57
magazine
ALRAQABA
nancial statements in cases of acquisition or
merger, with the need ensure the quality of the
financial statements.
The author explained that the financial analysis
models suffer from three substantial shortcom-
ings. First: they do not take into account the
capital structure, nor do they exclude the impact
of the tax, although the tax rate may vary from
one establishment to another, either because of
tax benefits obtained by some establishments’,
or because the tax on the income of the estab-
lishment is a progressive one. The third is the
absence of mathematical correlation between
the components of the model, and even if such
a correlation exists, as in the Dibon Model, it is
a correlation that is only limited to one level of
defect analysis . This is avoided in the diagnostic
model used to evaluate performance to deter-
mine the effect of each element on the estab-
lishment profitability, which is represented in the
rate of return on stockholder’s equity. Most im-
portantly is to determine the actual contribution
of both the investment and the funding decisions
in realizing the rate of return on stockholder’s eq-
uity.
The introduction of the economic added value is
characterized, in comparison to the introduction
of performance evaluation, with consideration
that are addressed toward the risks and cost of
funds, and provides estimates of the value add-
ed by management to the owners wealth. It is
therefore an appropriate measure of corporate
governance effectiveness, which is be realized
through essential amendments to be made on
certain items of the income list. This is ensure
having these items on a cash basis and not on
an accrual basis, as well as an estimate of the
amount of capital invested regardless of whether
it is sourced from borrowed or owned funds in
preparation for estimating the average cost of
funds.
The conclusion of the book presents author`s ex-
planation, which emphasizes the establishment
goal that is realized in maximizing the wealth of
the owners, represented by maximizing the mar-
ket value of the company's shares. Furthermore,
in accordance with the well-established notion in
the investment field, the fair market value of the
share is determined on the base of the expect-
ed profitability rather than historical profitability,
which means the expected growth rate of profit-
ability, should be estimated in order to achieve
future profitability. Profitability is only one side of
the picture, as the level of risk must be taken
into account, since both are key determinants
for maximizing the wealth of owners, which cor-
porate governance seeks to achieve. This may
be taken into account by all models used to esti-
mate the fair market value of the share.
Through a brief review of the book, we can
confirm and be emphasize its significance as a
source of information for researchers, stakehold-
ers and related parties in this field. Noting the
availability of this book at the Information Center
in the State Audit Bureau for those who wish to
go through it and explore it in detail
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