Home > economics > The Motley Fool: Bigger Size, Lower Returns

The Motley Fool: Bigger Size, Lower Returns

In light of recent changes in my career I came across this article from The Motley Fool. In essense, the article looks at the right numbers, but at wrong angles. Here’s why.

  1. First and foremost, it’s hard to say what ROE would be if the acquisition did not occur. The acquisition happened for a reason.
  2. The market does have a limited size. One cannot grow beyond a certain size.
  3. Investments instead of going into development go into equity.
  4. Cancelled projects due to uncertainty drag down productivity.
  5. Integration activities may consume as much as the amount saved due to elimination of duplicate functions.
  6. Company name does have a value and it may be negative in the total value of a product. In other words, customers of the company being acquired may get disappointed and stop buying their products after the acquisition.
  7. Larger equity base for ROE.
  8. One time charges already mentioned in the article.
Categories: economics
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