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| Tekijä: | Leibowitz, M. L. |
| Otsikko: | Franchise valuation under Q-type competition |
| Lehti: | Financial Analysts' Journal
1998 : NOV/DEC, VOL. 54:6, p. 62-74 |
| Asiasana: | Earnings Forecasting Equilibrium analysis Growth Competition Models |
| Kieli: | eng |
| Tiivistelmä: | When considering a company's prospects, analysts often segment the earnings progression, either formally or intuitively, into a series of growth phases followed by relatively stable terminal phase. The role of competition in the terminal phase is discussed. In the simplified two-phase model of a single-product company, the first-phase earnings growth drives the company's overall return on equity toward the ncremental ROE on new investments. The company then enters the terminal phase with a high ROE that attracts the attention of a potential competitor that can replicate the company's production / distribution capacity at some multiple Q of the original capital cost. This Q-type competition can lead to margin erosion and a reduction in earnings as the ROE slides to more competitive levels. The implication is that the analyst should address the potential impact of Q-type competition on the sustainability of the company's franchise and the company's valuation. |
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