The last decades has meant a distinctive shift in the world of business. ABB Group has
followed the ongoing trend of globalisation. It has become a truly Multinational Enterprise
(MNE); showing in its structure and way of managing operations that it has adopted to the
new conditions of global markets and competition.
"ABB is in the business of creating value – for our customers, shareholders,
employees and the communities in which we operate."1
Could such a mission be pursued successfully? Does the international diversification of the
company help to achieve its goals? All value creation is essentially financial. This term
paper is dedicated to analysis the financials of the ABB Group. My purpose is to see
whether the financial position matches the expressed value creating goals. I chose the time
period from 1998-2001 for my analysis. Unfortunately the Annual Report 2001 was
published merely days before the dead line of this term paper. But nevertheless I tried to
include the latest figures in my analysis.
1 ABB Annual Report (2000), p.22
Table of Contents
1. Introduction
2. ABB – Business Operations
2.1 Overview
2.2 Facts and Figures
3. Corporate Governance
3.1 Owners and Share-structure
3.2 Governance system
3.3 Further Implications
4. Financial Goals
4.1 Targets
4.2 Figures and Financial ratios
5. Capital Structure
6. Dividend Policy
7. Self-Sustainable Goal System
8. Final Comments
Objectives and Research Focus
This paper aims to analyze the financial position of the ABB Group from 1998 to 2001 to determine if the company's financial results align with its stated value-creation goals. The primary research question investigates whether the firm's international diversification and organizational strategies successfully support its financial targets in a competitive global market.
- Financial performance analysis of ABB Group (1998-2001)
- Evaluation of corporate governance and ownership structures
- Assessment of capital structure and debt management
- Examination of dividend policy and shareholder value
- Application of the Balanced Growth Line model
Excerpt from the Book
Corporate Governance
ABB had in the year of 2000 130.000 shareholders. If we add on the number of owners who control ABB shares through nominees, the total number of shareholders will be approximately 210.000. Altogether they held 300.002.358 registered shares with a nominal value of 2,5 CHF each. In the year 2001 ABB performed a stock split in terms 4:1, which raises the number of outstanding shares up to 1.200.009.432.
In 2000 the main owner was the BZ Holding Group Ltd and it is still today with an owning proportion of more than 10%. According to ABB no other shareholder held control over more than 5% of the total voting rights. The conclusion is that the ABB has got a very dispersed ownership.
ABB is cross-listed on the Swiss Exchange SWX, Stockholm Stock Exchange, Frankfurt Stock Exchange, New York Stock Exchange (ADS) and London Stock Exchange. This would imply that the ownership is also geographically diversified. To cross list implicates the entrance to more liquid markets, i.e. to overcome mispricing of segmented market by gaining lower cost of capital.
Summary of Chapters
Introduction: Provides the context of globalization for ABB and outlines the objective to compare financial outcomes with value-creation goals.
ABB – Business Operations: Offers an overview of ABB’s technological specializations and segments, including geographical and industrial revenue distribution.
Corporate Governance: Analyzes the company’s ownership structure, its shift towards Anglo-Saxon governance, and associated agency costs.
Financial Goals: Defines ABB's targets regarding growth rates and EBIT margins while highlighting discrepancies between planned and actual figures.
Capital Structure: Examines ABB's high leverage, debt ratios, and the impact of the pecking order model on financial strategy.
Dividend Policy: Investigates the consistency of dividend payouts and their role as a signal to shareholders despite financial losses.
Self-Sustainable Goal System: Uses the Balanced Growth Line to assess whether ABB's internal financial system effectively supports its growth and profitability.
Final Comments: Concludes that ABB faces significant capital structural problems and suggests that structural changes are necessary for future success.
Keywords
ABB, Financial Analysis, Corporate Governance, Capital Structure, Globalization, Dividend Policy, Shareholder Value, EBIT, Debt Ratio, Multinational Enterprise, Financial Ratios, Solvency, Agency Cost, Balanced Growth Line, Value Creation.
Frequently Asked Questions
What is the core focus of this research paper?
The paper performs a financial analysis of the ABB Group from 1998 to 2001 to assess the alignment between its financial performance and its stated value-creation strategies.
What are the primary thematic areas covered?
The study covers business operations, corporate governance, financial goals, capital structure, dividend policy, and sustainable growth modeling.
What is the main objective of the analysis?
The primary goal is to determine if ABB's financial position matches its expressed mission of creating value for customers, shareholders, and employees.
Which scientific methods are employed?
The author uses ratio analysis (ROE, ROCE, debt ratios), comparisons with major competitors like Fluor Corporation, and the application of the Balanced Growth Line model.
What topics are discussed in the main body?
The main body details the evolution of ABB's ownership, its transition toward a market-based governance system, its debt reduction plans, and its dividend payout history.
Which keywords characterize this work?
Key terms include financial analysis, corporate governance, capital structure, shareholder value, and sustainable growth.
How does the author evaluate ABB's ownership structure?
The author concludes that ABB has a very dispersed ownership, which is further diversified by the company's cross-listing on multiple major international stock exchanges.
What conclusion does the paper reach regarding ABB's financial stability?
The paper finds that ABB is highly leveraged and currently faces capital structural problems, necessitating significant restructuring to maintain future success.
- Quote paper
- Stephan Wolter (Author), 2002, ABB - a financial analysis, Munich, GRIN Verlag, https://www.grin.com/document/16036
