Comprehensively explains how the value of a business depends on who is managing it and what...

Comprehensively explains how the value of a business depends on who is managing it and what strategy they pursue. Different owners will generate different cash flows for a given business based on their unique ability to add value.

Expert Solution

Value of the business will be depending upon who is managing it, as those persons who are managing the business will be deciding the vision and the mission of the business will be achieved or not, and they will be determining the short term objective of the business so they will be primary force behind direction of the business in the short run and they will determine the direction of the business in the long run as well so these persons who are managing the business from top and maintaining the strategy in order to push the business forward are the primary force to decide upon the valuation of the business and success of the business in the long run.

Various businesses are are managed by aggressive individuals and they will be looking to extract a higher amount of debt capital in their overall capital structure and they will incorporate various projects with debt capital in order to manage their higher rate of return and they will be trying to grow on the basis of the debt capital whereas various businesses which are low risk loving are trying to incorporate more of the equity capital and they will not be having higher debt exposure so they will be trying to confine themselves with the growth they are currently having and not aggressively push their growth forward so there will be difference in the approaches of those managers who are managing the businesses and they will be extracting different cash flows out of the different projects, so it can be said that the nature of management of the business by different individuals affect the cash flows and the risk of the company in the short run and long run as well so they will be impacting the valuation of the company to a large extent because stock markets have always been predictive and futuristic and they will be trying to speculate into the performance of the company for the longer period of time after discounting the current scenario.

Hence, it can be said that those persons who are responsible for making the strategy and implementation of the decisions are responsible for valuation of the business and generation of the cash flow of the business

jeff jeffy answered 2 years ago

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