 Shareholders Equity 22,092.0 Total 83,956.0 The Piecemeal Company Finally, a company can sometimes be worth more divided up rather than all in one piece. This can happen because there is a hidden asset that most people are not aware of, like land purchased in the 1980s that has been kept on the books at cost despite dramatic appreciation of the land around it, or simply because a diversified company does not produce any synergies. Sears, Dean Witter Discover and Allstate are all worth a heck of a lot more broken apart as separate companies than they ever were when they were all together. Keeping an eye out for a company that can be broken into parts worth more than the whole makes sense, especially in this day and age when so many conglomerates are crumbling into their component parts. Using Comparables The most common way to value a company is to use its earnings. Earnings, also called net income or net profit, is the money that is left over after a company pays all of its bills. To allow for apples-to-apples comparisons, most people who look at earnings measure them according to  earnings per share (EPS). You arrive at the earnings per share by simply dividing the dollar amount of the earnings a company reports by the number of shares it currently has outstanding. Thus, if XYZ Corp. has one million shares outstanding and has earned one million dollars in the past 12 months, it has a trailing EPS of $1.00. (The reason it is called a trailing EPS is because it looks at the last four quarters reported the quarters that trail behind the most recent quarter reported. $1,000,000 = $1.00 in earnings per share (EPS) 1,000,000 shares The earnings per share alone means absolutely nothing, though. To look at a companys earnings relative to its price, most investors employ the  price/earnings (P/E) ratio. The P/E ratio takes the stock price and divides it by the last four quarters worth of earnings. For instance, if, in our example above, XYZ Corp. was currently trading at $15 a share, i t would have a P/E of 15. $15 share price = 15 P/E $1.00 in trailing EPS Is the P/E the Holy Grail? There is a large population of individual investors who stop their entire analysis of a company after they figure out the trailing P/E ratio. With no regard to any other form of valuation, this group of unFoolish investors blindly plunge ahead armed with this one ratio, purposefully ignoring the vagaries of equity analysis. Popularized by Ben Graham (who used a number of other techniques as well as low P/E to isolate value), the P/E has been oversimplified by those who only look at this number. Such investors look for low P/E stocks. These are companies that have a very low price relative to their trailing earnings. Also called a multiple, the P/E is most often used in comparison with the current rate of growth in earnings per share. The Foolish assumption is that for a growth company, in a fairly valued situation the price/earnings ratio is about equal to the rate of EPS growth. In our example of XYZ Corp., for instance, we find out that XYZ Corp. grew its earnings per share at a 13% over the past year, suggesting that at a P/E of 15 the company is pretty fairly valued. Fools believe that P/E only makes sense for growth companies relative to the earnings growth. If a company has lost money in the past year or has suffered a decrease in earnings per share over the past twelve months, the P/E becomes less useful than other valuation methods we will talk about later in this series. In the end, P/E has to be viewed in the context of growth and cannot be simply isolated without taking on some significant potential for error. Are Low P/E Stocks Really a Bargain? With the advent of computerized screening of stock databases, low P/E stocks that have been mispriced have become more and more rare. When Ben Graham formulated many of his principles for investing, one had to search manually through pages of stock tables in order to ferret out companies that had extremely low P/Es. Today, all you have to do is punch a few buttons on an online database and you have a list as long as your arm. This screening has added efficiency to the market. When you see a low P/E stock these days, more often than not it deserves to have a low P/E because of its questionable future prospects. As intelligent investors value companies based on future prospects and not past performance, stocks with low P/Es often have dark clouds looming in the months ahead. This is not to say that you cannot still find some great low P/E stocks that for some reason the market has simple overlooked you still can and it happens all the time. Rather, you need to confirm the va lue in these companies by applying some other valuation techniques. The Price-to-Sales Ratio Every time a company sells a customer something, it is generating revenues. Revenues are the sales generated by a company for peddling goods or services. Whether or not a company has made money in the last year, there are always revenues. Even companies that may be temporarily losing money, have earnings depressed due to short-term circumstances (like product development or higher taxes), or are relatively new in a high-growth industry are often valued off of their revenues and not their earnings. Revenue-based valuations are achieved using the price/sales ratio, often simply abbreviated PSR. The price/sales ratio takes the current market capitalization of a company and divides it by the last 12 months trailing revenues. The market capitalization is the current