Critical Analysis of Genre in the Film Industry

Critical Analysis of Genre in the Film Industry The topic of Hollywood and genre is multifaceted, dealing with definitions, characteristics and the social cultural roles genre performs. Steve Neales Genre And Hollywood (2000), and Rick Altmans Film/Genre (1999) take on board these a genders both offering a different theoretical approach to the topic, which I will analyze then voice my own conclusion on my findings. Both show that genre is an important, productive way of thinking about Hollywoods film history, and its audience. Each book presents new research, new thinking on genre that will be investigated and applied to its appropriate film style. Questions are raised from these existing accounts: that definitions of genre are restrictive and narrow, that traditional genres are inaccurate and that cultural theories are often over generalized. The arguments on the subject will be looked into detail, presenting my own opinions on these accounts. As genre is a complex subject, with many contexts, I will be breaking the subject up, firstly looking at definitions of genre, and general concepts applying them into individual genres. I will be looking at theories on genre by a number of people all different in there opinion. With the knowledge and understanding of genre, I will look into film noir, a critical category within the Hollywood film industry. Genre has occupied an important part in the study of cinema for years. Genre is French word, meaning kind or type. The term sub-genre is also used to refer to specific traditions within a genre ( as in gothic horror, slapstick comedy and so on). When genre is discussed or defined it is usally focused on commercial mainstream films, Hollywood films in particular. Barry Keith Grant states that genres are exclusively identified with commercial cinema: Genre movies are those commercial feature films which through repetition and venation, tell familiar stories with familiar characters in familiar situations Books and articles were being published in the 1940s and 1950s, in Europe and the USA, talking about individual Hollywood genres, establishing its self more, becoming an academic formal discipline in film studies. Theorists, critics and teachers of film at this time wanted to engage in the appearance of genre and genres inparticular with popular Hollywood cinema, offering a critical approach with a desire to displace or compliment films. Hollywood films had always been discussed by reviwers and critics, usally hostile to to the films Hollywood produced, arguing they aimed at mass market, conservative,commercially produced films lacking in realism, over loaded in fantasy. During the early 1970s a generation of critics began to value elements of popluar American culture, re-assesing its value. Here the auteur theory began, more simply known as auteurism. Based around three basic premises, firstly that cinema is a personal and individual expression. The second is that individual could be the director, a figure equivalent to an artist in painting. Lastly was that cinematography authorship wasnt to be found in just Hollywood cinema. An auteur is a director whos work is characterized by distinctive elements and traits in there films, stamping each piece of work with there own personality. The criticism is that films are just the personal expression of the director. Interpreting each film in the context of the film makers style makes the director responsible for the major creative descisions. The concept of the auteur theory is a crucial development in film theory, moving away from literary analyses of films narrative content to aspects of art and style specific in film. Many questions are raised on genre as a term, with little agreement on what it exactly means, if it can be clearly defined. Genre criticism firstly began from the notion that there are many kinds of literature, with different contexts. Aristotle tried to separate his poetry , from what we call lieterature into categories such as epic, lyric, tradgedy and so on. Distinguieshing each piece of works properties, working out particular properties of each distinctive kind trying to establish their relative importance, applying these into categories. Aristotles ideas were taken up during the Renaissance placed into a set of rules so that each style, were prescribed for each kind. This codeification evolved in the seventeenth and eighteenth centuries, literature was being divided more into categories, each with there own subject matter. Such a doctorial approach became frowned upon. In the late 1930s a Chigargo based school of critisicm known as the neo-Aristiteians, spoke out against this new criticism, which repudiated a historical approach to literature, believing literature exists by itself without contemporary or historical refrence. An attempt was made to rescue literature from isolation, resureting the theory of genres. Now that genre has become much more of a phenomenon, expanding hugly in Hollywood encompassing the cartoon, the B movie, the gangster film and many others. Now that genre has become multi dimensional the building of generic corpuses and audience expectations need to be addressed. Verisimilitude is a theory addressing the point of what justifies a genre, its systems of plausabilty, motivation, and justifications of belief. It is these systems of expectation which the spectator brings to the cinema, in which to interact with the film its self while viewing, providing the spectator with means of recognition and understanding. Verisimilitude helps render individual films of there generic corpuses, working out the significance of what is taking place on screen, why