Organization of a CSR Committee
To know the existence of a good capital structure, there is a need to know the company’s gearing in relation to weighted average cost of capital (WACC). One that maximizes value is the one that minimizes WACC and one that attains the same is by balancing the gearing of the company. This would be verified therefore in the analysis of the gearing and in the valuation as will be found in the succeeding subsections. In the valuation a finding of overvaluation or undervaluation will come out.
If the intrinsic value computed by discounting the future dividends of the business using its cost of capital or its WACC is higher than quote price from LSE then there is undervaluation. On the other hand, a lower intrinsic value indicates overvaluation of the company’ stock. For purpose of this paper, overvaluation would mean that investors are putting more money that what is the real worth of the company and that is an evidence of maximized value as investors are making the stock very valuable than what is actual.
The third category is the strategic which consists of the seventh and eight principles. The seventh principles requires companies to continue to develop coherent strategies for each business unit, where such strategies must ideally be expressed in terms of market prospects and of the competitive advantage that the business has in exploiting these prospects. In addition that is required to understand the factors which drive market growth and the particular strengths which underpin competitive position.
The seventh principles appears closely related with measures systems in place needed make certain that management people are aware of on what activities and competencies contribute most to maximizing shareholder value. The relationship is on the premise that strategies are choices from activities and competencies and they have the still common objective of higher shareholder value. Hence the analysis made under the second principle could be made applicable here.
The eight principles, on the other hand, requires the companies to explain why they are the “best parent” of the business they run so that if they are not best parent they should be developing plans to resolve the issue. Application of these principles presumes the existence of global company and for which the company appear to have applied in making it sure that it sure that its home base in UK is considered the best parent by delivering well compared to its international operation.
Figure I below would clearly show the evidence of this claim: Figure 1: Information on business segments; Source (Marks and Spencer, 2008) The last category among the Hermes principles is the social, ethical and environmental which consists of the ninth and tenth principles. Under the ninth principle, companies are required manage effectively relationships with their employees, suppliers and customers and with others who have legitimate interests in the company’s activities.
Companies should ethically have record for the environment and society as a whole. This appears to be consistent with the company’s policy on the company incentive programs for management where the company gives reward to its executive teams for their leadership based on the long-term growth in company’s earnings (Marks and Spencer, 2008). The tenth principle requires companies to support voluntary and statutory measures which minimize the externalization of costs to the detriment of society at large.
The company appears to have been doing this by as evidence by its corporate social responsibility activities which resulted to an organization of a CSR Committee in 2006 whose job is oversee the implementation of a business wide economic plan affecting the company’s operations over the coming years while making the directors aware about the social, environmental and ethical impacts of the company’s activities (Marks and Spencer, 2008). Conducting now the financial analysis would answer some of issues that are left unresolved in the analysis.