Chartered Financial Analyst Level 2
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- An analyst believes that a company is undervalued due to a perceived lack of focus on certain business lines. The analyst would most likely recommend that the company consider a(n):
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A
acquisition
B
divestment
C
balance sheet restructuring
Explanation:
Explanation
When an analyst believes a company is undervalued due to a perceived lack of focus on certain business lines, the most appropriate recommendation would be divestment.
Reasoning:
- Divestment involves selling off or spinning off non-core or underperforming business units that are causing the company to appear unfocused
- This strategy helps the company:
- Focus on its core competencies
- Improve operational efficiency
- Enhance shareholder value
- Reduce complexity that may be obscuring the company's true value
Why not the other options:
- Acquisition (A): Would add more business lines, potentially increasing the lack of focus rather than addressing it
- Balance sheet restructuring (C): Addresses financial structure issues but doesn't directly solve the problem of business line focus
Divestment allows the company to streamline operations and demonstrate clearer strategic direction to the market, which should help correct the undervaluation.
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