Modern Security Analysis by Martin J. Whitman & Fernando Diz

Author:Martin J. Whitman & Fernando Diz
Language: eng
Format: mobi, epub
ISBN: 9781118603383
Publisher: Wiley
Published: 2013-04-29T23:00:00+00:00

THE GOING CONCERN AND INVESTMENT COMPANY VIEWS OF BUSINESSES

We differ from G&D and most others writing about fundamental security analysis and corporate finance. Other fundamentalists have a tendency to apply to all companies tools of analysis that in fact are applicable only to that small minority of businesses that are strict going concerns—that is, companies that are engaged in a particular type of operation to be financed, managed, and controlled in the future in about the same way they have been in the past. The analysis of strict going concerns is of limited help when applied to businesses that are also involved in what we call resource conversion activities like mergers, acquisitions, or the purchase, sale, or distribution of assets in bulk; major financial restructurings or recapitalizations; sales of control or contests for control; or the creation of tax shelter. Since most companies, to a greater or lesser extent, are involved in these types of activities, analysis must take into consideration both their static and dynamic investment vehicle attributes.

There are crucial differences between the analysis of companies as going concerns and the analysis of companies as investment vehicles. Most companies have both going concern characteristics and investment company characteristics. In going concern analysis, great weight is given to flows, whether cash or earnings. In investment vehicle analysis, great weight is given to asset values, especially realizable asset values. For both going concerns and investment vehicles, creditworthiness is paramount for the company and its securities holders (except perhaps for adequately secured creditors). G&D emphasize going concerns except for a short description of net nets, which focuses only on classified balance sheets and never mentions creditworthiness or prospects for resource conversion, especially changes of control or going private.

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