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Chapter 10 D eclining businesses: a case for euthanasia?

Corporate Financial Strategy 4th edition Dr Ruth Bender. Chapter 10 D eclining businesses: a case for euthanasia? . Declining businesses: contents. Learning objectives Financial strategy for a declining company In a declining company… Declining company transformation strategies.

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Chapter 10 D eclining businesses: a case for euthanasia?

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  1. Corporate Financial Strategy4th edition Dr Ruth Bender Chapter 10Declining businesses: a case for euthanasia?

  2. Declining businesses: contents • Learning objectives • Financial strategy for a declining company • In a declining company… • Declining company transformation strategies

  3. Learning objectives • Explain how the life cycle model relates to a company in the decline stage of its life. • Evaluate a deep discount rights issue. • Calculate the theoretical financial impact on an over-geared company of raising new equity.

  4. Financial strategy for a declining company

  5. In a declining company… • Reduce the cost base to prevent losses • Run the business for cash • Only reinvest if there is a short payback period • Be prepared to close down the business once it stops generating cash

  6. Declining industry transformation strategies High A single company rationalizes the industry by taking over small competitors until it acquires a dominant market share, enabling much greater financial returns Rate of market growth Low/negative High Low Relative market share

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