Pure play

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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 and Netflix.com. 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 multi-channel marketing is a hot buzzword, there is still plenty of growth opportunity for pure play merchants.

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 (eg Debt-to-Equity ratio) and betas.^[3]

References

1. ^ Robert A. McLean (2003). "Special Topics on Capital Budegeting". Financial Management in Health Care Organizations. Thomson Delmar Learning. p. 221. ISBN 0766835472. 
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 0030980666. 

Further reading

• Cleveland S. Patterson (1995). "Esitmating for non-traded assets". The Cost of Capital: Theory and Estimation. Quorum/Greenwood. pp. 221–224. ISBN 0899308627. OCLC 31012404. 
• John Frederick Weston and Eugene F. Brigham (1974). "The Pure Play Method". Essentials of managerial finance. Dryden Press. pp. 623–624. ISBN 0030307333. 
• 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. 

See also

• Diversification (strategy)

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