CORPORATE
VALUATION ESTIMATING CORPORATE VALUE 8-27
Example
For example, suppose that an investor has completed a discounted
cash flow analysis and estimates that a share of TTM Manufacturing
Company has a value of $6.50. The shares are currently being sold for
$5.95 and the investor would like to purchase some shares for his
portfolio. However, the market in which TTM trades requires a
surcharge of $1.00 per share for foreign ownership of shares. Since
the investor is not a citizen of the country in which TTM trades, the
investment price is $6.95 per share. At this price, the investment is no
longer attractive.
Even if the investor is a citizen of the country, he will not be able to buy
the security unless there are current holders of TTM stock who are
willing to sell their shares. In order to entice a current investor to sell,
the buyer may have to substantially increase the offer above the $5.95
listed price. However, if the price the buyer must offer is too high to
justify the investment, the buyer loses out on the opportunity to invest in
TTM. Likewise, an investor who currently holds securities in this market
and wants to close out a position, may have to sell the securities for less
than the estimated value.
Market liquidity is a very important factor in many small, emerging
securities markets where investors may have to pay premiums for an
opportunity to invest in the market. This is the kind of factor the
investor must consider when making investment decisions.
Country Conditions
Political and
economic
structure
Another factor to consider when completing an analysis is the
conditions of the country in which the company conducts its
operations. The political structure of a country may possibly affect
the value of the company. Some governments are more friendly
toward large firms than other governments. One country may treat a
certain industry more favorably than another country.