Strategic Corporate Finance

This document provides an analysis of strategic corporate finance, focusing on the performance of ASTRO SDN BHD. It discusses the concept of corporate financing and the importance of maximizing shareholder value. The document also explores the fluctuation in ASTRO SDN BHD's share prices and provides recommendations for improvement. Additionally, it explains the valuation of Prince town shares using different methods and discusses how mergers and acquisitions can help achieve corporate finance objectives.

Strategic Corporate Finance

Contents
Contents...........................................................................................................................................1
PART A...........................................................................................................................................2
INTRODUCTION...........................................................................................................................2
Five year performance analysis of ASTRO SDN BHD Price fluctuation:..................................3
Recommendation.........................................................................................................................5
PART C...........................................................................................................................................5
A) Valuation of Prince town share by using following method:.................................................5
B) Explanation of merger and acquisition help in achieving corporate finance objective:........7
CONCLUSION..............................................................................................................................10
REFRENCES.................................................................................................................................11
1

PART A
INTRODUCTION
Corporate finance is a field of finance, which provides guideline related with capital structure
decision, corporate funding, financial sourcing and capital budgeting. Business organizations
prepare corporate financial strategies for the purpose of maximizing their shareholders value. To
understand the concept of corporate financing Board of Directors of Potter PLC choose ASTRO
SDN BHD .
ASTRO SDN BHD is multinational corporation, which is situated in Kuala Lumpur Malaysia ,
It was established in 1996, it was start as television channel later they set up their broadcasting
channel and provides various broadcasting services to their customers. In this report financial
performance of ASTRO SDN BHD has been analysis. In this report financial decision taken
regarding merger and acquisition and importance of this policies in an organization have been
identified (Yu, 2013).
2

Five year performance analysis of ASTRO SDN BHD Price fluctuation:
2015, prices of shares are 22.12. Prices of ASTRO SDN BHD was increases in 2016 from
22.12 to 23.22, it will be reduces in 2017 by 20.82 due to recession crises prices of ASTRO SDN
BHD is decrease till current period of time(Woolridge, 1988). Prices are fluctuate in ASTRO
SDN BHD organization due to various changes arises in Malaysian economy.
Business organization will be uses ratio analysis to identify their (Alam, 2017.)
performance status. Price earnings ratio will be decrease since 2016 due to heavy
competition and external environment factors. It was 26.04 in 2015 and 5.77 in current
period. Company earn profits from investing in their assets 7.51 ratio of returning assets
will be increase 9.03,9.47 in 2018 company earn 11.75 and in current period of time it
will be 9.22. There gross margin ratio was increase till 2017 compare to 2015 and 2016
but in 2018 gross ratio decrease to 38.54 . Net profit of this organization was increase
from 9.93 to 11.22 this depicts that company generate more benefits from its business
activities. There liquidity ratio states capacity of organization to pay their debt liabilities.
There debtor turnover ratio will be decrease means that it take times to recover amount
from their customers. These stock turnover ratio represent level of stock show capability
of an company to manage their stock level. There creditors payable days increase since
2015 it was 69.18 and it will be 136.55 days in 2020 this means that company take more
time to pay their debt liability it will be negatively impact n the overall performance stats
of the company. Ratio will provided knowledge to management department regarding
financial status of the organization. Due to problems arises in 2018, growth rate of Astro
3

is decrease, currently they will try to enhance their profitability rate by adoption new
policies for their business activities (Dimovski and O’Neill, 2015).
Management department of this organization be invest in providing new sports and
entertain channel for this they make trade agreement with sports and entertainment
channel provided companies. They will also apply polices related to invest in securities
and taking effective decision regarding finance management. ASTRO SDN BHD
company will be implement advance technologies in their channel they uses digitalization
policy
It is systematic framework used by business organization to run their business
organization activities according to the ethical laws. According to ASTRO SDN BHD
is one of the biggest organization of Malaysia. Management department of this
organization believes that they only maintain their position in market when they satisfied
their shareholders and customers. Thus they took shareholders interest as their first
priority. They formulates those polices and which help in creating value of their
shareholders (Butt, Shivdasani,Stendevad, and Wyman, A., 2008).
These strategies are related with taking decision regarding acquisition of financial funds
to run business organization successfully. Financial strategy help in providing guideline
related to taking essential financial decisions. From the last 3 years ASTRO SDN BHD
's profitable is decline due to nit adopting technologies and issue with sports channel and
lack of promotional strategies but now they will use managerial financial strategies they
diversify their business and change their capital strut format by making strong and
effective portfolio decision.
The organization will able to provide dividend to their shareholder on regular basis. In
2018 ther directrs decided to give shareholders 75 % of their net profits to maintain
strong relation with their shareholders. In finical year 2018 their share price with
dividend reinvested decline by 2.3 %..During the financial year the total number of share
of the company has been increased from52095222000 TO5213883600 ordinary shares.
The net profit of organization also increases in last past years even though organization
suffers from many issue. Astro ‘s corporate governance strategy based on the4 principle,
which is fairness, transparency, accountability and responsibility. The organization is
4

