Strategic Financial Management

Boots UK Limited is a multinational pharmacy chain based in the United Kingdom. The company was one of the first FTSE 100 companies to have been bought by any Private equity firm. Today, Alliance Boots Plc. is a famous pharmacy chain which primarily deals in retail store formats in the shopping centers and high streets of the United Kingdom.The creation of the value of the shareholders is an important corporate objective for any company. The shareholder value analysis model takes into consideration the common measures like economic profits and Economic Value Added (EVA) to understand how the purchase price of the company can be decided by the potential buyers. The shareholder value analysis model is based on the management principle of value-based management. As per this management principle, the management of a company is supposed to primarily consider the interests of the shareholder groups during taking the decisions regarding the activities, objectives, and functions of the business. Thus, the profit levels, revenues, sales growth, and other margin levels of the company have to be selected as the primary drivers of shareholder value creation.There are certainly key drivers that have to be considered for calculating the shareholder value and for the valuation process of the company (Kochan and Rubinstein, 2000). In case of finding out the purchase price of Boots Plc., the key drivers taken into consideration include the residual value calculated on the basis of the cash flows from the sixth year. The beta factor calculated from the market factors, the FTSE market return from all shares, the risk-free rate of return, the capital structure of the company as calculated on the basis of the data available from the last financial year, the cost of debt and equity of the company, the fixed asset investments, the forecasted sales, sales growth rates, tax rates, operating margin percentage, the working capital requirements.