Reasons for Disinvestment

In: Business and Management

Submitted By sujeshkr
Words 352
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Reasons for disinvestments:
Financial Reasons 1. Cash related – a. Need for cash - for better reinvestment opportunities b. Voluntary liquidation to avoiding any substantial investments need to run the business on a profitable and sustainable business 2. Performance related – c. Unsatisfactory profit level on assets being divested d. Selling off assets and fringe activities to focus efforts on core competencies e. Rationalization of resources to achieve cost reductions and avoid duplication or uneconomic scale of operations f. Project nearing end of profitable life g. Corporate sales and profit growth objectives not met h. PV of cash flows for disinvestment than PV of cash flows from retention or expansion of business 3. Financial Environment i. Increasing interest rates pushing up financing costs eg Air India j. Increasing rate of inflation which cannot be compensated for by price increases
Non Financial Reasons 1. Market Related a. Declining industry with permanent reduction in customer demand to an inadequate level b. Market share continuously declining, inability to penetrate new markets c. Business location badly situated in relation to markets and distribution means d. Risk and uncertainties related to business growing e. Competition increase to severe level 2. Management Related a. Inadequate management knowledge b. Lack of any specific competence 3. Technology related a. Obsolete technology in the businesses products or processes 4. Environmental factors a. New legislation, anti trust laws, restriction on new technology, removal of incentives, possibilities of involuntary disinvestment, risks and uncertainties b. Change in strategic direction

How to identify potentials? 1. Financial indicators suggesting…...

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