The success or failure of any business depends largely on the
marketing function. It also provides a vital interface between the organization
and its environment.
Similarly every investment has some "opportunity
cost", since each involves the owner foregoing some alternative.
Similarities notwithstanding, there are great many differences among
investments. They differ as to the nature of economic activity, the magnitude
of the outlay, asset type/class and otl mundane issues as location and identity
of owners, her
To this effect, financial theorists and market analysis have
developed many techniques to evaluate and market specialized product of this
nature. As for market analyst, asset valuation is to aid the marketing of
businesses either in part or in whole In an effective and
efficient manner. Therefore the concept of value and the different valuation
methods like, book value, earnings
potential, market value must be accorded its prime place in the
course of evaluation, This must also be considered alongside the marketing
Investor's preferences and the operating environment: economic,
social/political, legal and other components of the environment.
However, it is important to remember that no single approach will
ever give the 'right" answer. To a large extent the appropriateness of any
method depends on the evaluator and the prevailing circumstances.
Therefore the purpose of this study is not to arrive at 'the
answer' but lay a solid foundation for a market to identify critical variables
for a target buyer and develop realistic scenarios to enable him establish a
'value' for the assets.
This definitely would lead to the attainment of marketing
objectives in an efficient and effective manner.
TABLE OF CONTENTS
Table of Content
11 Defining Customer Value and Satisfaction
1.2 Valuation Models
1.3 Basics for classification Investments in Asset
1.4 Investment in Asset as cash flow
1.5 Investment in Financial Assets
1.6 Types of Securities
1.7 Statement of Problems
1.8 Research Objectives
1.9 Research Questions
1.11 Relevance and Significance of Study
1.12 Limitation and scope of study
1.13Definition of terms
2.0 Review of Related Literature
2.1 An Overview of marketing
2.2 Marketing Financial services
2.3 Some Definition of services
2.4 Characteristic of services
2.5 Marketing strategies for sevice firms
2.6 Financial securities valuation techniques
2.7 Cash flow valuations
2.8 Summary of
3.0 Research Methodology
3.1 Research objectives
3.2 Research questions
3.4 Research design/methodology
4.0 Data Presentation and Analysis
4.1 Asset based
4 2 Cash flow
4.3 Earning based
4.4 Decision Rule
4.6 Notes of Financial Statements
4.9 Summary of
4.10 Analyst option
5.0 Summary of
Findings, Conclusions, Recommendations
And Suggestion for Further Studies
5.1 Reasons for valuation
5.3 Summary of findings
5.6 Suggestions further research
Marketing is perhaps the most dynamic, complicated and
challenging, function of business. Especially having regard to the specialized
nature of financial assets (securities) marketing.
Indeed, more and more discerning financial institutions are
recognizing that a detailed and objective appraisal of the assets (securities)
is a pivotal determinant of investor/investment success in the marketing of
financial products and services.
The success or failure of any business depends largely on the
marketing function. It also provides a vital interface between organization and
the environment. Service should run through an organization like blood through
Service marketing is a deliberate and systematic planning and
execution of a set of rational activities designed to satisfy end users of
intangible products. Service marketing is concerned with the happiness
satisfaction and pleasure given by the representative of an organization to the
consumer of intangible goods.
1.1 DEFINING CUSTOMER VALUE AND SATISFACTION
Peter Drucker insightfully observed that a company's first task is
"to create customer." But today's customers face a vast array of
product and brand choices, prices, and suppliers. Then the question: How do
customers make their choices?
Customer’s estimate, which offers, will deliver the most value.
Customers are value maximizes, within the bound of search costs and limited
knowledge, mobility, and income. They form an expectation of value and act on
it. Then they learn whether the offer lived up to the value expectation and
this affects their satisfaction and their repurchase probability.
Total customer value can then be seen as a bundle of benefits
customers expect from a given product or service. Therefore customer's
delivered value would then be the difference between total customer value and
total customer cost.
1.2 VALUATION MODELS
One of the entrepreneur's critical tasks is determining value.
This is important not only for the individual about to purchase a company, but
also for the entrepreneur who is starting a firm, and is attempting to estimate
the value of the business may have in the future. Finally, understanding value
is a key step for the entrepreneur about to harvest a venture, either through
sale or taking the business public, Financial theorists have developed many
techniques, which can be used to evaluate a going concern of course, for a
large public company; one could simple take the market value of the equity. For
a going concerning with along history of audited financials, earnings and
cash-flow projections are possible. But the valuation of a small, privately
held business is difficult and uncertain at best.
If the hurdles can be scaled one way or the other, we still have
to contend with characteristic nature of all investments where they all look
alike, in the sense that every investment involves the outlay of resources in
the expectation of future benefits.
Similarly, every investment has some "opportunity cost",
since each involves the owner foregoing some alternative opportunity.
