Fortune 500 - 2005

The latest issue of Fortune (Vol. 152, No. 2, July 25, 2005) contains their latest Fortune 500 2005 list. The top-10 remained unchanged with Wal Mart at 1, BP at 2, Exxon at 3, Royal Dutch at 4, Genral Motors at 5, Daimler Chrysler at 6, Toyota at 7, Ford at 8, GE at 9, and Total taking the 10st spot.

The biggest loosers in the Fortune 500 2005 are Viacom (-17,462 M$), Vodaphone (-13,910 M$), AT&T (-6,469 M$), Delta Air Lines (-5,198 M$) and UFJ Holdings (-5,159 M$).

The biggest climbers are: Mitshubishi, Alcan, Manulife, Power Corp. of Canada, Plains all American Pipeline and Air France-KLM.

The cutof for the list - the revenue needed to be ranked No.500 rose by a record 15%, to $12,4 billion. 41 companies that were in the the 2004 Fortune 500 didn't make it into the 2005 edition, no less than 23 of them being USA companies. The weak dollar is supposed to be the underlying reason for this.

The issue of Fortune also contains intersting industry rankings and rankings within countries.

Bestselling Valuation Books

Linking capital allocation to individual capital expenditure decisions

I just finished reading an excellent new book on Value Based Management called "Questions on Value". One of the 11 papers in the book is about "Linking capital allocation to individual capital expenditure decisions".

In this article Erik Ottosson and Fredrik Weissenrieder from Anelda AB write that managers are increasingly focusing on cash flows and discounted values when making decisions regarding capital expenditure. But to evaluate actual outcome, instead of monitoring realized cash flows, they measure accounting profit. They recommend to improve this feedback loop to make sure management and investors are able to evaluate the actual performance of investment decisions.

In the rest of this article highly worth reading the authors explain how individual capital expenditure decisions can be made part of a larger screening and capital allocation process.

The part of the article I found most interesting is where the authors explain that and how investments in new business and technology creating new value (strategic expansion investments) should be differentiated from investments in existing business and technology to defend existing value (major strategic replacement investments and maintaining investments).

Wd (in WACC formula)

In viewing a recent valuation report, I noticed that the consultant didn't use the actual debt on the balance sheet in the WACC calculation. The percentage debt used was 33.3%, which appears to have been derived from an "ideal" debt to equity ratio of 1:2, although differentiation was not expressed anywhere in the report.

Was this an error, or is this a common practice among valuation consultants?
Thanks!

FASB Issues Proposal on Fair Value Measurements

In response to requests from constituents to improve the current guidance for measuring fair value, the Financial Accounting Standards Board (FASB) has published an Exposure Draft, Fair Value Measurements. The Exposure Draft seeks to establish a framework for measuring fair value that would apply broadly to financial and nonfinancial assets and liabilities, improving the consistency, comparability, and reliability of the measurements. The fair value framework would clarify the fair value measurement objective and its application under other authoritative pronouncements that require fair value measurements. Thus, the Exposure Draft would replace any current guidance for measuring fair value in those pronouncements.The comment period for the Exposure Draft ends September 7, 2004.