Scenario analysis and valuation in a decision making context: – with GN Store Nord as case study

Alexander Koefoed

Studenteropgave: Kandidatafhandlinger


This thesis establish a framework for scenario analysis used for company valuation in order to facilitate better decision making ability and is applied to GN as case. It is argued that scenario analysis, mostly, should bypass real option valuation when applied at a corporate level even though scenario analysis and real option valuation sometimes is used as interchangeable concepts. Instead focus should be on trends of fundamental change in industries in which case a shaping or adapting strategy can be implemented depending on the underlying analyzed company. Internally, a company should always assess its level of diversification and constitutes the second parameter of the scenario analysis framework. In this way the scenario analysis becomes a supplement for traditional strategic models with focus on future characteristics (not historic), and provides logic for value drivers in companies. This will serve stakeholders with better decision making ability since change in the logic for value drivers will make it more transparent what tasks to initiate. If the logic for value drivers is not available the traditional single point estimate valuation approach is sufficient since no realistic scenarios backed by a “story” can be created. In this case only residual uncertainty is present as reflected in the cost of capital. When the scenario analysis is applied to GN, as case, it is shown that little evidence exists that GN will be better of by splitting its operations into two separate units of Resound and Netcom. This is shown both in a relative valuation compared to actual market capitalization and a fundamental valuation approach. When Resound is analyzed in a transaction setting very attractive values are derived compared to other scenarios. A sale seems probable after a favorable German Supreme Court ruling, which is already reflected in the GN share price. A transaction approach should thus be pursued unless success is achieved in operational excellence and integration into new markets. For the industry of hearing aids there is a clear tendency to seek new product solutions and vertical integration into distribution. Here, it is argued that Resound is better off by implementing an adapting strategy ensuring its market share and reduced cost of capital unless this will severely affect its operating margins in which case Resound is better off by focusing on operations. Using the dynamics of logic behind the value drivers in this manner decision making is improved at a level different from what a traditional single point estimation valuation provides.

UddannelserCand.merc.fir Finansiering og Regnskab, (Kandidatuddannelse) Afsluttende afhandling
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