characters are dressed the way they are, why they are acting in a certain stlye. For example if a character bursts into song, the viwer will recognize that this particular film is a musical. Its plot is liable to follow certain directions rather then others, so these systems of expectation involve a knowledge of Verisimilitude which the viewer takes with them to the cinema. Todrov explains different regimes of Verisimilitude, with notions of propriety, of what is probable in a film therefore appropriate. In a musical bursting into song is appropriate therefore probable, there for believable in a musical, but not in a sci-fi or horror film. Murder is possible in westerns, gangster, and thrillers but unlikely in romantic comedy. Singing is obligatory in a musical, likely to be seen within its narrative, the spectator interacts with this being able to acknowledge its genre. Todrov explains how there are two types of Verisimilitude. Generic Verisimilitude and cultural Verisimilitude. Work is said to have Verisimilitude in relation to two chief kinds of norms. The first we call the rules of genre: for a work to be said to have Verisimilitude, it must conform to these rules. These rules Todrov refers to stem back to the idea of regimes within genres, with notions of probability. Todrovs second type of Verisimilitude has a more social context. But there exisits another Verisimilitude†¦that the Verisimilar is not a relation between discourse and its referent, but between discourse and what readers believe is true. Defined Hollywood genres arguably involve transgressions of social cultural Verisimilitude, for the entertainment and aesthetic pleasure. Individual genres have a balance between both social cultural and generic Verisimilitude, some genres appealing more to the generic context. War films mark this appeal by using discourses, maps, memories, and so on. Horror films operate much less to this authenticity, for example the discourses they cite, like the book of revelations in the Omen, is obviously fictional. Inbetween these two cases lie science fiction, films such as Them, draw an authentic status of science and technology to motivate an otherwise non-Verisimilitude event. A relevnt theory is that of Todrovs work on The Fantastic existing of different regimes of Verisimilitude. Two categories lie in the fantastic, The Marvelous and The Uncanny. Events are understood in the marvelous as supernatural, where the uncanny is understood in terms of laws of the natural world, involving a hesitation between the two for the viewer In a world that which is indeed our world, a world without devils or vampires, there occurs an event which cannot be explained by the laws of this same familiar world. The person who experiences the event must opt for two possible solutions: Either he is the victim of an illustion of the senses, of a product of the imagination Or else the event has indeed taken place, an integeral part of reality, controlled by Laws unknown to us. The Fantastic is the uncertainty between the two, the hesitation experienced by the viewer who can only relate to the laws of nature confronting the uncanny, an apparently supernatural event. Noel Carroll applies a similar theory, in two plot structures characteristic in horror films. The first he calls the Discovery plot, consisting of four stages, onset, discovery, confirmation and confrontation. Discovery involves the failure of responsibility and capacity for belief of those in authority, while confirmation is the realignment of their event. This structure articulates a play across themes and positions of responsibility, a play between knowing and not knowing. This plot is the most serviceable narrative armature in the horror film. For example in The Exorcist, the demons presence is established by the girls abnormal behavior, which is then discovered by an individual or group, in this case the poseesed girls mother. For some reason this discovery of this threat is not acknowledged by the police, an authorertive power, as they would not believe in such a erratic tale. Its plot moves away from discovery into confirmation, where the discoverers must convince some one else of the existence and danger of this demon, becoming an elaborate part of the film creating the suspense. While the girls possessed state worsens the mother has to seek other means of help to a higher authority, the time lost during this the demon becomes for powerful. After the hesitation stage of confirmation, it converts to confrontation. The demon is in contact with mankind, as the vicar finally meets the possesed girl. It is this tension between the discoveries (mother noticing abnormal changes in daughter) and the confirmation to convince someone who will believe in the monster or demon (mother seeking help for her possesed daughter) that creates a tension, leaving the audience knowing and not knowing. A second plot is the Overreacher plot, which involves superstition and scientific knowledge. Carrol says this plays an important role to the plot structure 37 . Frankenstein is an example to this approach†¦where the discovery plots often sightedness of science, the overreacher plot critizies sciences will to knowledge. The over reachers plot has four basic movements, the first comprises the preparation for the experiament, including philisophacal approach, or a debate about the experiaments motivation. The overreacher himself can become quite megalomaniacal. Such a theory can only be applied to a horror film, as Carroll states the specifics that the plot must have shortsightedness of science, where the overreacher becomes melodramatic. Frankenstein, and Jekyll and Hyde embody the overreacher, bringing