Assess restructurings aimed at costs or at the balance sheet
The idea
Cost restructurings aim to lift margins by closing sites, cutting jobs or outsourcing. Evaluate them by estimating recurring savings against one-time charges, comparing the resulting margin with peers, and judging whether savings will last or leak away through lower revenue. Repeated so-called one-time charges should be treated as ongoing costs. Balance sheet restructurings change financing: leveraged recapitalisations add debt to buy back shares, which may lower WACC through the tax shield while raising financial risk; sale-leasebacks release cash from assets but create lease obligations. Reorganisation under creditor protection restructures claims when the company cannot pay. The traps are ignoring recurring charges and assuming more debt always creates value.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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- Set out the kinds of corporate restructuring and why issuers undertake them
- Explain how a proposed corporate restructuring is first assessed
- Apply valuation methods to companies undergoing corporate restructuring and explain the values that result
- Show the impact of a corporate restructuring on an issuer's EPS, its weighted average cost of capital and its ratio of net debt to EBITDA
- Assess a company's investment moves such as acquisitions, joint ventures and equity stakes in other firms
- Assess how a company divests, whether through a sale or a spin off