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The Keppel Corporation

1. Introduction

1.1 Objective of the assignment

1.2 Structure of assignment

2. Background of the assignment

The assignment is based on the research of Keppel Corporation. Keppel Corporation is one of the largest pudding stones in Singapore and one of the universe ‘s largest builders of offshore drill rigs. The Keppel Group of Companies includes Keppel Offshore & A ; Marine, Keppel Infrastructure, Keppel Telecommunications & A ; Transportation ( Keppel T & A ; T ) and Keppel Land, among others.

3. Concept of Shareholder Value Maximisation

3.1 Concepts:

In recent old ages, stockholder value ‘s creative activity becomes a really popular subject among top direction. They think through making stockholder value scheme, companies can derive big net incomes from it. But many of them misunderstand this construct. Shareholder value maximization is a sort of scheme for a long-run concern operation. Wholly different from maximising net income, stockholder value maximization focal point on placing growing chances and edifice competitory advantage. So stockholder value maximization punishes short-run schemes that destroy assets and fail to capitalise on the company ‘s nucleus capablenesss.

There was a version of definition to specify the stockholder value that the value delivered to stockholders because of direction ‘s ability to turn net incomes, dividends and portion monetary value. In other words, stockholder value is the amount of all strategic determinations that affect the house ‘s ability to expeditiously increase the sum of free hard currency flow over clip.

Theo Vermaelen, Professor of Finance at INSEAD argued that stockholder value is defined as the present value of free hard currency flows from now until eternity, discounted at a rate that reflects the hazards of these hard currency flows, hence, maximising stockholder value is non the same thing as maximising short-run net incomes, net incomes per portion or pull stringsing stock monetary values through accounting fraud.

This is a mainstream sentiment for most of experts in the universe. But these statements largely concentrate more on what will stockholder value maximization bring to us? They ignore the definition on the premiss of “ who are stockholders ” .

Many authors besides have pointed out that a company has societal and environmental duties and that stockholders are non the lone stakeholders in the concern. These experts argued that some groups outside of stakeholders are besides holding long-run involvements and relationships with a company. These are groups that mentioned as employees, clients, directors, providers and community.

As we listed, about all sorts of people relate to a company impact portion monetary value. So in that instance, in the long term, stockholder value is the best scheme for all stakeholders. But it depends on the manner directors create stockholder value. On the other manus, all stockholders are besides really vulnerable in a short-term concern due to a non-sustainable resources control.

But in pattern, directors who insist stockholder value maximization are ever over-concentrated on the words of “ maximization ” . Sometimes, when ethical job were met, some directors even know what is incorrect to societal duty, they have to do more net incomes for stakeholders. And in concerns, enterprisers normally consider this term as: directors try to derive the maximized net incomes to increase their companies portion monetary value by whatever ways can be done. And this version of definition is wholly negative to compare with experts ‘ theoretical statement.

3.2 Advantages:

The sentiment of stockholder wealth is tightly linked to the sentiment of continued concern enlargement and net incomes. There are three advantages of maximization of stockholder wealth.

Long-term Development

Economists such as Bartley Madden and James Owens think of the maximization of stockholder wealth to be the natural consequence of profitable concern activities. These are similar to capital enlargement. These two specializers differ on this as the aim of all concern, but the general sentiment is that such enlargement is what makes shareholders happy. This consequences in loyal shareholders, devoted board members and the eternal addition in portion value. The media attending of such public presentation generated can heighten the public repute of any house.

Except keeping happy stockholders and obtaining a powerful repute, maximising stockholder value has many advantages. It is really obvious that go oning net incomes, reinvestment and enlargement make everyone happy. To Managers, wages and reputes addition ; to salesmen, committees rise ; to authoritiess, more revenue enhancement financess and more people are being hired to be staff at the spread outing house. These are all the sections of the advantage of long-run development of the house.

Employee Benefit

There are state of affairss in which a portion increases when a company declares program to fire employees, but observed over clip this is the exclusion instead than the ordinance. Generally, companies successfully increase portion monetary values with turning and adding more employees, hence profiting society. Notice that many authoritiess around the universe, including U.S. federal and province authoritiess, are privatising some of their state-owned activities through selling these operations to stakeholders. Probably non surprisingly, the gross revenues and hard currency flows of recently privatized companies by and large enhance. In add-on, surveies show that these late privatized companies have a tendency to increase and therefore demand more employees when they are managed with the aim to maximise portion monetary value.

Social Contribution

The proprietors of portion are society to a big extent. More than seventy old ages ago, this was non right, because most stock ownership was concentrated in a comparatively little portion of society, including the richest persons.

Since so, there has been explosive growing in pension financess, life insurance companies, and common financess. These organisations now own more than 60 % of all portions, which indicates that most people have an indirect interest in the stock market. Furthermore, comparison with merely 32.5 % of all U.S families ain stock straight in 1989, now it’s more than 50 % of that. Hence, most societal members now have a important interest in the stock market, no affair straight or indirectly. Therefore, when a director behaves to maximise the portion monetary value, this promotes the quality of life for 1000000s of the general populace. If a house is continually turning, puting and spread outing, everyone benefits. The concentration of corporations on maximising stockholder wealth besides potentially has several negative effects.

3.3 Disadvantages

The concentration of corporations on maximising stockholder wealth besides potentially has several negative effects.

