With a lot of new experts in stocks and the rise of FinTwit’s popularity, I figured I’d join the craze and share my two cents. This is about what’s the deal with a company’s financials and touches on some branding.
Factors that lead to a valuation of a company range from revenue, sales, gross profit, assets, liabilities, and other financial keepings which can be found on the company’s balance sheet and income statements. Other financial evidence for a company’s valuation also includes the company’s financial ratios from its current ratio which is a liquidity ratio that measures a company’s ability to pay short-term obligations, profit margin, and its earnings-per-share and price-earnings ratio which measures the market price per share and the amount on which investors are willing to pay per dollar for current earnings, respectively (Ross, Jordan, & Westerfield 2011). These financial factors (among many others) are taken into consideration from the company, its competitors, investors, and venture capitalists when reviewing a company’s valuation.
Beyond financial records, a multitude of other factors play a strong part in a company’s valuation. One in particular is its brand equity which is a measurement of the brand’s value among the public. For example, Apple’s brand value consistently ranks among the top five worldwide in regard to global branding and brand perception.
In 2018, Business Insider released their results from a survey directed at American millennials surveying their top brands. Apple ranked number two for 2018 down one position from 2017 (Dua, T. 2018). One of Apple’s potential strategies is to essentially lean on their brand name. In recent years, Apple’s brand value consistently ranks among the top five worldwide in regard to global branding and brand perception. In 2018, Business Insider released their results from a survey directed at American millennials surveying their top brands. Apple ranked number two for 2018 down one position from 2017 (Dua, 2018). Another study done by Interbrand ranked Apple as the number one valued brand in the world in 2017. The results were compiled by Interbrand based on their three criteria the financial performance of a company’s branded products or services; the role the brand plays in convincing customers to choose the company; and whether the brand allows the company to charge a premium for its products or services (Picchi, 2017).
Steven Thomson, Insights Director of Brand Finance, states a strong brand reputation drives higher customer acquisition, satisfaction, loyalty, and advocacy which supports business growth and profitability (Brand Finance, 2019 p. 9). In Brand Finance’s annual rankings, Apple is ranked second and its CEO, Tim Cook, is the 4th overall CEO in regard to brand manager in the world.
In respect to brand equity and value is customer loyalty. With loyalty comes a large brand equity and part of gaining loyalty amongst consumers is a company’s loyalty program. Goals for such a program is to increase sales revenues and to build a stronger bond towards the customer and brand (Uncles, Dowling, & Hammond, 2003). With these factors in place, customer equity and established and maintained which helps lead to a company’s valuation. Two professors from Wharton argue that present and future customer lifetime value should be evaluated into a firm’s valuation similar to its operations and financial performance (Yohn, D.L., 2019).
Company executives create value for not only the company itself but also for its employees, business partners, the community, stakeholders, and shareholders. The executives do so by making smart and strategic financial and capital investments that will lead the company to strong growth and profits and in the short-term but more importantly in the long-term. Another aspect for company executives to implement is providing communication to the shareholders. The company should provide relevant and current information regarding the company’s financial position and standing, market share, plans, and goals.
References
Brand Finance (2019, January). Global 500 2019: The annual report on the world’s most valuable brands. [PDF file]. Brand Finance. Retrieved from https://brandfinance.com/images/upload/global_500_2019_locked_4.pdf
Brealey, R.A., Myers, S.C., & Marcus, A.J. (2018) Fundamentals of corporate finance with connect (9th ed.). Boston, MA: Mcgraw-Hill
Dua, T. (2018, September 7). Millennials reveal the top 100 brands they love. Retrieved from https://www.businessinsider.com/top-100-millennial-brands-2018-9#2-apple-105
Picchi, A. (2017, September 25). These are the world’s most valuable brands. CBS News. Retrieved from https://www.cbsnews.com/news/brands-most-valuable-in-the-world-interbrand/
Ross, S.A., Jordan, B.D., Westerfield, R.W. (2011). Essentials of corporate finance (7th ed.). New York, NY: McGraw-Hill
Uncles, M.D., Grahame, D.R., & Hammond, K. (2003). Customer loyalty and customer loyalty programs. Journal of Consumer Marketing, 20(4), pp. 294-316. Retrieved from https://doi.org/10.1108/07363760310483676
Yohn, D.L. (2019, April 2). Why the corporate valuations of rent the runway, airbnb and lyft may be completely wrong. Forbes. Retrieved from https://www.forbes.com/sites/deniselyohn/2019/04/02/why-the-corporate-valuations-of-rent-the-runway-airbnb-and-lyft-may-be-completely-wrong/#81f70bd64532
