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:
“When the manipulations of childhood are a little larceny, they may grow and change with the child into qualities useful and admire in the grown-up world. When they are the futile struggle for love and concern and protection, they may become the warped and ruthless machinations of adults who seek in the advantages of power what they could never win as children.”
—Leontine Young (20th century)
“If the minds of women were enlightened and improved, the domestic circle would be more frequently refreshed by intelligent conversation, a means of edification now deplorably neglected, for want of that cultivation which these intellectual advantages would confer.”
—Sarah M. Grimke (1792–1873)
“A woman might claim to retain some of the child’s faculties, although very limited and defused, simply because she has not been encouraged to learn methods of thought and develop a disciplined mind. As long as education remains largely induction ignorance will retain these advantages over learning and it is time that women impudently put them to work.”
—Germaine Greer (b. 1939)