Troubles in Operation

There are two basic and relevant unfavorable judgments of the maximising stockholder wealth. One unfavorable judgment is that it does non give staff plenty inducement to recognize high public presentation. The other is that it is hard in operation – it doesn’t give employees and directors a counsel of what to make at an existent degree. There are some grounds why stockholder value aim may non be desire. First of all, usually few of the employees are besides members of stockholders. Second, the direct connexion between their ain specific businesss and the portion monetary values of the company they can non see. Third, portion monetary values frequently move because of macroeconomic elements and market drivei??uncorrelated to the administrative public presentation.

Bad Business Practices

One possible disadvantage of corporations to concentrate on maximising stockholder wealth is that it can do awful or unsustainable concern patterns. Some directors misguide investors on intent for doing their houses appear more valuable than they truly are. Sometimes these behaviours are anarchic, like those by the senior executives at Enron. Sometimes the actions are lawful, but they are taken to advance the current market monetary value higher than its basic monetary value in the short term.

For illustration, presenting to the planetary crisis which start in the late 2000s, many fiscal organisations in the U.S. gave mortgages to borrowers, even they had hapless recognition in the outlooks of doing every bit much addition as possible. However these patterns may hold generated short-run net incomes, the attendant plentifulness of defaults and foreclosures eventually caused Bankss to set about tremendous losingss. In some state of affairss, concerns participate in illegal or immoral activities, such as fiddling fiscal information for heightening stockholder wealth. Overmuch dressed ore on stockholder wealth is by and large utilized as an component that led to the recession that began in late 2007, which so called the “ Global Financial Crisis. ”

4. Company rating over the past 5 old ages:

In order to measure whether Keppel Corporation has delivered stockholder value over the past 5 old ages, it is based on a company’s ability to bring forth hard currency flow now and future. By utilizing three methods below, it will be estimated and explain clearly.

4.1: Net plus value

The Net Asset Value is a computation that determines the monetary value of a portion in a common fund. Stock monetary values alteration within proceedingss, sometimes-even seconds. The ground why we calculate NAV is that common fund of NPV is adjusted at the stopping point of each concern twenty-four hours, doing it much easier for investors and agents to track.

Calculated as:

NAV = Total Assets – Entire Liabilitiess






Fixed plus






Current plus






Current liability






Non current liability






Net plus value

( 26,556 )





The net plus value of Keppel Corporation from 2008 to 2012

4.2: Monetary value gaining multiple

The 2nd method is Price-earning multiple. It is a rating ratio of a company ‘s current portion monetary value compared to its per-share net incomes. The P/E shows the relationship between the stock monetary value and the firm’s net incomes, and it is the most popular metric of stock analysis. Calculated as:

P/E =Market per portion

Gaining per portion

Average shutting stock ( Market monetary value )


P/E ratio





















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The monetary value gaining per portion of Keppel Corporation has a fluctuation tendency. However, there is an upward motion during 2008 to 2012 from 6.0 to 9.20. It increases 3.20. The fluctuation of the monetary value gaining per portion may be due to the figure alterations of monetary value per portion and gaining per portion of each twelvemonth. The monetary value gaining per portion grows up dramatically at this clip is from 2008 to 2009, which is 5.8. In contrast, the earing per portion decreases from 0.72 to 0.70. To derive this important addition, the monetary value per portion of Keppel Corporation besides increases. On the following twelvemonth, there is an addition somewhat, which is 0.02. A higher price-earning ratio indicates that the market is more willing to pay for the earning of the company. It besides suggests that investors are anticipating higher gaining addition in the hereafter, and how fast company will retrieve its current portion monetary value per gaining. It shows a good growing potency. On the contrary, the monetary value gaining per portion slacks down from 11.10 ( 2010 ) to 8.50 ( 2011 ) before turning addition to 9.20 in 2012. The tabular array above shows that there is a lessening from 1.02 ( 2010 ) to 0.91 ( 2011 ) so that, the monetary value per portion of house besides go down. The market doesn’t have much assurance in the hereafter of portion at this clip.

4.3: Discounted hard currency flow:

The discounted hard currency flow is a quantification method, which is used to measure the attraction of an investing opportunities. The Discounted Cash Flow analysis involves the usage of future free hard currency flow bulges and price reductions them. Hence, it is to near the net nowadays value that is used to cipher the potency for investing. The free hard currency flow indicates that the hard currency left in the house after paying all operating and compulsory outgos such as involvement, revenue enhancement payment and investing disbursals. With free hard currency flow, a house is allowed to prosecute opportunities that enhance stockholder value, develop new merchandises, and pay stockholders.

Free hard currency flow is calculated as:

Operating net income + Depreciation – Interest – Taxes






Operating net income
























Investing Outgo






Free hard currency flow






From the consequence of free hard currency flow with the premise of rate of return is 9 % , which is depended on the mean shutting stock during 5 old ages ; the discounted hard currency flow is calculated as:



The chance is considered to be a good one if the value reached at through the discounted hard currency flow analysis is greater than the current cost of investing.

4.4: Discussion of the Findings ( compare with market )

5. Decision:


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  1. Peter Doyle, 2neodymiumedition,Value-based Selling: Selling Schemes for Corporate Growth and Shareholder Value.; 2008, Published by John Wiley & A ; Sons, Ltd, The Atrium, Southern Gate, West Sussex, England.
  2. Theo Vermaelen,Maximizing stockholder value: an ethical duty?; December 26, 2008i?? i??available ati?s hypertext transfer protocol: //