Identify at least three criteria that might be used to selec

Identify at least three criteria that might be used to select a manufacturing firm as a potential acquisition candidate. A financial services firm? A high-technology firm?

Solution

Three criteria to select a manufacturing firm as a potential acquisition candidate:

1. Price/Cash FLow Ratio
If a company is generating more cash flow per share price, then the company is an ideal acquisition candidate. This is because it implies that the company is cash-rich and has good amount of cash generating capability. It also means that the company is cash-flow positive.

2. Debt/Equity Ratio:
A company having less debt is an ideal candidate for acquisition. The acquirer company would not have to deal with the debt load of the acquired company. A debt free company implies that the company is using its internal cash flows for its operations and not relying on other cash sources for its own operations. This implies self reliance on part of the company. Also Price/Cash FLow accentuates the very factor for acquisition.

3. ROIC - Return on Invested Capital:
If a company is able to generate higher percentage on return on invested capital, then the company is ably using its resources and assets in the best possible way. Such a company would bring positive synergies to the company with acquires it. Also it would be a win-win as internall efficient processed would be shared and best practices would be adopted.