International Finance (concept of value in corporate finance ) Essay

International Finance (concept of value in corporate finance ) - Essay Example In the statement of Broughton in regard to value, reference is also made to risk, as influencing value. The methods used for pricing risk are analyzed below. At the same time, the different levels of risk related to different cash flows are explained. In this way, the concept of value, which is highly influenced by risk, is made clearer. Being aware of value, as part of business environment, and risk, it is easier to understand the criteria on which the identification of a firm’s future value will be based. At a first level, the statement of Broughton (2010) on value and its role in business should be critically analyzed. Then it would be possible to explain the interaction between value and risk, as these two concepts can highly affect business processes. In any case, reference should be primarily made to the context of value; then, its aspects would be easier understood. Abrams (2004) notes that a general definition of value cannot reflect the precise nature or the role of v alue. However, Abrams (2004) explains that such definition cannot be rejected. Rather it should be used as the basis for developing an accurate definition of value. For example, reference can be made to the following definition: ‘value is a fair return or equivalent in goods, services or money for something exchanged’ (Abrams 2004, p.6). This definition is accurate, as possible; still, it is not effective enough for covering all aspects of the activities of a particular organization. The definition of business value provided by Babar (2010) reflects another aspect of the specific concept; according to the above researcher business value ‘is defined according to the level that the customer uses a particular product’ (Babar 2010, p.136). A series of standards, as for example ‘the Fair Market Value and the Investment Value’ (Abrams 2004, p.6) has been introduced for ensuring that the different aspects of value, as an element of the business enviro nment are made clear. Kontio and Conradi (2002) promote the following definition of value: ‘value is the trade-off between benefits and sacrifices’ (Kontio and Conradi 2002, p.260). It is also made clear that in business value can be related both to monetary and non-monetary elements; for example, in business area, value can be used for reflecting the position of an organization within the local or the international market (Kontio and Conradi 2002, p.260). Of course, the use of the term value for reflecting different aspects of organizational activities is always possible. For example, the term value can be use for showing the perceptions of a firm’s shareholders in regard to the financial status of their organization (Useem 1993); these perceptions are commonly described using the term shareholder value (Useem 1993). From a similar point of view, the term value can be used for showing the financial strength of an organization, as the firm’s managers evalu ate this strength after reviewing the firm’s financial performance but also its assets (Segal 2011). One of the key characteristics of