an experiment to life comprehends a debate and motivation Carroll mentions, with this melodramatic behavior from the scientist performing the act. The experiment itself goes wrong, resulting in devastation, only now does the overreacher realize the error in justifying there experiment. It is the death and destruction the monster brings to innocent people, which brings the overreacher to his senses repeling him to destroy his creation. Both theories lean heavily on suspense, which is a key ingreediant in the narrative of a horror genre Narrative suspense can occur in most, if not all, of the plot movements†¦an incident in the onset movement might involve an innocent victim being suspense fully stalked, or our discoverers purseued by the monster. These theories are emboidied in the Horror genre, this repetition of narrative links in with each film, sets the genre away from others. With similar narrative and structure the viewer can relate and then categorize this, knowing that the film they are viewing is a horror film. It is these aesthetic theories that make a genre, the expressionism and communication that define it. As the idea of repetition is inherited in genres, these were thought of as clichà ©s, that the structures are one dimensional, becoming stereo typed. Most critics shared this idea. Shazts contests that Hollywood films involve similar one-dimesional characters acting out a predictable story pattern 208 gh. This pattern becomes familiar with an audience, as each genre contains its own narrative traits such as setting, characters, and plots. A theory by Cawelti called stereotype vitalization shows how characters traits can add to audienes recognition to a genre. Stereotyped characters are commonly found for example in westerns, the audience can expect to see brawls, crooked villains and the cowboy heroine. With such sterotypes within characters it heightens the audiences acknowledgment, as they recognize previous examples with these characters. It is argued however that these stereotypes must be regenerated But a good writer must renew these sterotypes by adding new elements, by showing us some new unexpected facet, or by relating them to other stereotypes in a particular fashion†¦maintaining an interest for later generations and other cultures. Without adding to a stereotype, films would become too familiar and predictable. Stereotyped vitalization contains two elements. The first is that of a stereotyped character which embodies another contradict cal stereotypical trait. For example Sherlock Holmes stereotyped traits are of a rational, logical, man of reason. On the other hand he is also a romantic poet, drug taker, and a musician. Such opposite sterotyped traits is what makes Holmes a striking literary character, this renewal on a character adds a new element referring back to Catweitis idea of adapting on just one stereotype, bringing more to a film. Another example is that of Gary Cooper, a great western star recognized for his violence , and skill to be quick on the draw, despite being a shy man. A second form of stereotyped vitalization is the stereotyped figure becoming complex and frail, such complexity in a character can however damage a narrative. This is a very delicate matter, for if a character becomes too complex it may cast a shattering and disruptive light on the other elements of the formula. This predictability and pattern within the film allows the viwer to distinguish traits between different genres. Neale argues that we must first understand what is meant by a story pattern, and predictability. In a broad sense Neale states that the story pattern refers to the main shape of a story, that violent climaxes of war films are generically requisite therefore predictable, all common plots recognized by a viwer. However Neale states that climaxes to films in there own genre can vary considerably. War films and western films permit death or defeat as well as victory and survival 211 gh. The same can be said for romantic films, where it could end happily or unhappily, so the narrative is not completely predictable. Each genre can then follow its own narrative which contains its own stereotypes so the viwer can comprehend the genre, yet at the same time as Cawelti stated, by adding elements to the sterotype (character,narrative) the viwer can still relate to the film. This makes each film within its own genre more interesting and diverse. All genre films are distinguished by sharing the same subject matter, a samurai film for example involves swords, science fiction embraces technology, or a gangster film with violence and corruption.These films are defined by similar plots and patterns. For example the plot pattern of an investergation that concludes the early mistery, solved at the climax of the film is common in detective films. Neale however points out that although we can separate each genre, it is only by its basic terms ( a detective story is about an investergation). Hybrid films combine two elements of the same genre into one. For example a combination of horror and science fiction in Alien, or a detective tale with science fiction in Bladerunner. Neale states that classification means genres share multiple relations, not all defined by the traits. If traits can be combined in a genre, what classifies a genre? This combination or cross breeding all relates back to repetition and difference in a films genre, hybrid films however become complex, unable to be pinned down to one single defined genre. It seems most genres are hallmarked by this idea of repetition, films sharing similar attributes. Hans Robert Jauss believes genres are best under stood as process. Repetition does dominate