Free

Reforming Corporate Governance, Discounted Cash Flow Models - Essay Example

Comments (0) Cite this document
Summary
The paper 'Reforming Corporate Governance, Discounted Cash Flow Models" discusses that DCF models by nature are known to give directors the ability to maximize the value of shareholders in a manner that can be monitored. They highlight the differences between cash flows and accounting accruals…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93.3% of users find it useful

Extract of sample "Reforming Corporate Governance, Discounted Cash Flow Models"

In the recent past, corporate boards shave received considerable attention following the WorldCom, Enron and Tyco scandals. This is primarily in the question of why the directors of these companies failed to uncover accounting malpractices or object to the illegal siphoning of company funds. While several attempts have been made to try explaining this “oversight” phenomenon, one explanation stands quite clearly; many boards only act as rubber stamps without adequately minding the welfare of shareholders (Slogan Management Review, n.d).
According to some experts, the main role of directors is to facilitate the maximization of shareholder value through the management team. This is best done when they understand the company’s value creation process and have analytical tools such as a discounted cash valuation model that helps in forecasting revenues, expenditures and other performance measures.
Discounted Cash Flow Models
DCF (discounted cash flow) models have been used in the past to record and track company performance and would especially be used during crises (Slogan Management Review, n.d). Out of them, finance experts would be able to determine whether the information presented by directors is grossly incomplete or misleading. It is, however, a fact that the model is subject to manipulation and may not reflect the true state of events.
Yet again, DCF models require the explicit accounting of resources for future growth while also providing an additional tool for executive compensation. Such models, in spite of their numerous advantages, may not be able to detect false revenues among other accounting tricks (Slogan Management Review, n.d) such as was in the case of Enron.
Conclusion
With the aim of solving problems related to the incompetence of governing boards, some organizations have opted to redefine the role of their directors. Such measures are taken to ensure that board members act in the best interest of shareholders in all their activities. Some critics have also suggested that a separate staff should be dedicated to the boards to help them effectively discharge their duties. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Reforming Corporate Governance, Discounted Cash Flow Models Essay, n.d.)
Reforming Corporate Governance, Discounted Cash Flow Models Essay. Retrieved from https://studentshare.org/finance-accounting/1561319-summary
(Reforming Corporate Governance, Discounted Cash Flow Models Essay)
Reforming Corporate Governance, Discounted Cash Flow Models Essay. https://studentshare.org/finance-accounting/1561319-summary.
“Reforming Corporate Governance, Discounted Cash Flow Models Essay”, n.d. https://studentshare.org/finance-accounting/1561319-summary.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Reforming Corporate Governance, Discounted Cash Flow Models

Discounted and non-discounted cash flow techniques

...                  Machine D     Years 0 1 2 3 4 5 6 NCF (140) 10 20 50 50 50 50 WACC (11%) 1.0000 0.9009 0.8116 0.7312 0.6587 0.5935 0.5346 Discounted Cash flows (140) 9.01 16.23 36.56 32.94 29.67 26.73 NPV 11.14   IRR 13.20%   Profitability Index 1.08       Years 0 1 2 3 4 5 6 NCF (140) 10 20 50 50 50 50 Cumulative Cash Flows (140) (130) (110) (60) (10) 40 90 Payback Period 4.80 years                   References Baker, H. Kent . and Martin, Gerald S., 2011.Capital Structure and Corporate Financing Decisions: Theory, Evidence, and Practice. New York: John Wiley & Sons. Berk, Jonathan B. and DeMarzo. Peter M., 2010....
7 Pages(1750 words)Essay

Discounted cash flow

...to the present value as per the cost of capital for the number of years of operation, it gives a clear picture for the benefits accrued from the investments made in the company. Mathematically, it can be expressed as Present Value = CF1/(1+K)+ CF2 / (1+K)2 +CF3/ (1+K)3 +.......[TCF / (K - R)] / (1+K)n-1 CFi = Cash flow in the year 1, 2, 3… K = discount rate TCF = Cash flow in the terminal year R= growth rate assumption beyond terminal year n = the number of years including the terminal year In short, above model gives the present value of the company based on the cash flow estimates of the future. DCF...
3 Pages(750 words)Essay

