The analysis of price formula differences

Doppegie e , J. J.; Lamb ech s, I. J. A icle The analysis o p ice o mula di e ences Sou h A ican Jou nal o Business Managemen P o ided in Coope a ion wi h: Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica Sugges ed Ci a ion: Doppegie e , J. J.; Lamb ech s, I. J. (1985) : The analysis o p ice o mula di e ences, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 16, Iss. 3, pp. 125-127, h ps://doi.o g/10.4102/sajbm. 16i3.1085 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/217900 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ The analysis o p ice o mula cli e ences J.J. Doppegie e and I.J. Lamb ech s Depa e nen Bed y sekono nie, Uni e si ei an S ellenbosch, S ellenbosch In his a icle, he hi d in a se ies o ou , accen has been placed on a dynamic analysis o di e ences be ween he wo p ice o mulae in oduced and discussed in he i s a icle. Fou di e en o mulae componen s we e analysed by compa ing he esul ing inc emen al changes o he in e nal a es o e u n o he wo p ice o mulae. I appea ed ha he subs an ial di e ences be ween he in e nal a es o e u n o he wo o mulae, iden i ied in he p e ious a icle, a e mainly a unc ion o wo o mulae componen s, i.e. he alua ion me hod o ixed asse s and he p o i abili y a e allowed. The me hod o analysis, p esen ed in his a icle, could be a meaning ul means o analysing al e na i e o mula componen s and selec ing and de ining a iable inancial policy. S. A . J. Bus. Mgm . 1985, 16: 125-127 In hie die a ikel, die de de in 'n eeks an ie , is die klem geplaas op 'n dinamiese analise an e skille ussen die wee o mules wa in die ee s e a ikel bekendgcs el en besp eek is. Vie e skillende o mulekomponen e is onde soek deu die ge olglike ink emen ele e ande ings in die in eme en abili ei e an die wee o mules e e gelyk. Di he geblyk da die aansienlike e skille ussen die in e ne en abili ei e an die wee o mulas, soos gei"den i isee in die o ige a ikel, hoo saaklik 'n unksie is an wee o mulekomponen e, naamlik die waa dasieme ode an die as e ba es en die oegela e en abili ei . Die me ode an on leding wa in hie die a ikel oegepas is, kan be ekenis ol wees in die on leding an al e na iewe o mulekomponen e en die seleksie an 'n op imale inan- si~le beleid. 5.-A . Tydsk . Bed y sl. 1985, 16: 125-127 J.J. Doppegie e * en I.J. Lamb ech s Depa emen Bed y sekonomie, Uni e si ei an S ellenbosch, S ellenbosch, 7600 Republiek an Suid-A ika *To whom co espondence should be add essed Accep ed Janua y 198S In oduc ion This a icle, he hi d in a se ies o ou , p esen s a mo e meaning ul me hod o analysing p ice onnulae han me hods p esen ly in use. In an analysis o en p ice onnulae as applied in e ms o he P ice Con ol Ac , i was shown ha he onnulae conce ned di e ed o i ually e e y p oduc / se ice (see he i s a icle in his se ies). I was shown ha he o mulae ook in o conside a ion a a ie y o di e en s ipula ions such as me hods o alua ion, allowances and a ios, wi h he esul ha i is di icul o oompa e he inancial consequences o each. Using con en ional and/o in ui i e me hods o analysis, i is di icul o ge a meaning ul indica ion o he inancial e ec o implemen ing di e en onnula p esc ip ions on he sho and long- e m oompany e u n. The e a e se e al easons o his. Fi s ly, con en ional me hods a e based on c i e ia (such as he accoun ing a e o e u n) which ha e a numbe o sho co~. Secondly, oon en ional and in ui i e me hods a e no su icien ly in une wi h he complica ed inancial na u e and he dynamic in e ela ions o especially la ge unde akings. Hence, he pu pose o his a icle is o p esen a mo e meaning ul me hod o analysis. Me hod The basic me hod o analysis will be demons