Faculty of Economic and Management Sciences
School of Financial Sciences
Department of Financial Management
Selected Highlights from Research Findings
Professors John Hall and Johannes de Wet of the Department of Financial Management, together with Dr Mariette Geyser of the Department of Agricultural Economics, undertook a research project whereby an analysis of the value creation as well as the cash management abilities of companies were investigated, but then specifically applied to companies within the food producing sector of the Johannesburg Stock Exchange. The study highlights the importance of economic profits and its long-term effects on shareholder value. South African companies listed on the JSE were analysed ant it was illustrated how a relative measure of internal performance, Economic Value Added, can be used to rank companies in terms of value creation. Furthermore, individual companies and sectors were placed on a financial strategy matrix, which evaluated companies according to value creation and cash management. The study examined especially the performance of listed agricultural companies and compares the performance of the food producing sector with other sectors. Positions on the financial strategy matrix determine the appropriate financial strategies available to companies in order to improve their value most effectively. The results have indicated that there was a positive relationship between internal value creation and shareholder value. The placement of the results per sector and the comparison between sectors show that the food and drug-retailing sector had a relatively higher value creation ability than the other sectors for the whole period from 1996 – 2006. The food-producing sector as a whole had a negative value creation situation and a zero cash generation ability. This is more or less in line with the median for all the sectors. Based on these results one can therefore conclude that the food producers perform close on average compared to the other sectors. There is thus room for improvement for these companies. The study has tested the impact of the two variables evaluated by the model on shareholder value and it is suggested that some adjustments must be made in order to improve the relevance and efficiency of the model. The main suggestions are that of expanding the single-year model to a periodic model that reflects changes over time and facilitates comparisons with sector averages and the average results of all companies. These adjustments will hopefully allow analysis to judge better not only the level, but also the consistency and sustainability of a company’s performance.
Contact person: Prof JH Hall.
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