Similarities notwithstanding, there ate a great many differences among
They differ on basic issues such as the nature of economic
activity involved, the magnitude of the outlay, etc and on such superficial
issues as the geographical location of the activity or the identity of owners,
Such differences give rise to various classifications of investments.
FOR CLASSIFYING INVESTMENT IN ASSETS
The fundamental basis for classifying financial assets is the
intrinsic nature of assets in which the outlay is denominated. Conceptually,
there are many ways of analyzing the nature of assets, for example whether the
investment is in tangible assets such as buildings, or in intangible assets
such as advertising. However, the basic distinction which we make in this
project is between investment in real assets and investment in financial assets
(securities). Both types of investments can further be classified on the basis
of a number of parameters:
(a) Magnitude of outlay:
Major investments could be distinguished from minor investments.
In investment outlay, size is relative. An investment is major or minor
depending on the relative proportion of the outlay to the total size of the
firm. Thus whereas an investment of N20000 could be considered a minor
investment by a firm capitalized at NZOO million, it is very major investment
to a small firm with total assets valued at N40000.
(b) Risk environment of Financial Assets:
A distinction is
made between investment under conditions of certainty, investments under
conditions of risk, and investments under conditions of uncertainty.
(c) Motivation for investment in the asset
could be made among investments for asset replacement, capacity expansion or
modernization, and investments for strategic purposes.
(d) Sequencing of
Conventional investments are distinguished from non conventional
investments on the basis of the timing and sequencing of cash flow arising from
(e) Nature of expected benefits
exists between cost saving and revenue yielding, real asset investment, The
former is illustrated by a firm that replaces old equipment in the hope of
cutting operating costs over the life of the new equipment, In a revenue
expansion programme, on the other hand, funds are invested in order to increase
gross revenue either through additional sales volume or through increased price
per unit of sales.
When evaluating a cost-saving investment, the value of total costs
saved is compared with the additional investment made. In the latter situation,
the investor would have to compare the increased costs with the additional
sales revenue realized.
to other investments
The costs and benefits of a given investment may or may not be
affected by alternative investments. In this regard, dependent investments are
different from independent investment activities.
Distinction among investments is necessary for meaningful
investment evaluation because various types of investments raise different
problems. A major investment requires detailed evaluation and the dlrect
attention of the top level executives of a corporation.
Conversely minor investments could be appraised superficially at
low levels of an organization.
Similarly, knowledge of the economic status of an investor
influences the nature of costs and benefits relevant for appraising his
investment, For example, the cost/benefit implications of a given investment
could be different if it is sponsored by the government than if the same
investment is made by an individual.
Proper classification of an investment is therefore a necessary
first step in its appraisal and management.
1.4 INVESTMENTS IN ASSET
AS CASH FLOW
Every investment activity has definite or implied costs and
benefits. In business organizations, the ultimate consequences of investment
activities are expressed in terms of cash flow, i.e., the receipts (cash
inflow) or payment (cash outflow) of cash by an organization. Within a period,
a typical organization makes a series of cash payments and receives a series of
cash benefits. Where the cash inflow of a period exceeds the outflow, one talks
of net cash inflow.
Conversely, a situation of net cash outflow exists where the
outflow of a period exceeds the inflow. There are instances however, where the
costs or benefits of an investment cannot be described solely in terms of cash
flow. A firm for example can donate to a charity for the purpose of improving
its public image.
In such a case, there is some difficulty in expressing the future
goodwill which accrues from the donation in precise money terms. A similar
analogy applies to a firm which donates generously to a political campaign In
the hope of winning government patronage if the favored political or political
party comes to power.
Investments whose costs and benefits are difficult to measure in
terms of cash flow abound in non-profit making organizations in both the
private and public sectors. The cost/benefits implications of government
investments are not generally easy to quantify in monetary terms. A highway,
for example, has direct monetary costs, such as constructions and maintenance
costs, and many indirect social costs, such as providing an easy escape to
criminals, more accidents, disfigurement of the landscape, noise, pollution,
etc. Similarly, the benefits of such a highway accrue both in monetary and
non-monetary forms. Even in government business enterprises there are several
benefits which do not accrue in direct monetary forms. For instance, a
government could decide to set up an under-productive factory in a depressed
section of the community for the purpose of increasing local employment
1.5 INVESTMENT IN FINANCIAL ASSETS
Financial assets are the 'promissory notes' of various economic
units (government, business firms, etc), which represent claims on the
productive assets of the issuers. Investments in such assets could be
categorized either on the basis of the variability of the price of the
financial assets or on the basis of the nature of income expected from the
In terms of the former, a distinction is made between investments
in fixed price and in variable price financial assets. Fixed price financial
assets are very liquid and virtually risk free because their money values do
not change with time. Examples are deposits in bank savings accounts and
investments in government savings bonds.