focus on building up new communities and increases their market area by providing fair
and high quality of services to their customers. They are much focus on television
householders as they earn highest part of revenue from household sector. Their revue in
2014 from household sector was 3.884 million which increase in 2018 5.489million.
Astor’s assets value has been increased from past years, in 2017 it was 6266 and in 2018
it was 6848 which means the organization invest in purchasing of assets as well as its
liability also increases (Yusoff, Salleh, M.F Ahmad and Basnan, 2016) .
Recommendation
From analysis of past performance of Astro it seems to be secure but organization is slow
regarding investment and applying corporate strategies in market place.
There price rate may increase but due to increment of competition rate in market area Astro
needs to build strong policies and start using technical as well as digital platform for their
business purpose. It will help in increasing market area as well as growth rate of the company.
Astro needed to listen their shareholders point of view and work on their suggestions.
The organization also need to critically analysis their rival industries policies in order to attain
computable advantage and build strong position again in market.
PART C
A) Valuation of Prince town share by using following method:
1. Price / Earnings Ratio
Calculation of Price earnings ratio
Formula: Market price / Earnings per share
Market price: 8.44
Value of earnings: 52
Market price: 8.44
Value of earnings: 52
Harvard PLC P/E ratio: 8.44 / .52 = 16.23
Princetown’s EPS = 31.6 m / 110 = .29
5

Share price of Princetown = 16.23 * .29 = 4.7067
Total Market Value = 110 * 4.7067 = £ 517.74 million
2. Valuation of :share price using dividend growth model:
Formula: P0: d1 / Ke-g
D1= d0 (1+g)
Here d1+= Value of next year dividend
g = Growth rate
Ke = cost of equity
P0= Value of Prince town share
D1: D0 (1 +g)
34.9p (1+ 0.04) = 36.29
Treasury bill yield (Rf) 2%
Return of the market (Rm) 8%
Princetown’s Equity Beta 1.89
Thus, Re = Rf + (Rm – Rf) * Beta = 2 + (8 – 2)1.89
= 13.34%
So, as based on Dividend valuation method price would be:
D1 / Re – g = 36.29p / (13.34 – 4) % = £ 3.88
Total Market Value = 3.88 * 110 m = 426.8 million
2. Discounted Cash Flow Method using Harvard PLC’s WACC:
Present Value of Earnings = 31.6 m / (11 – 4) % = 451.43 m
Present Value of Asset Sale = 22 m /1.11 = 19.82 m
Present Value of Synergy = 9 m /1.11 = 8.11 m
Total Present Value = 451.43 + 19.82 +8.11 = £479.36 million
6

B) Explanation of merger and acquisition help in achieving corporate finance objective:
Meaning of merger: This term define as it is a contract between two companies (Ciciretti,
Kobeissi and Zhu, 2014 ). Both organizations combine their capital in order to merger each
other resource and built a new organization. In other words, when 2 business entities make new
business entity by combining their assets and liabilities. Merger is essential concept in corporate
sector. This will help companies to maintain their position in competitive market. Most of
medium and small enterprises merge with each other in order to gain profits. When two
companies start business with new business enterprises, it will beneficial for them as their cost of
running business is so high and they get potential customers of both companies it will help in
generating more profit. Merger reduces cost of operating business activties it will help in
providing best combination of human resource. Moreover when companies decided to merge
with each other’s there will be chances of conflicts arises between parties of different companies
due to their perceptions. Thus it is required for companies to merge with only those companies
with whom their status of relationship is strong and they can trust on the other company.
Merger:- merger is a combination of two or more companies into one company, It may be in the
form of one of ignore Companies being merged into an existing company or a new company may
be formed to merge two or more existing companies (Popli and Sinha, 2014).
Advantages of Mergers-
Growth: A company may not grow rapidly through internal expansion. Merger or amalgamation
enables satisfactory and balanced growth of a company. It can cross many stages of growth at
one time through amalgamation. Growth through merger or amalgamation is also cheaper and
less risky. Value: Merger is also useful for increase in value of the merged company. The value
of the merged company is greater than the sum of the independent values of the merged
companies. By applying merger strategies many sick organization able to build their position in
market again. It will help in growing organization position in market place(Rahim, Ahmad and
Ahmad, 2016). At present time government of UK and other countries nationalized and merger
their sick baking units which are not able to fulfil their non performing assets and not able to pay
loan liability to the Central bank. All theses bank merge with other financial institutions or bank,
7

