Introduction
Assets is said to be something that can be a difficult category to grasp because it includes different kinds of things. The cash a company has in the bank is considered to be an asset. So is the computer on the receptionist’s desktop and the inventory in the warehouse. If customers owe the company money, the amount they owe is considered an asset. Assets are the things the company has and uses in its business that have value extending into the future. The assets prove to have different benefits for the company and its use can still be evident years after the company acquires it. The assets side of the balance sheet shows what a business owns (2000). The liabilities side of the balance sheet shows what the company owes other companies or other individuals. All of the other assets on the balance sheet have a defined value. Someone who buys a company is usually buying much more than just the assets recorded on the seller’s balance sheet. The buyer gets an ongoing business (2000). When someone intents to purchase or put up a company he/she should think about how good the assets of the company are and how beneficial will the assets be.
With buying a company comes the assets, problems and weakness shared by a company’s former owner. With the company comes its past and other things attached to it. The company has its own customer list, business relationships, a reputation, a place in the community that it needs to protect. The price of an organization will most of the time be determined not just by the value of the seller’s assets but by the company’s market value. The market value of the company depends not only on the assets of the company but on its liabilities, intangibles and other things that don’t appear in the balance sheet. What a buyer pays for a business is often more sometimes much more than the dollar value of the assets on the seller’s balance sheet. That extra that the buyer pays is what accountants call goodwill. It appears on the balance sheet just like any other asset, and it will be amortized over time much like any depreciable asset. It’s the most common form of what are known as intangible assets something that has value but can’t be touched, collected, or spent (2000). The paper will discuss about Asset Valuation and how the company chosen values its non current assets. The paper will discuss about the company that values its non current assets.
The company HSBC
HSBC Holdings is one British financial holding company that has origins in Hong Kong and Shanghai. It had its offices opened in 1865 under a special charter, this charter allowed Hong Kong rather than London as a headquarter location. The bank became and remained an eastern force until the 1950s. This is due to the overexposure to the crown colony and the textile industry of this region pointed to a need for geographical diversification. After some time a worldwide scan was made with rather disappointing results. The results showed that only the USA was attractive because it offered dollar assets in a dollar-hungry world (2003). HSBC believed that the Internet is one of the several exciting new media that should be incorporated as an integral part of its working environment. HSBC through analysis and observation has concluded that e-commerce will change the fabric of the financial services sector and the bank sees it as a way of finding new customers all over the world and improving its services to existing customers. HSBC has its mind set on using e-commerce as a means to reorganize the business. This will be done to provide higher-quality customer services more efficiently. The changes that will be done will help HSBC to link its customers to the full range of international services and also manage their processing wherever it chooses. The bank believes that by doing this thing they will have a considerable competitive advantage (2002).
HSBC has adopted a clicks and mortar strategy. This requires that customer Internet offerings must meet three criteria: customer needs and preferences come first; they must fit HSBC’s existing distribution channels; and they must be multinational in scope. Recently the group has been reorganizing its work for the e-age and putting in place some major components of such a strategy. In 2000, over US billion was spent on technology, including a significant proportion on dot.com initiatives. HSBC aspires to be one of the first to provide customers with facilities through the Internet on a multi-geographical and multi-product, basis (2002). HSBC is one of the most successful financial institutions in the world. HSBC caters to different financial needs of the people and the company provides service through the internet and regular methods of banking.
Cathay pacific
Cathay Pacific is one of Hong Kong’s longtime international airlines. This airlines company confronted a significant strategic identity issue in preparation for the 1997 changeover from British to Chinese control of Hong Kong. The company was generally seen as a quality airline, but it is one company that strongly associated itself with Hong Kong’s colonial past. A major challenge for the future was for Cathay Pacific to be perceived as more Asian rather than British/Asian in order to strengthen its market abilities in Asia including attracting a wider Asian customer base, as well as to reflect the changed political realities in Hong Kong. In other words the company needed and became willing to align its conceived Identity with its new Identity. Cathay Pacific chose to undertake this identity realignment through the use of a massive coordinated set of initiatives that was intended to transform the reality of the company to achieve the new perceptions that would reflect the new strategy and permit communications based on the substantive changes (2003).
Among the different initiatives the company intends to do is adding more aircrafts that are capable of operating in medium-sized airports found in Asian markets that are previously underserved by Cathay Pacific, another initiative is appointing an increased number of Asian nationals, and an initiative it intends to do is changing the on-board food and service procedures so that such activities will reflect more closely the wider Asian customer base. In addition to that Cathay Pacific’s visual identity was remarkably changed to draw away extensively from its traditional Chinese imagery that includes calligraphy and symbolism (2003). Cathay pacific is one of the most well known airline company in the world. It competes with different airline companies for prestige and notoriety in the airline industry. Recently the company underwent a change in image to counter the changes that happened in its environment. The company changed its identity to attract more clients.
Asset Valuation
The world of asset valuation becomes considerably more complex when businesses turn to intellectual property in general and technology assets in particular. Here they have assets that do not exist in tangible form, but rather as concepts or knowledge that can be applied or used to produce a beneficial result. There is general understanding that these kinds of assets have value, but quantification of that value is considered to be a challenge. By combining this general characteristic with the further problem of evaluating a new technology and a person can then appreciate the true difficulty of developing a realistic value for technological assets such as a new manufacturing process or an improved control scheme. In many cases, and not just in small business entrepreneurial situations, the response to the problem of placing a value on technological assets is, in effect, to ignore it (1998).