market value of a company, arrived at by multiplying the current share price times the shares outstanding. This is the current price at which the market is valuing the company. For instance, if our example company XY Z Corp. has ten million shares outstanding, priced at $10 a share, then the market capitalization is $100 million. Some investors are even more conservative and add the current long-term debt of the company to the total current market value of its stock to get the market capitalization. The logic here is that if you were to acquire the company, you would acquire its debt as well, effectively paying that much more. This avoids comparing PSRs between two companies where one has taken out enormous debt that it has used to boast sales and one that has lower sales but has not added any nasty debt either. Market Capitalization = (Shares Outstanding * Current Share Price) + Current Long-term Debt The next step in calculating the PSR is to add up the revenues from the last four quarters and divide this number into the market capitalization. Say XYZ Corp. had $200 million in sales over the last four quarters and currently has no long-term debt. The PSR would be: (10,000,000 shares * $10/share) + $0 debt PSR = = 0.5 $200 million revenues The PSR is a measurement that companies often consider when making an acquisition. If you have ever heard of a deal being done based on a certain multiple of sales, you have seen the PSR in use. As this is a perfectly legitimate way for a company to value an acquisition, many simply expropriate it for the stock market and use it to value a company as an ongoing concern. Uses of the PSR The PSR is often used when a company has not made money in the last year. Unless the corporation is going out of business, the PSR can tell you whether or not the concerns sales are being valued at a discount to its peers. If XYZ Corp. lost money in the past year, but has a PSR of 0.50 when many companies in the same industry have PSRs of 2.0 or higher, you can assume that, if it can turn itself around and start making money again, it will have a substantial upside as it increases that PSR to be more in line with its peers. There are some years during recessions, for example, when none of the auto companies make money. Does this mean they are all worthless and there is no way to compare them? Nope, not at all. You just need to use the PSR instead of the P/E to measure how much you are paying for a dollar of sales instead of a dollar of earnings. Another common use of the PSR is to compare companies in the same line of business with each other, using the PSR in conjunction w ith the P/E in order to confirm value. If a company has a low P/E but a high PSR, it can warn an investor that there are potentially some one-time gains in the last four quarters that are pumping up earnings per share. Finally, new companies in hot industries are often priced based on multiples of revenues and not multiples of earnings. What Level of the Multiple is Right? Multiples may be helpful for comparing two compnies, but which multiples is right? Many look at estimated earnings and estimate what fair multiple someone might pay for the stock. For example, if XYZ Corp. has historically traded at about 10 times earnings and is currently down to 7 times earnings because it missed estimates one quarter, it would be reasonable to buy the stock with the expectation that it will return to its historic 10 times multiple if the missed quarter was only a short-term anomaly. When you project fair multiples for a company based on forward earnings estimates, you start to make a heck of a lot of assumptions about what is going to happen in the future. Although one can do enough research to make the risk of being wrong as marginal as possible, it will always still exist. Should one of your assumptions turn out to be incorrect, the stock will probably not go where you expect it to go. That said, most of the other investors and companies out there are using this same approach, making their own assumptions as well, so, in the worst-case scenario, at least you wont be alone. A modification to the multiple approach is to determine the relationship between the companys P/E and the average P/E of the SP 500. If XYZ Corp. has historically traded at 150% of the SP 500 and the SP is currently at 10, many investors believe that XYZ Corp. should eventually hit a fair P/E of 15, assuming that nothing changes. The trouble is, things do change. Key Valuation Ratios for IBM (April 2003)   Price Ratios   Company   Industry   SP 500 Current P/E Ratio 38.2 116.7 34.9 P/E Ratio 5-Year High 61.4 184.5 64.2 P/E Ratio 5-Year Low 14.5 9.6 25.7 Price/Sales Ratio 1.67 1.28 1.29 Price/Book Value 5.95 2.83 2.67 Price/Cash Free Cash Flows Methods Despite the fact that most individual investors are completely ignorant of  cash flow, it is probably the most common measurement for valuing public and private companies used by investment bankers. Cash flow is literally the cash that flows through a company during the course of a quarter or the year after taking out all fixed expenses. Cash flow is normally defined as  earnings before interest, taxes, depreciation and amortization (EBITDA). Why look at earnings before interest, taxes, depreciation and amortization? Interest income and expense, as well as taxes, are all tossed aside because cash flow is designed to focus on the operating business and not secondary costs or profits. Taxe s especially depend on the vagaries of the laws in a given year