this process , but is also marked by difference, variation, and change. There are three levels in which a genre manifests itself. A level of expectation, level of generic corpus, and the rules and norm that administer both. A new film adds an existing generic corpus to a genre, as in Dracula where the character has to be characterized supernaturally or psychologically as is the case in the film Psycho. These are extended in a new genre film by adding new elements or transgressing an old one. John Carpenters Halloween played between psychological and supernatural elements both displayed within the monster. With this a genre is not simply being replayed but its generic corpus is expanded. It is films with the same generic corpus that base around expectation. Generic elements can be found in advertising. Where this develops so to does a films image, where a genre can expand and change as well. An original text is the viewers expectation familiar to him or her from earlier texts; these can be as shown, extended and varied. With each genre expanding on an original narrative it is as Neale states difficult to fully list the characteristics of each individual genre. Only can we define them in a broad sense, for example a war film that represents its wages in warfare, its main familiar trait, yet with each war film with its own separate narrative. Aesthectic characterictics are found in mass produced genres, Neale states that the term genre is not only used in film but in art and entertainment. Williams relates back to the roots of genre as a term, how it has evolved fistly Borrowed as a critical tool from literary studies†¦a concept in film studies raises some fairly tough questions. Genre films referring to a genre category substitute film narrative. Williams believes this to be the real genre, considering genres more as narrative film, documentary, or avant garde. It is these sub-genres that Williams believes to have more significant differences that we can distinguish. Ralph Cohen also relates heavily to the roots of the term genre, as it evolved in the nineteenth century, where popular mass produced fiction was making its first appearance. Hollywoods industry has played a huge role partly responsible for creating genres. Hollywood sets out to make profitable films to a mass market, where directors create different films each time as the audience would get bored seeing the same similar films, resulting in viewers not turning up to cinemas, leaving companies bust. Neale uses a nice analogy to illustrate this idea. A car company creates models to keep up with current trends, to keep there products in demand, yet each car has an idenity with one an other. Its principles apply to the film industry. Hollywood genres have the same ranges, producing films with similariteies but each with its own unique touch to keep its audience entertained They enable the industry to meet obligations of variety and difference inherent in this product†¦to regulate demand Hollywoods studios focus on this idea of adding to a genre to keep up demand, to maximize there profit. Studios developed in the 1920s, where groups of studios began such as Universal Pictures, United Artists, and Columbia Pictures, all producing films. These were the main high profit studios, only later did smaller studios develop creating indepentant films. Backed with money the major studios were creating films for the spectible, with higher budgets to draw in there audience. Smaller companies however were not able to show there films, until 1948 where government legislation meant that the smaller studios could release there films into the cinema. With this, studios could market there films in a predictable way with expert staff, directors, producers, and starts. All this meant studios could create there own generic enterprise. With changing ideas and narrative to engage an audience, a genre keeps to its generic form aswel as incorpaerating new plots and style for the audience to enjoy. John Ellis agrees with the importance of the institutional aspects of genre. Ellis mentions the narrative image for each film is a strong hint to its genre, but also stronger when applied in advertising Television and radio often plays a huge part in the construction of such images†¦but also a key role is played by the industry its self. Films advertising to the public, in posters, or television show a clear image of its narrative. Reviews on films state its generic framework, even on posters, statements are shown the comedy of the year clearly telling the viewer the films genre. It is this that raises the publics expectations through means of media, a method Ellis calls inter-textual relay. As any business, it wants to draw its target audience in; the film industry is no different. By advertising a narrative and in some cases even telling us the genre it sells the film instantly. Without advertising the public would simply have to go on a film by word of mouth. Without advertising its audience would be confused, not knowing the films genre, there for unlikely to go to the cinema and pay to watch the film. Inter-textual relay circulates a number of generic labels, terms, and names. It is there existence that makes a genre, although Altman argues Hollywood has a limited role to play when mentioning categories and terms. The industrial/journalistic term thus finds a hypothesis about presence of meaningful activity, but does not necessarily contribute a definition or delimitation of the genre in question Agreeably advertising does not fully explain the narrative, but does tell us the fundamental framework, the basic premises that the audience analyses and can make there own assumption of its genre.

