This part is continued of the previous post about how balance sheet will be affected by ERP project. In this post we will talk about ERP impact on Stock price.
If you are new with this web log we request you to read preface first.
ERP Impact on Stock Price
If the integration and improved information of an ERP system results in a better balance sheet and increased profits, these improvements should impact stock price for the company. Although stock price is affected by a variety of factors, the typical effect of improved profits and balance sheet ratios can be estimated. Using the already described example of $10 million manufacturer and typical benefits, and assuming 100,000 shares outstanding and an existing stock price of $30.00 per share, the stock price exhibits the effects of an effective ERP, as figure 1-7-3 shows. With a price/earnings multiplier of six, the stock price for the example company could be increased from $30 to $58.80 per share.
Figure 1-7-3 Calculating the potential stock appreciation
|
| Before ERP | After ERP |
|
| | |
| Before tax profit | $500,000.00 | $980,000.00 |
| Earnings per share | $ 5.00 | $9.80 |
| Current stock price | $30.00 | 6 * 9.80 = $58.80 |
| Multiplier | 6 | 6 |
These calculations suggest that ERP systems can lead to significant impacts on financial results, including the balance sheet, income statement, key ratios, and stock price.
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