Introduction Bender and Ward’s basic model mainly comprises of four main areas that include launch, growth, maturity and decline. Some of the major aspects or strategy parameters notable in all those stages include business risk, financial risk, source of funding, dividend policy, future growth prospects, price/earnings multiple, current profitability, and share price (Bender and Ward, 2003). In this review, it has been found out that Warder’s Model has placed much on discussing the concept of risk, valuing the shareholder and the company and product life cycles. The major weakness of this model is that Ward is that he has failed to recognize the work of other scholars such as Porter which provide good grounds in analyzing the industries that the companies for developing good strategies (Baranek 1998). Warder’s model is a theory that in general that tries to explain the concept of corporate finance and the relationship that exists between the corporate strategy and corporate finance.
It is a theory because it does not provide any supporting evidence that can be used determine whether the risk levels vary with the company’s life cycle (Baranek 1998).
The approach that has been employed here is that the model has reviewed various existing literatures on value chain, shareholder management and payment of dividends as well as market growth. The objective of this essay was to critically evaluate Ward’s Model in relation to corporate finance strategy. Analysis of Bader and Ward’s ModelAccording to Bader and Ward’s Model, the highest levels in terms of risk are found at the start up stage of a business life cycle. They are various compounding risks related with a new product; this is mainly concerned with whether the product will work effectively.
It also concerns whether the product will be accepted in the market by potential customers (Bender and Ward, 2003). Moreover, in case it is accepted, then there is worry of whether its market will grow significantly mainly due to development and launch costs implicated and whether adequate market share will be attained by the product or company. Therefore, risks of high levels in business should ensure that related financial risk must be kept very low hence; it is suitable to have equity funding.
However, despite equity funding this may not be attractive to all prospective investors. It is important to note that only those investors ready to accept high risk will be attracted by the high overall risk of the company; however, they will need a corresponding high return (Bari, 2000). This high return will come to investors in terms of capital gains as business negative cash flow makes it impossible to pay dividends in this preliminary phase. There is a creation of key concerns due to this dominance of capital gains on the part of venture capital investors within such business related with high risk.
Investors do not wish being locked in till the business becomes cash-positive and can begin paying dividends (Bari, 2000). Therefore, the buyers require to be found for this equity in its increased value immediately the firm proves that product works and that the potential of the market results to a financially attractive investment. Venture capitalists usually need rates of return that are very high in the investment portfolio (Bari, 2000). In the launch stage of the bender & Ward Model, they are several parameters or issues involved as summarized or analyzed by the table below.