Reviewing Financial Statements

Reviewing Financial Statements and Stock Returns for Merges and Acquisitions

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

ABSTRACT

Reviewing Financial Statements and Stock Returns and the way cash flows impact analysing the company's performance is discussed in the report. The main emphasis is on the fact that performance indicators clearly display the company's state by way of utilizing cash flow ratios and financial statement analysis. The main feature of Reviewing Financial Statements and Stock Returns is the form of representation which contains all data for various transactions that take place in the mergers and aquisitions. At best, Reviewing Financial Statements and Stock Returns are intended to cover all the basic transactions of the company and provide with a proper picture as to where the company is headed after it merges or acquires a new company.

INTRODUCTION

Thesis Statement:

“Acquisition and mergers have increased stock returns as reflect in cash flow and financial statements”

Purpose of Study

The purpose of the study is to determine the connection between acquisitions & mergers with that of the stock returns in various companies. The study attempts to relate the fact that financial statements and cash flow ratios provide a great insight into the issue.

Background of the Study

Recently there has been a rapid increase in the number and volume of mergers and acquisitions. Integration processes of structural change involve an increasing number of regions and expand trans-national transactions (Aaker, Jacobson, 1994, pp 191 - 201). For the business community, these processes have a clear logic, because it implies a clear economic motivation. The expansion of markets, production synergies and financial benefits including the factors leading to an increase in the cost of equity are all considered as the economic motivational factors (Cheng, Agnes, Hopwood, James, 1992, pp 579 - 98).

However, for researchers, the topic is still incomplete. First, despite the large number of studies, there is an obvious gap in the qualitative findings, and the problems in the classical works in corporate finance refer to the unresolved problems of finance. Secondly, the scientific community stereotypes about the fact that integration of the transaction, in most cases lead to the destruction of share capital: stock quotes, company-buyer fall; financial results for the combined company deteriorate, which contradicts the observed integration activity (Collins, Daniel, Kothari, 1989, pp 143 - 81).

This situation is all the more surprising that there are many empirical works whose authors come to opposite conclusions because of differences in assumptions, methods of analysis, the study sample of transactions. Undoubtedly, the existing discrepancy scientific findings and practical realities require permission. It is obvious that the investigated problem is extremely relevant because of the growing effectiveness of the integration process requires high-quality, fundamental research base (Fama, 1998, pp 283 - 306). All existing studies on the approach to measuring the impact of mergers and acquisitions can be divided into four groups:

The study of stock returns

These works that make up the majority ...