Pure play

In financial management, a pure play is a company whose shares are publicly traded and that either has, or is very close to having, a single business focus.^[1] Coca-Cola is an example of a pure play in this context because it retails only beverages. On the other hand, PepsiCo is not a pure play because it also owns the Frito-Lay snack foods brand.^[2]

The pure play approach or pure play method is a method for estimating the cost of capital for a proposed new project or product line. It involves examining other companies, which are pure plays in the proposed line of business and inferring a cost of capital based on their capital structures (e.g. Debt-to-Equity ratio) and betas.^[3]

In e-business terms, a pure play is an organization that originated and does business purely through the Internet; they have no physical store (brick and mortar) where customers can shop. Examples of large pure play companies include Amazon.com (in its initial business when it was only involved in retail products) and Netflix.com (in content). With a much lower barrier to entry, the Internet affords smaller companies the ability to compete with much larger brands due to typically lower overhead and marketing costs. Though multichannel marketing is a hot buzzword, there is still plenty of growth opportunity for pure play merchants.

See also

• Diversification (strategy)

References

1. ^ Robert A. McLean (2003). "Special Topics on Capital Budgeting". Financial Management in Health Care Organizations. Thomson Delmar Learning. p. 221. ISBN 0-7668-3547-2. 
2. ^ SEC: PepsiCo, Inc. 2006 Form 10-K
3. ^ Eugene Foster Brigham and Louis C. Gapenski (1985). Financial Management: Theory and Practice. Dryden Press. p. 486. ISBN 0-03-098066-6. 

Further reading

• Cleveland S. Patterson (1995). "Estimating for non-traded assets". The Cost of Capital: Theory and Estimation. Quorum/Greenwood. pp. 221–224. ISBN 0-89930-862-7. OCLC 31012404. 
• John Frederick Weston and Eugene F. Brigham (1974). "The Pure Play Method". Essentials of managerial finance. Dryden Press. pp. 623–624. ISBN 0-03-030733-3. 
• 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. http://icai.org/icairoot/publications/complimentary/cajournal_nov02/p546-549.pdf. 
• Collier, HW; Grai, T; Haslitt, S; and McGowan, CB (October 2006). "Computing the divisional cost of capital using the pure play method" (PDF). Applied Financial Economics Journal (Taylor and Francis). http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1172&context=commpapers. 
• Larry A. Cox and 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. 

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