Pure play
A pure play company focuses solely on a particular product or activity. Investing in a pure play company can be considered as investing in a particular commodity or product of a company.[1]
Pure play firms either specialize in a specific niche, or have little to no vertical integration. For example, a coffee shop may call itself a "pure play" restaurant, and a factory that only produces goods (not designing or selling to consumers) may refer to itself as a pure play manufactory.
Companies that transact exclusively via e-commerce and have no brick and mortar retail spaces may be referred to as pure play online retailers.[citation needed]
Pure play method
[edit]In finance, the "pure play method" is an approach used to estimate the cost of equity capital of private companies, which involves examining the beta coefficient of other public and single focused companies.[2] See also Hamada's equation.
Here, when estimating a private company A's equity beta coefficient, the equity beta coefficient of a public company B is needed; the latter can be calculated by regressing the return on B's stock on the return on the relevant stock index. The following calculation is then applied to return the beta coefficient of company A.
- Unlevered Beta of B = Equity Beta of B / (1 + DEB × (1 − Tax RateB))
- Equity Beta A = Unlevered Beta of B × (1 + DEA × (1 − Tax RateA))
- where DEA and DEB are the debt to equity ratios of company A and B respectively.[3]
Pure play foundries
[edit]Pure play foundries, such as TSMC and GlobalFoundries, have no in-house design capabilities, and fabricate integrated circuits (ICs) for fabless semiconductor companies,[4] such as Qualcomm, Broadcom, Xilinx, Nvidia, among others. Integrated device manufacturer (IDM) foundries, such as Intel, IBM, NEC, Texas Instruments and Samsung, provide both foundry design services and IC fabrication.[5]
Pure play e-retailers
[edit]Compared to traditional retail stores, pure play e-retailers can serve a wider audience without physical boundaries and distance, and may target specific customer groups without the high cost of maintaining physical stores.[6]
Compared to companies that integrate both offline and online, pure online internet retails do not have company brand recognition and reputation at the start-up stage, and customers are unable to touch, examine and test real products before buying them. The online shopping experience foregoes human contact with consumers.[6]
See also
[edit]Further reading
[edit]- Cleveland S. Patterson (1995). "Estimating for non-traded assets". The Cost of Capital: Theory and Estimation. Quorum/Greenwood. pp. 221–224. ISBN 978-0-89930-862-3. OCLC 31012404.
- John Frederick Weston & Eugene F. Brigham (1974). "The Pure Play Method". Essentials of managerial finance. Dryden Press. pp. 623–624. ISBN 978-0-03-030733-1.
- N.R. Parasuraman (November 2002). "Ascertaining the divisional Beta for project evaluation — the Pure Play Method — a discussion" (PDF). The Chartered Accountant. 31 (5): 546–549.
- Collier, HW; Grai, T; Haslitt, S & McGowan, CB (October 2006). "Computing the divisional cost of capital using the pure play method" (PDF). Applied Financial Economics Journal. Taylor and Francis.
- Larry A. Cox & Gary L. Griepentrog (September 1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. 55 (3): 442–452. doi:10.2307/253253. JSTOR 253253.
References
[edit]- ^ Law, Jonathan (2014). Dictionary of Finance and Banking. Oxford: Oxford University Press Print Publication. ISBN 9780199664931.
- ^ Cox, Larry A.; Griepentrog, Gary L. (1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. 55 (3): 442–452. doi:10.2307/253253. JSTOR 253253.
- ^ R, Fuller; H, Kerr (1981). "Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique". Journal of Finance. 36 (5): 997–1009. doi:10.1111/j.1540-6261.1981.tb01071.x.
- ^ Brown, Clair; Linden, Greg (2011). Chips and change : how crisis reshapes the semiconductor industry (1st ed.). Cambridge, Mass.: MIT Press. ISBN 9780262516822.
- ^ Mutschler, Ann Steffora (2008). "Pure-play foundries comprise 84% of market, IC Insights says". Electronics News. Australia: Reed Business Information Pty Ltd, a division of Reed Elsevier Inc.
- ^ a b Kim, Eonsoo; Nam, Dae-il; Stimpert, J.L. (2004). "The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and Suggestions". Journal of Management. 30 (5): 580. doi:10.1016/j.jm.2003.12.001. S2CID 2925596.