CASH FLOW

...? Cash Flow Cash Flow ments Home Products Opening Balance of Cash/Cash Equivalents 545 421 Cash Flow from Operations Net Cash provided in operating activities Total Net Income 3,883 3,338 Depreciation and Amortization 1682 1718 Stock-based Compensation Expense 215 214 Decrease(Increase) in Receivables (170) (102) Decrease (Increase) in Inventories 256 (355) Decrease (Increase) in Other Current Assets 159 12 Increase (Decrease) in Accounts Payable & Accrued Expenses 422 (133) Increase (Decrease) in Deferred Revenue (29) 10 Increase (Decrease) in Income Taxes Payable 14 (85) Increase...
3 Pages(750 words)Assignment

Corporate finance - WACC - Cash Flow - Measuring Return on Investment - discounted cash flow techniques - Financing Decisions -

...is the example of sunk cost which cannot be recovered and considered whether a project is accepted or rejected. Secondly, there are some expenditures, which have incurred by the firm elsewhere but their some portion is allocated to that particular project. These expenditures are known as allocated costs, e.g. marketing and selling expenses, which the firm generally incurs on the overall firm level. In short, the incremental cash flows are those cash flows which arise because of accepting that particular project otherwise they can be avoided in case of non-acceptance of the project. Sunk costs and allocated cost should not be considered while computing the incremental...
19 Pages(4750 words)Assignment

Cash Flow

...? CASH FLOW Introduction The case “Eat at My Restaurant” reviews the cash flow of several companies such as Panera Bread, Starbucks, and Yum Brands. Starbucks is the premier retailer and roaster of speciality coffee and it operates in more than 50 countries around the world. Panera Bread Company and its subsidiaries are popularly referred to as “Panera” or “Panera Bread”. The company is a national bakery cafe that owns over 1450 companies and also operates with franchises in bakery. The company has dominant presence in Columbia and Ontario, Canada where it operates in 40 states. Yum Brands Inc. operates six in different segments including YUM Restaurant International, Pizza Hut (US), Taco Bell (US), KFC (US), A&W All American Food... ...
3 Pages(750 words)Case Study

Reforming Corporate Governance - Finance and Corporate Governance Systems

...Introduction The issues of Openness, accountability and efficiency are inter-wined in many respects. The financial scandals occurredin last few years have thrust more attention on the issues like independence. Openness and freedom has a different meaning both in the European governancemodels as well as in the US model and it has to be established and defended against a different set of interests and forces1. There are a large number of independence impairments which can be observed quite often in the corporategovernancemodels from all over the ...
7 Pages(1750 words)Article

Corporate Governance Models

...the total wealth of the firm. Thus, everyone in the firm can get a bigger share of the pie if the pie is large. Therefore this model, does not believe in transferring the rights of voting and cash-flows to the employees. A principle of proportional ownership has being identified by the EC as an important factor that could reform the internal markets. It is ‘one share, one vote’ rule which seeks to strengthen the shareholder rights and thus weakening the protection of the employees. All the measures that are being undertaken to implement this principle create an undesirable wedge between the voting and cash-flow rights. The stakeholder...
2 Pages(500 words)Essay

Project appraisal through discounted and non-discounted cash flow techniques

...Project appraisal through discounted and non-discounted cash flow techniques Project Appraisal Through Discounted And Non-Discounted Cash Flow Techniques Analysis of following provided data has revealed relevant basic information that can assist the decision making process, for the purchase of one of the four suggested machines. The information has been extracted by evaluating data under two techniques, discounted cash flows and non-discounted cash flows respectively. Under discounted...
8 Pages(2000 words)Essay

Cash flow

...Finance and Accounting it is written on order instructions what you need to do exactly Contents Contents 2 Task 3 Task 2:- 5 Task 3:- 5 Task 4:- 7 References 8 Appendices 9 Task 1:- The net profit and the cash generated from operating activities of a company might not be equal for a same period of time because cash flow and net profit are different from each other. Cash flow can be defined as the money which comes in and goes out due to different financial, investment operating activities. On the other side, net profit is the amount remained from sales revenue after the deductions of all expenses of the firm. We follow the accrual method of accounting...
4 Pages(1000 words)Coursework

Cash Flow

...CASH FLOW Unit This paper talks about cash inflows and outflows in an organisation. It attempts to compare and contrast the two types of cash flow statements, that is direct and indirect cash flow statements. Either of these two types can be adopted to be used by a CFO within an organisation. Key Words: cash flow, CFO, direct cash flow, indirect cash flow Introduction Operating, investing and financing are the three sets of activities contained in the cash flow statement sections. The...
1 Pages(250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Reforming Corporate Governance, Discounted Cash Flow Models for FREE!

Contact Us