it will help them to rebuild their assets and position in market area again. In 2019 India merger
more than 7 banks for nationalization process.
Diversification: Two or more companies operating in different lines can diversify their activities
through amalgamation. Since different companies are already dealing in their respective lines.
There be less risk in diversification. When a company tries to enter new lines of activities, then it
may face a number of problems in production, marketing (Maung, Shedden, Wang and Wilson,
2019. Merger will help in provides many opportunities for business organization, it help in
expansion of business by diversification process. When 2 companies decided to merge with each
other then their resources, products, service which they offer to their customers, by margining
with each other they able to provides variety of resource to their cutomers.Many mobile
companies deals with social networking site organization to merge their business it will help in
increasing their revenue income. At recent Facebook merge with Jio India which will opened
opportunities for both organization.
Eliminations of Competition: The merger or amalgamation of two or more companies will eliminate
competition among them. The companies will be able to save their advertising expenses; thus,
enabling them to reduce their prices . It is one f the most useful benefits of merger. By merging of
companies, manger will be able to cut throat their competitions. Many big organizations, merge
small organization, it will provides benefits for them, as small organization will be to build their
position in market and as well as multinational organization also cut throat their threat of
competitions. Facebook merger with what up at the time when whatsup taking market of Facebook.
IT will beneficial for Facebook as their profits share goes high and rate of competitions goes down in
market.( Lohrke,Frownfelter-Lohrke and Ketchen Jr, D2016)
Acquisitions :- An acquisition, also known as a takeover, is the buying of the company (the’ target’)
by another. An acquisition typically has one company – the buyer – the purchases the assets or shares
of the seller, with the form of payment being cash, the securities of the buyer, or other assets of value
to the seller. Acquisition in case of merger two companies combines and built a new company or
start new business on the other side acquisition is a contract in which one company acquisition or
own other companies assets and liabilities. Acquisition is a process of holding of another company’s
financial capital. In case of acquisition manger of other companies will pay all he liabilities of
acquired company and take all asset as and shares of the other company. At present time when it is
really hard to maintain position of company in competitive market, most of sick industries are
8

acquire by big organizations. It will provides gain for both organizations as resource of weak
organizations utilized properly on the other side it will also provides strength and generate capital for
the one who acquired sick company. Acquisition is type of business transaction in within company
hire all share of another company tin offer to maintain their position in market. At present time many
multinational organization acquire small companies it will help them to spread their market area.
Acquisition may provide various benefits but mangers faces various issue while taking the decision
of acquisition , they did to comply with other companies objective, their brand value well be effected
with it and it is necessary that decision of acquisition will definitively provides them future benefits
(Cefis and Marsili, 2015).
Advantages of Acquisitions -
Increased Market Power:- A primary reason for acquisitions is to achieve greater market power.
Market power exists when a firm is able to sell its goods or services above competitive levels or
when the costs of IS primary or support activities are below those of its competitors. Market power
usually is derived from the size of the firm and its resources and capabilities to compete in the
marketplace. It is also affected by the firm's share of the market. Acquisition of business is beneficial
for organizations. It will help in expansion of business area. When company acquire the other
organization they ca acquire all their assets it will help in build position in the area where company
not able to stabilised their brand value. Thus it has been seen that most of big firms acquire small and
medium size firms in order to increase their business area. MBF cards SDN acquire by largest bank
of Malaysia AMMB holdings.
Overcoming Entry Barriers:- Barriers to entry are factors associated with the market or with the
firms currently operating in it that increase the expense and difficulty faced by new ventures trying to
enter that particular market. Facing the entry barriers created by economies of scale and
differentiated products, a new entrant may find acquiring an established company to be more
effective than entering the market as a competitor offering a good or service that is unfamiliar to
current buyers. By acquisition strategy organization are able to control the barriers and threat of
external environment(Yang and Segara, 2019).
Cost of New Product Development and Increased Speed to Market:- Developing new products
internally and successfully introducing them into the marketplace often require significant
investments of a firm's resources, including time, making it difficult to quickly earn a profitable
return. Also of concern to firm's managers is achieving adequate returns from the capital invested to
9

