Advantages
- Diversification results in a reduction of investment risk. A downturn suffered by one subsidiary, for instance, can be counterbalanced by stability, or even expansion, in another division. For example, if Berkshire Hathaway's construction materials business has a bad year, the loss might be offset by a good year in its insurance business. This advantage is enhanced by the fact that the business cycle affects industries in different ways. Financial Conglomerates have very different compliance requirements from insurance or reinsurance solo entities or groups. There are very important opportunities that can be exploited, to increase shareholder value.
- A conglomerate creates an internal capital market if the external one is not developed enough. Through the internal market, different parts of conglomerate allocate capital more effectively.
- A conglomerate can show earnings growth, by acquiring companies whose shares are more discounted than its own. In fact, Teledyne, GE, and Berkshire Hathaway have delivered high earnings growth for a time.
Read more about this topic: Conglomerate (company)
Famous quotes containing the word advantages:
“To become aware in time when young of the advantages of age; to maintain the advantages of youth in old age: both are pure fortune.”
—Johann Wolfgang Von Goethe (1749–1832)
“Can you conceive what it is to native-born American women citizens, accustomed to the advantages of our schools, our churches and the mingling of our social life, to ask over and over again for so simple a thing as that “we, the people,” should mean women as well as men; that our Constitution should mean exactly what it says?”
—Mary F. Eastman, U.S. suffragist. As quoted in History of Woman Suffrage, vol. 4 ch. 5, by Susan B. Anthony and Ida Husted Harper (1902)
“... there are no chains so galling as the chains of ignorance—no fetters so binding as those that bind the soul, and exclude it from the vast field of useful and scientific knowledge. O, had I received the advantages of early education, my ideas would, ere now, have expanded far and wide; but, alas! I possess nothing but moral capability—no teachings but the teachings of the Holy Spirit.”
—Maria Stewart (1803–1879)