Comparing the Love of Romeo and Juliet, Twelfth Night and the Bible Ess

  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   No emotion has such universal meaning as love. It is an integral part of the human condition. Love is the basis for by which all other emotions can be gauged. Friendship and even grief are steeped in love. Love is so central to our lives that it is fitting and proper that it should be the topic of so much discussion. Every culture and every writer has some commentary or evaluation of love. The New Testament has its share of love commentary. The entire basis of the Christian tradition is God's love for humanity. "God so loved the world that he gave his only Son." (John 3:6) Jesus preached a great deal about love of neighbor, love of God and even love of enemies. (Matt 5:44) Shakespeare's Biblical knowledge is well known and he was certainly familiar with these concepts as he wrote his plays on the subject of love. By looking closely at his works, we can analyze the nature of true love. In Romeo and Juliet, Shakespeare gives an example of true love overcome by tragic fate. His "star-crossed lovers" are so madly in love with each other that they cannot live without being together. (RJ Prologue, 6) By contrast, in Twelfth Night the characters are so fickle that they switch love interests in the span of a few lines. By comparing the true love of Romeo and Juliet with the shallow love of Twelfth Night, it becomes clear that Shakespeare agrees with the Biblical assessment of love.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   It is necessary, of course, to begin by explaining what the Biblical evaluation of love is. Of all the references to love in the Bible, and there are many, three sources apply best to this discussion. In the Old Testament, Song of Songs, a descriptive love poem between a woman and her true love, has many parallels to love in Romeo an... ...nd Juliet, Critical Essays. Garland Publishing, New York: (c)1993 Palmer, D.J. "'Twelfth Night' and the myth of Echo and Narcissus.'" in Shakespeare Survey 32. Cambridge University Press, Cambridge: (c)1979 Parker, Barbara. A Precious Seeing, Love and Reason in Shakeswpeare's Plays. New York University Press, New York: (c)1987 Shaheen, Naseeb. "Shakespeare's Knowledge of the Bible -- How Aquired" in Shakespeare Studies XX. Burt Franklin & Co., New York: (c)1988 Shakespeare, William. Romeo and Juliet. Cliff's Notes, Lincoln: (c)1965 Shakespeare, William. Twelfth Night. Cliff's Notes, Lincoln: (c)1965 Summers, Joseph H. "The Masks of Twelfth Night" in Twentieth Century Interpretations of Twelfth Night. Prentice-Hall, Englewood Cliffs: (c)1968 Vyvyan, John. Shakespeare and the Rose of Love. Chatto & Windus, London: (c)1960   

The Autobiography of Malcolm X

What Is the meaning of the title? Does It have a surface or deeper meaning? The title â€Å"The Autobiography of Malcolm X† is a book of Malcolm Ax's life story, which is a powerful voice in our black history. During his lifetime he went through several significant changes in his lifestyle and beliefs. Many of these things were influenced by his travels, life events and who he came Into contact with. 2. Identify the setting's historical significance During Malcolm Ax's lifetime he traveled to many places in the United States as well as out of the country.He was born In Omaha, Nebraska. Malcolm father, Earl Little, was a traveling Baptist minister so they moved around in the united States. At the age of seventeen Malcolm moved to Boston, Massachusetts. This is where he began to get involved with drugs, gambling, drinking, pimps, and stealing. 3. Does this work make a political observation about African American culture? Does it perpetuate damaging stereotypes and myths about Af rican Americans or does it deflate these myths and stereotypes? Malcolm X continued to Jump around in his beliefs.This makes me wonder If he lived longer would he have still believed the same thing. From when he was a child, a teenager in Boston, prison, following under Elijah Muhammad, to creating his own religion. Malcolm focused most of his life on people being bias. At the beginning of his book he said that his father was even bias Like the whites. He treated Malcolm different, compared to his brothers and sisters; he said It was because he was light skinned. Did his father say this or Is this Just Malcolm opinion?Who in this world isn't bias about something it may not be color of skin, but financial well being, background or heritage. I'm not saying that this Justifies being prejudice against African Americans. However, if you are constantly looking for something you will see what you're searching for, even If It really Isn't there. Which Is something I fell Malcolm X does repe atedly throughout his life. Race is always brought up in his arguments. Doesn't he want a better for the black community? He is criticizing his own people.Is this what we want African American's to be seen as, disparaging their own race. Malcolm portrays as an angry black male against the whites, judgment should not been applied in anger. Malcolm is constantly against the whites and the African Americans that have made a better life in at this time hat was a white world. Change is gradual; the black community is trying out the new waters and opportunities they were given. Malcolm X Is known as a great black activist, but I see that his teaching of how to be an Independent African American community was not an effective way.Blacks are known today as majority of the population of our prisons and majority of single family homes. Should the black community continue to preach Malcolm support of violence as answer to these problems? We should teach self reliance and a strong male presence In the household. Malcolm did teach these things however he did not teach non violence, which I believe is a key part of this problem. 