a ed by using da a ob ained by implemen ing ou di e en o mula p e- sc ip ions in he compu e model desc ibed in he i s a icle. The da a we e analysed by compa ing he inc emen al di - e ences in he in e nal a e o e u n o he companies in ol ed. In he i s a icle ou di e ences be ween o mulae A and B we e iden i ied in e alia in esped o : (i) The alua ion me hod o ixed ~ (ii) The p o i on addi ional cash allowed (iii) The p o i abili y a e allowed (i ) The calcula ion o he addi ional dep ecia ion. Table 1 A compa ison o he in e nal a es o e u n (i. . .) o companies A and B Yea s s 10 IS 20 I. . .: A 17,7 17,8 16,9 17,0 17,2 l. . .: B 36,6 36,9 37,0 37,1 37,I % Di e ence 8-A 106,8 107,3 118,9 118,2 IIS,1 =-- A 126 Since he o emos explana ion o he signi ican di e- ences in he in e nal a es o e u n o companies A and B ( able I) is he a ia ions be ween o mulae A and B, he pe cen age di e ences mus be mainly he esul o he ou di e en o mula p esc ip ions. Resul s o he esea ch In Table 2 he ou di e en p esc ip ions, o igina ing om o mula B, and hei e ec on he in e nal a e o e u n o company A ( hey ha e been applied o model A) a e shown. In he emainde o his a icle he da a on each p esc ip ion will be illus a ed and discussed b ie ly. The pe cen ages in Table 2 a e no di ec ly compa able o hose in Table 1 because all he di e ences in he o mulae a e no analysed. Table 2 The e ec o he ou di e en p esc ip ions, o igina ing om o mula B, on he in e nal a e o e u n o company A Changed p esc ip ion The me hod o alua ion o ixed asse s Exclusion o p o i on addi ional cash allowed The p o i abili y a e allowed The calcula ion o addi ional dep ecia ion "lo Change l. . . Company A in yea : 5 10 15 20 71,2 (IJ,7 58,0 53,5 50,6 -4,5 -2,2 -2,4 -2,4 -2,3 79,I 41,8 43,8 42,9 41,9 0,6 1,7 3,6 4,7 4,7 Changing he me hod o alua ion o ixed asse s In company A he ixed asse s a e alued a his o ical cos whe eas he new p esc ip ion, o igina ing om o mula B, p o ides o he alua ion o ixed asse s a eplacemen cos . The implemen a ion o his o mula p esc ip ion has a posi i e e ec on he in e nal a e o e u n o company A. The in e nal a e o e u n inc eases by 71,20/o in yea 1, whe eas he pe cen age inc ease dec eases as a unc ion o ime, declining o 50,60/o in yea 20 (see Figu e 1). The new alua ion me hod has a signi ican e ec on he in e nal a e o e u n o company A. The new p esc ip ion explains nea ly hal o he di e ence be ween he wo com- panies' o iginal in e nal a es o e u n (see Tables 1 and 2). Figu e 1 shows ha , owing o he new me hod o alua ion, he in e nal a e o e u n is a i s maximum in he ea ly yea s, 32 31 30 29 28 27 26 25 ..: 24 ~ 23 ~ 0 22 21 20 19 18 17 16 15 14 1 3 5 7 9 11 13 15 17 19 Yea s D Ini ial l. . . -l. . . a e change Flp e 1 The e ec o changing he alua ion me hod o ixed asse s on he in e nal a e o e u n (i. . .) o company A. S.-A . Tydsk . Bed y sl. 1985, 16(3) a e which i dec eases g adually. The explana ion o he signi ican inc ease in e u n is clea . Unlike he o iginal alua ion me hod, alua ion a eplacemen alue p o ides, especially in imes o highe in la ion (p e- sumed he e o be 14%), o a highe alua ion o ixed~ and consequen ly a highe income and cash low. Income on addi ional cash In con as wi h o mula A, o mula B does no include a p o ision o income on addi ional cash. The exclusion o his p esc ip ion o company A has a small nega i e e ec on he in e nal a e o e u n. Howe e , Figu e 2 shows ha he nega i e e ec dec eases in ime om - 4,50/o in yea I o - 2,30/o in yea 20. 32 31 30 29 28 27 26 25 ..: 24 -: 23 '$. 