and actually can cause dramatic fluctuations in earnings power. For instance, Cyberoptics enjoyed a 15% tax rate in 1996, but in 1997 that rate more than doubled. This situation overstates CyberOptics current earnings and understates its forward earnings, masking the companys real operating situation. Thus, a canny analyst would use the growth rate of  earnings before interest and taxes (EBIT)instead of net income in order to evaluate the companys growth. EBIT is also adjusted for any one-time charges or benefits. As for  depreciation  and  amortization, these are called  non-cash charges, as the company is not actually spending any money on them. Rather, depreciation is an accounting convention for tax purposes that allows companies to get a break on capital expenditures as plant and equipment ages and becomes less useful. Amortization normally comes in when a company acquires another company at a premium to its shareholders equity a number that it account for on its balance sheet as goodwill and is forced to amortize over a set period of time, according to generally accepted accounting principles (GAAP). When looking at a companys operating cash flow, it makes sense to toss aside accounting conventions that might mask cash strength. In a private or public market acquisition, the price-to-cash flow multiple is normally in the 6.0 to 7.0 range. When this multiple reaches the 8.0 to 9.0 range, the acquisition is normally considered to be expensive. Some counsel selling companies when their cash flow multiple extends beyond 10.0. In a leveraged buyout (LBO), the buyer normally tries not to pay more than 5.0 times cash flow because so much of the acquisition is funded by debt. A LBO also looks to pay back all the cash used for the buyout within six years, have an EBITDA of 2.0 or more times the interest payments, and have total debt of only 4.5 to 5.0 ti mes the EBITDA. IBMs Income Statement Annual Income Statement (Values in Millions) 12/2002 12/2001 Sales 81,186.0 85,866.0 Cost of Sales 46,523.0 49,264.0 Gross Operating Profit 34,663.0 36,602.0 Selling, General Admin. Expense 23,488.0 22,487.0 Other Taxes 0.0 0.0 EBITDA 11,175.0 14,115.0 Depreciation Amortization 4,379.0 4,820.0 EBIT 6,796.0 9,295.0 Other Income, Net 873.0 1,896.0 Total Income Avail for Interest Exp. 7,669.0 11,191.0 Interest Expense 145.0 238.0 Pre-tax Income 7,524.0 10,953.0 Income Taxes 2,190.0 3,230.0 Total Net Income 3,579.0 7,723.0 Free Cash Flow  goes one step further. A company cannot drain all its cash flow to survive and grow is must invest in capital and hold enough inventory and receivables to support its customers. So after adding back in the non-cash items, we subtract out new capital expenditures and additions to working capital. A bare-bones view of IBMs free cash flows is given below. IBM: Free Cash Flows Fiscal year-end: December TTM = Trailing 12 Months  1999 2000 2001 TTM Operating Cash Flow 10,111 9,274 14,265 14,615 Capital Spending 5,959 5,616 5,660 5,083 = Free Cash Flow 4,152 3,658 8,605 9,532 How to Use Cash Flow Cash flow is the only method that makes sense in many situations. For example, it is commonly used to value industries that involve tremendous up-front capital expenditures and companies that have large amortization burdens. Cable TV companies like Time-Warner Cable and TeleCommunications have reported negative earnings for years due to the huge capital expense of building their cable networks, even though their cash flow has actually grown. This is because huge depreciation and amortization charges have masked their ability to generate cash. Sophisticated buyers of these properties use cash flow as one way of pricing an acquisition, thus it makes sense for investors to use it as well. It is also commonly used method in venture capital financings because it focuses on what the venture investor is actually buying, a piece of the future operations of the company. Its focus on future cash flows also coincides nicely with a critical concern of all venture investors, the companys abilit y to sustain its future operations through internally generated cash flow. The premise of the discounted free cash flow method is that company value can be estimated by forecasting future performance of the business and measuring the surplus cash flow generated by the company. The surplus cash flows and cash flow shortfalls are discounted back to a present value and added together to arrive at a valuation. The discount factor used is adjusted for the financial risk of investing in the company. The mechanics of the method focus investors on the internal operations of the company and its future. The discounted cash flow method can be applied in six distinct steps. Since the method is based on forecasts, a good understanding of the business, its market and its past operations is a must. The steps in the discounted cash flow method are as follows: Develop debt free projections of the companys future operations. This is clearly the critical element in the valuation. The more clo sely the projections reflect a good understanding of the business and its realistic prospects, the more confident investors will be with the valuation its supports. Quantify positive and negative cash flow in each year of the projections. The cash flow being measured is the surplus cash generated by the business each year. In years when the company does not generate surplus cash, the cash shortfall is measured. So that borrowings will not distort the valuation, cash flow is calculated as if the company