5. Identify an appropriate audience for this work. Does this work have universal appeal?Before I say what audience this work is appropriate for; I think I should ask if Malcolm X was a leader that should be followed. Malcolm was born in poverty and grew up as a trouble teenager. After prison Malcolm changed his life and became a leader for the black community. Was he a leader that should be followed? Did he help the black community step forward as a group of people wanting equal freedom and rights? There were many historical leaders that led groups of people that had efferent views to another leader. But which leader gave path to a better lifestyle?I could argue that this work is appropriate for young black males. That it could be inspirational for them to see a man go from poverty to a historical leader. However, do we want these young black males to look up to a leader that didn't really change the world for the good? I think we should see if today, fifty years later, the movement Malcolm led has benefited the black community. Malcolm became deeply involved in the growing turmoil of the civil rights movement. As a radical black leader, Malcolm X advocated black pride and financial self-reliance.He ultimately rose to become a world-renowned African American and human rights activist. I think Malcolm Ax's belief of becoming self reliant and building a strong black family household is what every person should strive for. However, his embrace of violence is something I do not believe is a way to overcome and be recognized as a black community wanting their own opportunities and liberty. I still feel like today violence is used in hope to gain freedom and opportunities. This would make me hesitate to advice a young black male to read this work while looking for guidance.

The Meaning Of Value And Company Values Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 2196 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? A value is a belief, a mission, or a philosophy that is really meaningful to the company. Every company has one or more values, whether they are consciously aware of it or not. Another way of saying it is that a value is a statement of the companys intention and commitment to achieve a high level of performance on a specific Qualitative factor. Don’t waste time! Our writers will create an original "The Meaning Of Value And Company Values Finance Essay" essay for you Create order Value is the market worth of financial assets or liability. In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long-run. Business value expands concept of value of the firm beyond economic value (also known as economic profit, Economic value added, and Shareholder value) to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms. Valuation is a process and a set of procedures used to estimate the economic value of an owners interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appra isers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners ownership interest for buy-sell agreements, and many other business and legal purposes. In finance, Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., Bonds issued by a company). Value is about the following basic questions; What is my company worth? What are the ratios used by analysts to determine whether a stock is undervalued or overvalued? How valid is the discounted present value approach? How can one value a company as a going concern, and how does this change in the context of a potential acquisition, or when the company faces financial stress? Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. Fair Market value is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the real estate market. An estimate of fair market value may be founded either on precedent or extrapolation. Fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as: acquisition/production/distribution costs, replacement costs, or costs of close substitutes, actual utility at a given level of development of social productive capability and supply vs. demand and subjective factors such as, risk characteristics, cost of and return on capital and individually perceived utility. Intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculat ed by summing the future income generated by the asset, and discounting it to the present value. Valuation Methods: Income-based. These forward-looking methods are general enough to be applied to most