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Advanced Financial Reporting - Essay Example
Author : osinskialejandr
Finance & Accounting
Pages 8 (2008 words)
The ladder of success for any firm is ‘growth’ which can be achieved either by expanding existing resources or introduction of new products and services. Another way of achieving growth is through Merger and Acquisition…
Another way of achieving growth is through Merger and Acquisition (abbreviated as M&A). The former is also known is organic growth where the firm uses its own resources (retained earnings, reserves and surplus, or equity capital) for financing growth. The later is also known as inorganic growth where the acquirer firm buys the assets and liabilities of the target(s) as on a given date (Sherman, 2010, p.1). Thus, M&A are external growth strategy that gains popularity mainly due to globalization. It has become an important an important way for firms to expand their product portfolios and gaining new markets. M&A also helps the firm’s to acquire knowledge, latest technology and improved management capabilities. In addition, M&A has been found to be extremely successful for specific sectors like pharmaceuticals where extensive Research & Developments are required. R&D does not only require huge capital investment but also requires knowledge in relevant areas so that the target product remains competent on global scale (Kumar and Yadav, 2005, pp.51-63). The main motive for any M&A is to experience a synergy in existing operations as well as profitability of the firms. However, it is also important to note that not all M&A have been successful in the past and thus some failed to maximise values leading to huge capital losses (Frensch, 2007, pp.48-49). ...