22 21 20 19 18 17 16 15 14 3 5 7 9 11 13 15 17 19 Yea s D Ini ial l. . . -l. . . a e change Figu e 2 The e ec o excluding income on addi ional cash allowed on he in e nal a e o e u n (i. . .) o company A. The p o i abili y a e allowed The p o i abili y a e p esc ibed in o mula A is 150/o on a be o e- ax basis compa ed wi h 150/o on an a e - ax basis in o mula B. The 150/o a e ax co esponds o abou 280/o be o e ax wi h a ax a e o 460/o. The implemen a ion o a p o i abili y a e on an a e - ax basis has a s ong posi i e e ec on he in e nal a e o e u n o company A. In yea 1 he in e nal a e o e u n inc eases by 79, 1 070. O e ime, howe e , he inc ease diminishes, 32 31 30 29 28 27 26 25 ..: 24 j 23 '$. 22 21 20 19 18 17 16 15 14 3 5 7 9 11 13 15 17 19 Yea s D Ini ial l. . . -l. . . a e change Figu e 3 The e ec o implemen ing he p o i abili y a e on an a e - ax basis on he in e nal a e o e u n (i. . .) o company A. S. A . J. Bus. Mgm . 198S, 16(3) becoming 41,90/o in yea 20 (see Figu e 3). The new p o i abili y a e egula ion appea s o ha e a d ama ic e ec on he in e nal a e o e u n o company A. The eason o his is ob ious. The highe p o i abili y a e allowed p o ides o a highe 'base e u n allowed', an im- p o ed cash low and, ul ima ely, a highe e u n. Inclusion o a ax adjus men o addi ional dep ecia ion Fo mula 8 o e s a ax p o ision in espec o addi ional dep ecia ion o p o ide o he non-deduc ibili y o addi ional dep ecia ion, which is no ound in o mula A. Implemen ing he ax adjus men in he model o company A has a posi i e e ec on he in e nal a e o e u n o ha company. The in e nal a e o e u n inc eases by be ween 0,60/o in yea I and 4, 70/o in yea 20 (see Figu e 4). I is clea ha including a ax adjus men o addi ional dep ecia ion should ha e a posi i e e ec on he in e nal a e o e u n since addi ional cash low would be gene a ed. The 32 31 30 29 28 27 26 25 ..: 24 ..: 23 ;;. 22 21 20 19 18 17 16 15 14 1 3 5 7 9 11 13 15 17 19 Yea s D Ini ial l. . . -l. . . a e change Figu e 4 The e ec o including a ax deduc ion o addi ional dep ecia ion on he in e nal a e o e u n o company A. 127 implemen a ion o he ax adjus men o addi ional dep e- cia ion, howe e , has no ma ked in luence on he in e nal a e o e u n o company A. This is especially so when he esul is compa ed o ha o changing he me hod o alua ion o ixed asse s and changing he p o i abili y a e allowed. I is in e- es ing o no e ha he e ec on he in e nal a e o e u n inc eases o e ime. Fu he applica ions o he analys s me hod Ha ing de eloped he model, he me hod o analysis o he ou al e na i e o mula p esc ip ions desc ibed in his a icle can be ex ended ela i ely easily o accommoda e addi ional applica ions. Fi s ly, combina ions o al e na i e o mula p esc ip ions could be analysed. Secondly, he a ious al e na i e o mula p esc ip ions can be examined in ano he way by quan i ying hei e ec s in e ms o o he c i e ia, e.g. he e ec o implemen ing al e na i e p esc ip ions on he a io equi y: o al capi al employed. Finally, he model can be used o simula e and analyse di e en ypes o al e na i e hypo heses o sim- pli y he ask o selec ing and de ining iable company s a- egies, e.g. • di idend policies • g ow h s a egies • ax op ions. Summa y and conclusions In his hi d a icle accen has been placed on he simula ion and analysis o ou di e en o mula p esc ip ions. I ~ pea ed ha he subs an ial di e ences be ween he in e nal a es o e u n o companies A and 8 a e mainly he esul o • he alua ion me hod o ixed asse s, and • he p o i abili y a e allowed. The me hod o analysis p esen ed in his a icle would be a meaning ul means o simula ing, analysing and e alua ing di e en o mula p esc ip ions. I is belie ed ha his me hod could be o alue o all bodies, co po a ions, companies and ins i u ions in de e mining and e alua ing selling p ices.