types of businesses. Asset Valuation: This method is more appropriate for established companies with a large amount of tangible assets (such as property companies). The valuation is made by calculating the net realisable value of all assets. Discounted cash flow: This method involves forecasting earnings into the future (usually by three to 10 years) to determine the present value. Discounted cash flow is a good valuation method for fast-growth businesses; it can also be used if youre valuing your business for the purpose of bringing in a partner. Capitalization of cash flow: For this method, which is best used for mature companies with stable earnings, the value of one normalized earning period is used to predict future value. Market-based. If youre valuing your company in order to sell it, youll want to look at how other businesses in your industry are valued. Capital market (or Guidance Company): This method looks at multiples of publicly traded stocks, and works best for any companies that are large enough to be comparable to publicly traded firms. For example, this method would be more appropriate to use for a chain of retail stores than a single-unit retail company. Transaction: Better for smaller companies, this method examines what other businesses in your industry y have sold for. Cost- or asset-based. This valuation method adds up all the individual components of your business to find its value. Manufacturing or asset-holding companies, which have few intangibles, can get the most from this method. Using Comparables The most common way to value a company is to use its earnings. Earnings, also called net income or net profit, is the money that is left over after a company pays all of its bills. To allow for apples-to-apples comparisons, most people who look at earnings measure them according to earnings per share (EPS). One arrives at the earnings per share by simply dividing the dollar amount of the earnings a company reports by the number of shares it currently has outstanding. Thus, if XYZ Corp. has one million shares outstanding and has earned one million dollars in the past 12 months, it has a trailing EPS of $1.00. The reason it is called a trailing EPS is because it looks at the last four quarters reported the quarters that trail behind the most recent quarter reported. $1,000,000 = $1.00 in earnings per share (EPS) 1,000,000 shares The earnings per share alone means absolutely nothing, though. To look at a companys earnings relative to its price, most investors employ t he price/earnings (P/E) ratio. The P/E ratio takes the stock price and divides it by the last four quarters worth of earnings. The Price-to-Sales Ratio: Every time a company sells a customer something, it is generating revenues. Revenues are the sales generated by a company for peddling goods or services. Whether or not a company has made money in the last year, there are always revenues. Even companies that may be temporarily losing money, have earnings depressed due to short-term circumstances (like product development or higher taxes), or are relatively new in a high-growth industry are often valued off of their revenues and not their earnings. Revenue-based valuations are achieved using the price/sales ratio, often simply abbreviated PSR. The price/sales ratio takes the current market capitalization of a company and divides it by the last 12 months trailing revenues. The market capitalization is the current market value of a company, arrived at by multiplying the current s hare price times the shares outstanding. This is the current price at which the market is valuing the company. For instance, if our example company XYZ Corp. has ten million shares outstanding, priced at $10 a share, then the market capitalization is $100 million. Some investors are even more conservative and add the current long-term debt of the company to the total current market value of its stock to get the market capitalization. The logic here is that if you were to acquire the company, you would acquire its debt as well, effectively paying that much more. This avoids comparing PSRs between two companies where one has taken out enormous debt that it has used to boast sales and one that has lower sales but has not added any nasty debt either. Market Capitalization = (Shares Outstanding * Current Share Price) + Current Long-term Debt The next step in calculating the PSR is to add up the revenues from the last four quarters and divide this number into the market capitalization. Say XYZ Corp. had $200 million in sales over the last four quarters and currently has no long-term debt. The PSR would be: ((10,000,000 shares * $10/share) + $0 debt PSR = = 0.5 $200 million revenues The PSR is a measurement that companies often consider when making an acquisition. If you have ever heard of a deal being done based on a certain multiple of sales, you have seen the PSR in use. As this is a perfectly legitimate way for a company to value an acquisition, many simply expropriate it for the stock market and use it to value a company as an ongoing concern. Free Cash Flows Methods Despite the fact that most individual investors are