develop and commercialize new products. Facebook is one of the most famous organization .the
main reason of success of this organizations their acquisitions strategy. Every time whenever a new
rival sites or competitors arises its acquire those social sites with providing them high rate of amount
of acquisition. Facebook acquire Instragram in 2012 and now it acquire whatsup in 2019 both social
sites able to spread their market but they get acquire by Facebook it will provides benefits for the
organization as Facebook able to provides feature and direct conception with Instragram with their
registered user. It will help in reducing cost on researching and introducing new feature and services
to customers. (Baker and Niederman, 2014).
4) Adequate and Easy Terms Working Capital:- Acquisition not only secures the necessary working
plant and equipment more quickly than building up its own, but also helps the firm by making
available desired amount of working capital. It means that by making available the much needed
working capital, the problems of supply of inputs and distribution of final products are solved(Bany-
Ariffin, Hisham and McGowan, 2016).
CONCLUSION
From the above analysis it has been concluded that corporate financial strategies play essential
role in build up an organization. It will help them to enhancing their financial resource and
provides benefits in order to take decision regarding capital investment. Managers uses theses
strategies to analysis their risk factors and then formulate strategies by which they can attain
financial gain, in order to increase their fianical performance, merger and acquisition play
essential role as major corporations use these strategies to maintain their position in competitive
environment and increasing their capital by merge with another companies
10

REFRENCES
From books and Journal
ABBAS, A .I. and DASHTI, M., 2014. EVALUATING THE PERFORMANCE OF
COMPANIES ON THE BASIS OF FINANCIAL ANALYSIS RATIOS. Journal Impact
Factor, 5(4), pp.34-37.
Fai, L. K., Siew, L. W. and Hoe, L. W., 2017. An empirical evaluation on the efficiency of the
companies in Malaysia with data envelopment analysis model. Advanced Science
Letters, 23(9), pp.8264-8267.
Chandrappa, P. and Triveni, P., 2017. A Study on the Relevance of Technical Analysis in
Detecting Trading Signals in Indian Equity Markets. i-Manager's Journal on
Management, 12(2), p.61.
Alam, S., 2017. Fundamental analysis-effectiveness evaluated through qualitative research from
secondary papers. Vidwat, 10(1), pp.10-16.
Dimovski, B. and O’Neill, L., 2015. Sustainability, A-REITs and the global financial
crisis. Pacific Rim Property Research Journal, 21(1), pp.51-59.
Yusoff, W. S., Salleh, M.F. M., Ahmad, A. and Basnan, N., 2016. Financial Hegemony,
Diversification Strategies and the Firm Value of Top 30 FTSE Companies in
Malaysia. Asian Social Science, 12(3), p.14.
Popli, M. and Sinha, A .K., 2014. Determinants of early movers in cross-border merger and
acquisition wave in an emerging market: A study of Indian firms. Asia Pacific Journal of
Management, 31(4), pp.1075-1099.
Lohrke, F. T., Frownfelter-Lohrke, C. and Ketchen Jr, D.J., 2016. The role of information
technology systems in the performance of mergers and acquisitions. Business
Horizons, 59(1), pp.7-12.
Reddy, K.S., 2014. Extant reviews on entry-mode/internationalization, mergers & acquisitions,
and diversification: Understanding theories and establishing interdisciplinary
research. Pacific Science Review, 16(4), pp.250-274.
Cefis, E. and Marsili, O., 2015. Crossing the innovation threshold through mergers and
acquisitions. Research Policy, 44(3), pp.698-710.
Baker, E. W. and Niederman, F., 2014. Integrating the IS functions after mergers and
acquisitions: Analyzing business-IT alignment. The Journal of Strategic Information
Systems, 23(2), pp.112-127.
Rahim, K. F., Ahmad, N. and Ahmad, I., 2016. Assessing of Malaysian Firms’ Cross-Border
Merger and Acquisition Efficiency. In Proceedings of the 1st AAGBS International
Conference on Business Management 2014 (AiCoBM 2014) (pp. 577-583). Springer,
Singapore.
Maung, M., Shedden, M., Wang, Y. and Wilson, C., 2019. The investment environment and
cross-border merger and acquisition premiums. Journal of International Financial
Markets, Institutions and Money, 59, pp.19-35.
Yang, J. Y. and Segara, R., 2019. Foreign investors’ trading behaviors around merger and
acquisition announcements: Evidence from Korea. Finance Research Letters,
11

p.101375.
Bany-Ariffin, A. N., Hisham, M. and McGowan, C B., 2016. Macroeconomic factors and
firm’s cross-border merger and acquisitions. Journal of Economics and Finance, 40(2),
pp.277-298.
Xu, E. Q., 2017. Cross-border merger waves. Journal of Corporate Finance, 46, pp.207-231.
12