had no debt. In other words, interest charges are backed out of the projections before cash flows are measured. Estimate a terminal value for the last year of the projections. Since it is impractical to project company operations out beyond three to five years in most cases, some assumptions must be made to estimate how much value will be contributed to the company by the cash flows generated after the last year in the projections. Without making such assumptions, the value gene rated by the discounted cash flow method would approximate the value of the company as if it ceased operations at the end of the projection period. One common and conservative assumption is the perpetuity assumption. This assumption assumes that the cash flow of the last projected year will continue forever and then discounts that cash flow back to the last year of the projections. Determine the discount factor to be applied to the cash flows. One of the key elements affecting the valuation generated by this method is the discount factor chosen. The larger the factor is, the lower the valuation it will generate. This discount factor should reflect the business and investment risk involved. The less likely the company is to meet its projections, the higher the factor should be. Discount factors used most often are a compromise between the cost of borrowing and the cost of equity investment. If the cost of borrowed money is 10% and equity investors want 30% for their funds, the dis count factor would be somewhere in between in fact, the weighted-average cost of capital. Apply the discount factor to the cash flow surplus and shortfall of each year and to the terminal value. The amount generated by each of these calculations will estimate the present value contribution of each years future cash flow. Adding these values together estimates the companys present value assuming it is debt free. Subtract present long term and short term borrowings from the present value of future cash flows to estimate the companys present value. The following table illustrates the computations made in the discounted cash flow method. The chart assumes a discount factor of 13% (IBMs estimated weighted-average cost of capital) and uses the growing perpetuity assumption to generate a residual value for the cash flows after the fifth year. Valuation for IBM 2-stage growth model Stage 1 10%   growth Stage 2 5.7%   growth End of year 2002 2003 2004 2005 2006 2007 2008 Revenue 81.2 89.32 98.252 108.0772 118.8849 130.7734 138.2275 -Expenses -67.99 -74.789 -82.2679 -90.4947 -99.5442 -109.499 -115.74 -Depreciation -4.95 -5.445 -5.9895 -6.58845 -7.2473 -7.97202 -6.9413 EBIT 8.26 9.086 9.9946 10.99406 12.09347 13.30281 15.5462 EBIT(1-t) 5.9 6.49 7.139 7.8529 8.63819 9.502009 11.10443 +Depreciation 4.95 5.445 5.9895 6.58845 7.247295 7.972025 6.941298 -CapEx -4.31 -4.741 -5.2151 -5.73661 -6.31027 -6.9413 -6.9413 -Change in WC -0.9 -0.99 -1.089 -1.1979 -1.31769 -1.44946 -1.53208 FCFF 5.64 6.204 6.8244 7.50684 8.257524 9.083276 9.572354 235.2537 Total 6.204 6.8244 7.50684 8.257524 2 44.3369 PV 5.651872 5.663768 5.67569 5.687636 153.3175 Total PV 175.9964 less debt -61.864 billion Equity value 114.1324 billion divided by 1.69 gives 67.53397 per share Option-Based Methods Executives continue to grapple with issues of risk and uncertainty in evaluating investments and acquisitions. Despite the use of net present value (NPV) and other valuation techniques, executives are often forced to rely on instinct when finalizing risky investment decisions. Given the shortcomings of NPV, real options analysis has been suggested as an alternative approach, one that considers the risks associated with an investment while recognizing the ability of corporations to defer an investment until a later period or to make a partial investment instead. In short, investment decisions are often made in a way that leaves some options open.  The simple NPV rule does not give the correct conclusion if uncertainty can be ma naged. In acquisitions and other business decisions, flexibility is essential more so the more volatile the environment and the value of flexibility can be taken into account explicitly, by using the real-options approach. Financial options are extensively used for risk management in banks and firms. Real or embedded options are analogs of these financial options and can be used for evaluating investment decisions made under significant uncertainty. Real options can be identified in the form of opportunity to invest in a currently available innovative project with an additional consideration of the strategic value associated with the possibility of future and follow-up investments due to emergence of another related innovation in future, or the possibility of abandoning the project. The option is worth something because the future value of the asset is uncertain. Uncertainty increases the value of the option, because if the uncertainty is interpreted as the variance, there a re possibilities to higher profits. The loss on the option is equal to the cost of acquiring it. If the project turns out to be non-profitable, you always have the choice of non-exercising. More and more, the real options approach is finding its place in corporate valuation. Assignment: Special Applications What adjustments to the valuation approaches discussed above would have to me made in the following special situations? Valuation in an MA context Valuation of a company in distress Valuation of a company facing corporate financial restructuring.