Value creation and enhancement : case study of Red Sea Bottlers Share Company in Eritrea.

Abstract

The problem addressed in this research is to assess and analyse what actions lead to value creation and enhancement in Red Sea Bottlers Share Company. This research problem is broken down into three basic objectives namely: determining the value drivers of the company, evaluating how and to what extent the company is creating or destroying value, and evaluating what the management is doing in enhancing the value of the company. Company annual financial statements and other secondary documents were used to collect data for the second objective and Questionnaire was used for the first and third objectives. Seven Value drivers of Rappaport's framework are used to ascertain what managers are doing to enhance the value of the company. According to the study to increase revenue managers will increase local sales, strengthen marketing, establish local sales offices and advertise the products. Similarly to increase the profit margin building employees' morale by increasing wages and salaries, being more selective to suppliers, effectively use of resources, increasing product quality and improving production efficiency are being undertaken by managers. There is no visible attempt to reduce the tax expense. As far as the investment decision is concerned, renovating and maintaining the fixed assets has been done. There is no visible value enhancing measure in the working capital management except in inventory management. In relation to the financing decision the company is not using any long-term liability and is lacking the advantage of its gearing effect. Last, as to the growth duration of the value the company's brand name, high capital investment and established distribution channels could be mentioned as entry barriers to potential entrants and become factors of lengthening the value growth duration. Overall what the managers are doing in enhancing the company's value is positive and is to be promoted and encouraged. The main performance measurement tools recommended to determine whether the company is creating value or not are the multi-period measurement tool Total Business Return and the single period tool Economic Value Added. According to these measurements the company is creating value as per the measure of Total Business Return and destroying value as per the measure of Economic Value Added.