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Valuation Factors

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Valuation Factors

Assessing a company's value entails determining its worth, often represented in stock

prices that may or may not match the numbers on financial records. Numerous internal and

external variables that affect how the market perceives a company's worth cause this disjunction.

Navigating these variables to produce value for all stakeholders, including shareholders, workers,

and consumers, is a critical responsibility for company leaders (Freeman et al., 2018). A crucial

indicator for assessing a business's worth is its market capitalization. The market capitalization is

the product of the share price and the total number of outstanding shares. The firm's entire value

is directly impacted by changes in stock prices, whether caused by internal or external sources.

The company's financial results, such as its quarterly or yearly profits, are examples of internal

variables.

Good financial results often indicate a business is doing well, which raises investor

confidence and, in turn, stock prices. Other internal variables that affect stock prices include

investor mood, accounting procedures, managerial performance, and prospective problems like

product recalls (Brealey et al., 2020). The value of a corporation is significantly influenced by

external variables as well. For example, stock prices may be substantially impacted by investor

attitude. Stock values rise when bullish attitudes forecast higher prices, whereas pessimistic

sentiments foresee lower prices have the reverse impact. Changes in regulations and the degree

of competition are examples of external variables that affect share prices. Depending on the

particulars, government rules and increased competition may raise or lower stock values.

Acquisitions and mergers are also considered when determining a company's value. The

likelihood of a takeover is evaluated in light of the performance of the company's stock prices

(Lan et al., 2021). Stock price declines resulting from business-specific problems alert the market
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to the possibility that the firm is operating poorly and might be a target for acquisition.

Additional external elements in valuing a company's share prices include political and economic

movements, including interest, currency, and inflation rates. This is a standard method used by

businesses to make sure their share prices remain stable in the face of more significant economic

swings.

Moreover, stock prices are not the only variables utilized in business valuation. The

market's opinion is reflected in market capitalization, but measurements are used to evaluate

organizations (Ombaka & Jagongo 2018). These financial metrics go beyond the somewhat

erratic nature of stock prices to provide a more comprehensive picture of a company's

performance and prospects. Business leaders are essential to producing value for stakeholders.

Making strategic financial decisions is necessary to ensure the business optimizes shareholder

value. This entails skillfully handling both external obstacles and internal variables, such as

financial performance. The company's projected returns must be greater than its cost of capital

for executives to guarantee a consistent cash flow that improves long-term survival.

Executives may use cash returns to stakeholders as a means of generating value. Paying

out earnings to shareholders encourages trust in the company's financial stability while rewarding

their investment. Strategic financial choices, cautious long-term planning, and timely

acquisitions all add to the total value generation for stakeholders. Executives protect

stakeholders' interests, including workers and shareholders, and guarantee the company's

continued success and expansion. Valuing a firm is complex and subject to external and internal

influences that may or may not correspond with financial records.

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References

Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance. McGraw-hill.

https://thuvienso.hoasen.edu.vn/handle/123456789/11931

Freeman, R. E., Harrison, J. S., & Zyglidopoulos, S. (2018). Stakeholder theory: Concepts and

strategies. Cambridge University Press.

https://www.cambridge.org/core/elements/stakeholder-theory/1D970D2659D47C2FB7B

CBAA7ADB61285

Lan, Y., Huang, Y., & Yan, C. (2021). Investor sentiment and stock price: Empirical evidence

from Chinese SEOs. Economic Modelling, 94, 703-714.

https://www.sciencedirect.com/science/article/pii/S0264999319319091

Ombaka, C., & Jagongo, A. (2018). Mergers and acquisitions on financial performance among

selected commercial banks, Kenya. International Academic Journal of Economics and

Finance, 3(1), 1-23.