completely ignorant of cash flow, it is probably the most common measurement for valuing public and private companies used by investment bankers. Cash flow is literally the cash that flows through a company during the course of a quarter or the year after taking out all fixed expenses. Cash flow is normally defined as earnings before interest, taxes, depreciation and amortization (EBITDA). Why look at earnings before interest, taxes, depreciation and amortization? Interest income and expense, as well as taxes, are all tossed aside because cash flow is designed to focus on the operating business and not secondary costs or profits. Taxes especially depend on the vagaries of the laws in a given year and actually can cause dramatic fluctuations in earnings power. For instance, Cyberoptics enjoyed a 15% tax rate in 1996, but in 1997 that rate more than doubled. This situation overstates CyberOptics current earnings and understates i ts forward earnings, masking the companys real operating situation. Thus, a canny analyst would use the growth rate of earnings before interest and taxes (EBIT) instead of net income in order to evaluate the companys growth. EBIT is also adjusted for any one-time charges or benefits. As for depreciation and amortization, these are called non-cash charges, as the company is not actually spending any money on them. Rather, depreciation is an accounting convention for tax purposes that allows companies to get a break on capital expenditures as plant and equipment ages and becomes less useful. Amortization normally comes in when a company acquires another company at a premium to its shareholders equity a number that it account for on its balance sheet as goodwill and is forced to amortize over a set period of time, according to generally accepted accounting principles (GAAP). When looking at a companys operating cash flow, it makes sense to toss aside accounting conventions that mig ht mask cash strength. In a private or public market acquisition, the price-to-cash flow multiple is normally in the 6.0 to 7.0 range. When this multiple reaches the 8.0 to 9.0 range, the acquisition is normally considered to be expensive. Some counsel selling companies when their cash flow multiple extends beyond 10.0. In a leveraged buyout (LBO), the buyer normally tries not to pay more than 5.0 times cash flow because so much of the acquisition is funded by debt. A LBO also looks to pay back all the cash used for the buyout within six years, have an EBITDA of 2.0 or more times the interest payments, and have total debt of only 4.5 to 5.0 times the EBITDA. IBMs Income Statement Annual Income Statement (Values in Millions) 12/2002 12/2001 Sales 81,186.0 85,866.0 Cost of Sales 46,523.0 49,264.0 Gross Operating Profit 34,663.0 36,602.0 Selling, General Admin. Expense 23,488.0 22,487.0 Other Taxes 0.0 0.0 EBITDA 11,175.0 14,115.0 Depreciation Amortization 4,379.0 4,820.0 EBIT 6,796.0 9,295.0 Other Income, Net 873.0 1,896.0 Total Income Avail for Interest Exp. 7,669.0 11,191.0 Interest Expense 145.0 238.0 Pre-tax Income 7,524.0 10,953.0 Income Taxes 2,190.0 3,230.0 Total Net Income 3,579.0 7,723.0 Option-Based Methods Executives continue to grapple with issues of risk and uncertainty in evaluating investments and acquisitions. Despite the use of net present value (NPV) and other valuation techniques, executives are often forced to rely on instinct when finalizing risky investment decisions. Given the shortcomings of NPV, real options analysis has been suggested as an alternative approach, one that considers the risks associated with an investment while recognizing the ability of corporations to defer an investment until a later period or to make a partial investment instead. In short, investment decisions are often made in a way that leaves some options open.ÂÂ  The simple NPV rule does not give the correct conclusion if uncertainty can be managed. In acquisitions and other business decisions, flexibility is essential more so the more volatile the environment and the value of flexibility can be taken into account explicitly, by using the real-options approach. Financial options are ext ensively used for risk management in banks and firms. Real or embedded options are analogs of these financial options and can be used for evaluating investment decisions made under significant uncertainty. Real options can be identified in the form of opportunity to invest in a currently available innovative project with an additional consideration of the strategic value associated with the possibility of future and follow-up investments due to emergence of another related innovation in future, or the possibility of abandoning the project. The option is worth something because the future value of the asset is uncertain. Uncertainty increases the value of the option, because if the uncertainty is interpreted as the variance, there are possibilities to higher profits. The loss on the option is equal to the cost of acquiring it. If the project turns out to be non-profitable, you always have the choice of non-exercising. More and more, the real options approach is finding its place i n corporate valuation.