Returns on such investments are relatively low and should really
be seen as compensation for potential loss in the real value of the assets over
time. Fixed price financial assets are unusual media for investment. They are
mentioned for purposes of complete analysis. The bulk of investments in
financial assets are in the form of variable price financial assets such as
government and corporate securities. Security prices fluctuate in response to
changes in the environment. Such price fluctuations create opportunities for
potential capital gains or losses when others sell their securities.
The basic difference between investment in securities and
investment in real assets is that an individual security holder does not
necessarily exercise direct control over the firm whose security he holds.
Possible exceptions arise where an investor is the majority equity shareholder.
A majority shareholders can use the might of his voting power to control the
affairs of the firm. In that case, however, the distinction between real and
financial asset investment tends to be very narrow indeed.
The nature of rights and control exercised by a security-holder
depends ultimately on the type of security held. In that connection, rights
inherent in fixed income securities are different from those of variable income
1.6.1 Fixed income securities
Fixed income securities are debt instruments (bonds), which
provide for specific rates of money income to holders. Bonds are issued by
various types of business organizations (corporate bonds), by federal and state
governments (government development stocks or bonds), or by local government or
municipal authorities (municipal bonds). In general, bond holders have two
types of claims on the issuers. The first is alright to full repayment of the
nominal value of the bond at maturity. The other is a right to periodic
interest at a specified rate of the principal amount payable in accordance with
conditions stipulated in the bond indenture, both claims are unconditional.
Investments in fixed income securities are presumed to have very
limited degrees of risk. Consequently, they attract low rates of return.
Unfortunately, the purported safety of investment in bonds is, at times,
illusory. The sophisticated investor is more interested in the real values of
expected income than in the money values of such income. Fixed income
securities could, in fact, expose holders to variable real incomes particularly
during inflationary periods. In addition, both interest payments and the repayment
of principal are in some cases compromised where the bond issuer is faced with long periods of
The purported safety of fixed income securities therefore depends
both on the ability of issuers to generate adequate income to cover the claims
and on the ability of the macro-economy to operate at stable price levels.
1.6.2 Variable Income Securities
Variable income securities are equity stock (shares) by various
types of business organizations. Returns on such securities, for any given
period, depend on profit performance of the issuer for the period. They are
therefore subject to a great deal of variability. Both the primary attraction
and the greatest danger of investment in equity stock arise from this feature
of variability of income. In periods of economic boom and rising corporate
profit performance, equity stock holders reap windfall returns.
Conversely, they receive the greatest losses during periods of
depressed economic conditions. Other attractions of investment in equity stock
arise from rights of corporate ownership inherent in such investments. Equity
stock holders have rights designed to attract and retain their interest in the
Apart from the
right to share in residual corporate income, other examples of attractive
rights enjoyed by equity holders include the right to a pro-rata share of
corporate assets in liquidation, and voting rights, The other group of rights
is the protective rights which protect the interest of equity stock holders,
They include the right of transfer ownership interest, the right of prior
consideration in subscribing to additional issues of equity stock, and the
right to inspect corporate books.
Hybrid securities make up the last group of securities. They are hybrid
because such securities have some features of fixed income securities and some
characteristics of variable income securities. While the expected income of a
hybrid security is basically a percentage of the value of the security, the
payment of such income is contingent on the profit performance of the issuer. A
typical example of a hybrid security is preferred stock (preference shares).
Preferred stocks are unpopular media for financial assets investment,
particularly, in developing economies. The reason is that they neither offer
the chance of large profits like equity stock nor the guarantee of steady money
income which could compensate for the shortcoming.
It has always been difficult marketing businesses because of the
technical and many other complex issues involved in the exercise. The use of
valuation models will no doubt reduce the difficulty, if the approaches to the
valuation of assets/businesses and their appraisal are common knowledge.
Therefore there is the need to appraise valuation in a way that
would bring about an understanding of the concept to both the marketer and the
1.8 RESEARCH OBJECTIVES
To tackle the above problem, the research objectives are:
the concept of value and valuation, on the business as a financial product
(service). X-ray analytical methods what would facilitate an understanding of
assets and business valuations.
an effective and result oriented marketing programme for business sales.
the 4 P's of marketing in assets valuation models.
1.9 RESEARCH QUESTIONS
are the main approaches to the valuation of assets/business and how are
would a marketer develop a marketing programme that can influence and benefit a
potential investor or purchaser?
can financial services provider/marketer in the context of marketing for
businesses improve their product offering, to ensure optimum benefits to
financial services consumers; for assets/business valuation and purchase?
Effective valuation of assets/business is critical .to marketing
1.11 RELEVANCE AND SIGNIFICANCE OF STUDY
The study is
relevant to the extent that the problem usually encountered in specialized
financial products marketing would be isolated, analyzed and means of managing
the problems will be proffered.
TERMS AND CONDITIONS APPLY
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