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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter14Valuation of Business Combinations

A business combination is the uniting of two firms into a single economic unit. It may be achieved by the purchase of assets or common stock, and it may be paid for with cash or by issuing securities. It is one of the most critical issues in the valuation of firms, as the two parties must agree on the values of both firms.

BUSINESS COMBINATIONS

The term growth refers to increases in the size and activities of a firm. Three measures are common:

Increase in sales. This shows that a firm is maintaining its competitive position by increasing the size or number of markets for its goods and services. Revenue growth helps achieve stability.

Increase in profits. This shows the firm’s ability to convert ...

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