Value Creation

Source: Evernote 20120801_20131231

  • The Paths to Value Creation:  Using DCF  framework, there are four basic ways in which value of firm can be enhanced
    • cash flow from existing assets to the firm can be increased
      • increasing after tax earnings from assets in place or
      • reducing reinvestment needs net capital expenditures or working capital
    • the expected growth rate in these cash flows can be increased by either
      • increasing the rate of reinvestment in the firm
      • improving the return on capital on those reinvestments
    • the length of high growth period can be extended to allow for more years of high growth
    • the coast of capital can be reduced
      • reducing operating risk of investment assets
      • changing the financial mix
      • changing the financing composition
  • Value Creating Growth… Modes of organic growth vary in value creation intensity…
    • New product market development
    • expanding an existing market
    • maintaining/growing share in growing market
    • competition for share in stable market
    • acq (25th to 75th percentile result)

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