Question

In: Finance

When a firm cannot effectively create necessary value for themselves they should do what?

When a firm cannot effectively create necessary value for themselves they should do what?

Solutions

Expert Solution

There are different stages a firm goes through from its early inception of idea to a full-fledged mature company and when the company is in its early stage and if the competition is less then it can easily capture large market share but once the industry is full of competition then the large profits are eliminated and the company has to operate with high efficiency in order to sustain in the industry but even then beyond a point if the company is not able to invent new technology while others are consistently innovating and improving, it will reach a point where it is loosing capital or not able to recover the cost. This kind of phenomena at early stage might be acceptable but at mature stage if the company is not able to generate value for its investor then there is high time it needs to restructure itself. The restructuring can come in many either it goes an acquire a similar company in order to increase its efficiency, the company can enter into joint venture agreement with another company for innovation, it can be merged with a different entity in an existing organization or the last option is to wind up the operation. If a firm is consistently loosing its value then beyond a point it will not be able to raise funds and the only option left is to wind up or sell it to another large company.


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