The value of fixed and tangible assets owned and managed by a business with the appropriate property books and associated balance sheet data can be used to develop the desired information for business for the different purposes they deem. Ask for the same information on intangible technological assets a few may have something of this nature, but the vast majority will fall far short of a comprehensive technological asset inventory and valuation. The notion for business and people is sometimes they are made to believe that there is really no immediate and important need to place a value on the intangible assets of an enterprise. There are certain situations wherein a definite and urgent value for a technological asset is needed. These situations depend on the events in the environment. In view of the fact that in many small entrepreneurial enterprises the technology that they acquire becomes the crown jewels of the total business strategy, this helps in proving that valuation can be a critical issue. The same kind of reasoning can be applied when there is a valuation of a technological asset and such asset is being considered for divestiture or licensing out (1998).
The process of valuation requires a choice of an attribute to be measured and a unit of measure. The attributes of assets and liabilities are being referred as the ones being measured and it includes the Historical cost. The historical cost refers to the amount of cash or any cash-equivalent that is paid for a company or an individual to acquire an asset. It can also be the amount of cash-equivalent liability. Another attribute of assets and liabilities includes the replacement cost. The replacement cost refers to the amount of cash or cash-equivalent that would be paid to acquire an equivalent or the same asset currently, or that would be received to incur the same liability currently. Moreover the attribute of assets and liabilities includes the net realizable value. The net realizable value refers to the amount of cash or cash-equivalent that would be obtained by selling the asset currently or that would be paid to redeem the liability currently. The last attribute of assets and liabilities is the present or capitalized value. The present or capitalized value refers to the present value of net cash flows. They are expected to be received from the use of the asset, or they can be the net outflows that are expected to be disbursed to redeem the liability. There are two units of measure that are used in financial accounting this include units of money or units of general purchasing power (1992).
The following are the alternative asset valuation and income determination models. The first is Historical cost accounting. The historical cost accounting measures historical cost in units of money. Replacement cost accounting helps in measuring replacement cost in units of money. Net realizable value accounting measures net realizable value in units of money. Present value accounting measures present value in units of money. General price-level accounting measures historical cost in units of purchasing power. General price-level replacement cost measures replacement cost in units of purchasing power. General price-level net realizable value accounting measures net realizable value in units of purchasing power. General price-level present value accounting measures present value in units of purchasing power ( 1992). Asset valuation helps in determining the worth and importance of the Assets the company has. This also helps in determining whether the company has a good standing or not.
Asset valuation and HSBC
The historic industry deregulation in conjunction with dramatic advances in banking technology has laid the groundwork for new and improved business strategies at commercial banks. The process done by the industry deregulation has transformed almost every facet of the banking industry. It has created a condition of an industry becoming pro-competitive by allowing banks to expand into neighboring cities and states; it also caused the industry to offer financial products and services that had previously been reserved for non-bank financial institutions, and to set deposit interest rates according to market forces ( 2004).
A quarterly accounting-based returns exhibit considerably less variation over time and as a result, substantially higher risk-adjusted profits than the weekly stock market returns. This difference is likely due to three factors that includes accounting conventions that affect the valuation of assets and the way that expenditures are recognized over time; the difference also created changes in relevant information and investor expectations that are priced by the stock market but not included in backward-looking accounting statements; and it produced different frequencies over which different companies began to observe the accounting data and the market data. The accounting-based returns are considered to be substantially lower on the average scale than the stock market-based returns. The most likely explanation of such situation is that publicly traded companies with low returns are likely to become takeover targets and drop out of the sample, while closely held private companies with low returns are more likely to continue to operate independently (2004).
HSBC is one of the most successful and powerful banking institution in world. This company is one of the most prestigious amongst all other banking institutions. Just like any other company it acquires assets from different sources. The company protects the value of its asset and it makes use of asset valuation. The company makes use of asset valuation through financial statement analysis, ratio analysis, fundamental analysis and valuation economics. The financial statement analysis helps the company in knowing the value of its assets when compared to other financial aspects of the company. The ratio analysis helps in determining when the assets can be converted into cash. Moreover the fundamental analysis assists in knowing how the company is doing against competitors and how it is doing in its industry. Lastly valuation economics focuses on determining the financial value of the company and the trend it will go through. The company makes use of these tools to know whether the assets they posses still have value. The value of the assets helps the company in determining whether the company has the capacity and capability to attain important assets.
Asset Valuation and Cathay Pacific
Cathay Pacific is one of the most well known airline company in the world. It provides different services to different people in the world. The company has over 100 planes each operating well and maintained well by the most able staff. Its airport facilities offer the best service experience to clients. The company makes sure that the clients enjoy their experience in riding the planes and using their facilities. The company passes by almost 90 different destinations. By doing this the company provides service to the clients as well as take advantage of such situation to promote its products to more people in more parts of the world Cathay Pacific uses the valuation method of market approach wherein the company takes a look at the situation in the market before considering any action. In this method the assets of the company are given protection by making sure that changes in the environment cannot decrease the state of the assets of the company. This method also makes use of strategies that prevents the value of the assets to go down.
Aside from this method the company also uses financial statement analysis. For the company the financial statement analysis serves as a check and balance procedure so that the company can know whether its assets are doing well or it is being out performed by the liabilities. The financial statement analysis also helps the company decide on whether it needs to increase the number of its assets. Cathay Pacific Financial statement provides the company information that it can use to determine whether the company has enough resources to purchase additional assets.
Conclusion
Assets are the things the company owns. These are the things in the company that have value extending into the future and such value may provide its usefulness in due time. Companies use valuation to make sure that they have ideas of the worth and importance of the Assets the company has. HSBC studies the result of financial statement analysis, ratio analysis, fundamental analysis and valuation economics to know the standings and worth of their assets. Through the asset valuation the company gets to target assets that have the best value. On the other hand Cathay pacific makes use of the valuation method of market approach as a means of asset valuation. In this method the assets of the company are given protection by making sure that changes in the environment cannot decrease the state of the assets of the company. Aside from this method the company also uses financial statement analysis.
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