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Company Valuation Essay

1041 words - 5 pages

Rapid economic growth in the late 1990s led to excessive expectations of companies profitability. One of the victim of these anticipation, which cause the shenanigans in the incredible scale was WorldCom, one of the biggest telecommunication provider. (Javiriyah Ashraf, 2011).
in June 2002, the financial world has stunned by the news about one of the biggest corporate scandal in history, financial machinations in WorldCom. Financial indicators have been distorted to the amount of about 4 billion dollars. (www.icmrindia.org)
The announcement has made a real shock in the business world. How is this even happen? How can such a reputable could conceal such a extremely large expenses from ...view middle of the document...

One of the most important competitors of WorldCom were AT&T and Sprint's telecommunications companies. (Dennis r. Beresford Nicholas Deb. Katzenbach C.B.R, Jr. 2003). Some companies offered competition as a substitute product. For instance, Cisco has presented cable carry capacity of which was increased by more than two times. (Javiriyah Ashraf, 2011).
By setting lowest price, reducing expenditures, acquiring rival and incorporating resources WorldCom was applying Cost Leadership competitive strategy. (Denis Collins,. 2008, 2276-2277).
During the dot.com boom in the telecommunication industry WorldCom involved to the acquisition of more than 60 communication firms that led to the incredible growth of the company. In 1998, the strategy reached its peak, when WorldCom acquired MCI Communications Corporation, which revenues were larger more than two times than WorldCom's' yield. (Dennis R. Beresford Nicholas deB. Katzenbach C.B. Rogers, Jr., 2003).
However, despite the incredible growth, since the late 1990s and early 2000s WorldCom and other companies in the industry began to suffer losses because of adverse market conditions: Worldcoms' equities market value plummeted from 150 billion dollars in 2000 to around 150 million dollars in 2002. (Bob Lyke, Mark Jickling, 2002). Oversupply, recession in economy, which reduced demand and permanent price reduction and intensive competition altogether led to high buyer bargain power in the industry. (Aigbe Akhigbea,∗, Anna D. Martinb, Ann Marie Whyte, 2005 p.49).
As regards corporate governance it left much to be desired. There were lack of strategy planning, increased rivalry amongst departments and stringent hierarchy. (Thornburgh, 2003). According to Dennis R. Beresford, Nicholas deB. Katzenbach, C.B. Rogers Jr. in WorldCom flourished environment where loyalty to senior stuff meant more than faithfulness to the company. Moreover, strong hierarchy and loyalty played crucial role in keeping the fraudulent activities in secret (Zekany, Braun, & Warder, 2004). The Board was not sufficiently involved in the corporate life of the company and dispensed extremely large dividends. The Audit Committee was passive and did not attempt to critically evaluate accounting reports of the company. (Dennis R. Beresford Nicholas deB. Katzenbach C.B. Rogers, Jr., 2003). Moreover, according to David Boyd (2003, p.83-84) Ebbers authorized...

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