Corporate Valuation 2001-3 Institut for Regnskab, IC Pontoppidan Agenda Workshop –any group...

Corporate Valuation 2001-3Corporate Valuation 2001-3

Institut for Regnskab, IC Pontoppidan

Agenda• Workshop

– any group problems ?– Exercise: 4.3, 4.11, 7.10

• Lecture– last session– this session

• CKM: 4,5,6,7• 2* Ghemawat

• NEXT



Value Performance Measures

EXTERNAL/ MARKET BASED

how the market values the performance

• MVA: MVE-BE

• delta MVA

• Market/Book

• TSR:Div.+P1-Po/Po

Exh.4.3

INTERNAL

to evaluate and measure

• SVA: FCF/WACC• EVA:I#(ROIC-WACC)• CFROI



CKM ch.4 MetricsWhat metric for what purpose ?• The stockmarket (TRS,MVA) is an output

measure, but it also reflects the general index and the industryindex and gives no insight - so what specificly drives the marketvalue for the company?

• Intrisic value calculated on DCF, but it is longterm and abstract - so what drives cashflows ?

• Financial indicators as ROIC and growth, but they are lagging measures and can be shortterm

• Valuedrivers that drive ROIC and growth -these are leading indicators ! Market share, R&D



CKM ch.4• To create TRS you need to surpass market

expectations - accelerate the treadmill• MVA measures the speed of the treadmill • together they provides insight in the

dynamics of the company’s performance• the marketimplied expected performance can

and should be calculated in 3 parts:current operations, analysts forecasts next 3 yrs, rest

• cashflow valuation pays respect to timing, to risk (in the discount rate) and to the capital needed to generate it - earnings does not !?



CKM ch.5 Cash is King• The value-LEVEL(market-to-book) - at a

given point of time - is linked to the ABSOLUTE level of performance (growth & ROIC)

• value-CHANGES are linked to the RELATIVE (to market expectations) performance

• cash is king ! ?



CKM ch.6 Making value happen• Making value happen requires

– metrics• how value is created• how the market values the company

– mindset: how much managers care in• thinking• acting

• 6 area’s– aspiration and targets– managing the portfolio– organizing– insight into key value drivers– managing business units– motivating



CKM ch.63 horizon growth analysis• current core business• extension of above + new business• options on future business Valuedriver is a performance variable with

impact on the result of the business such as production effectiveness or customer satisfaction

KPI is the metric for value drivers• must be directly linked to value creation• both financial and operational KPIs• should cover both long-term growth as well as

operating performance



CKM ch.63 phases in defining the KPIs• identification• prioritization (sensitivity & potential)• institutionalization (e.g. in a scoreboard)

Managing individual performance - match the metric with the role and the task (re exh.6.7)



CKM ch.7 M&A and JVMake or buy ? • Time• competitors and reactions• immaterial assets/ goodwill-competenceM&A -JV• whole/ partial• overlap/ extension• superior/ equal• infinity/ periodM&A• premium 20-35%• sellers joy• buyers shareholders often sceptic



CKM ch.7 M&A and JV• succes rate below 50

• settlement in – cash– paper– contingent

• due diligence



Ghemawat & del Sol: Commitment

• Sustainable superior returns require commitment

• commitment in firm specific or usage specific resources

• usage flexible resources ease the problem of commitment under uncertainty

• the commitment is a process that can be adapted or abandoned to feedback

• adaptation often spells the difference between failure and succes under turbulence/ uncertainty

• hence the relation between commitment and flexibility becomes important



Ghemawat & del Sol: Commitment• Resources are specific or non-specific i.e.

flexible• to the firm and to the usage• this gives the Resource Specificity Matrix• the firm-specific are the more sticky i.e.

strategic• commitment therefor goes west-east• flexibility goes southeast-northwest• look-out for firm-specific commitments (D

and B) as they are the startegic ones• and for the usage-flexible of these (B) as they

incorporates value in the option to adapt• and for the impact of timing in D

– delay or lock-in ?



Ghemawat & del Sol: Strat.val. of investment under competition

• Framework integreting competive strategy framework with DCF

• with 3 steps– positioning re competitive advantage

• lower cost or greater benefit to users– sustainability re competitive dynamics

• scarce and proprietary– imitation and substitution threats scarcity– hold up and slack threats the appropriation

– flexibility re options to revise under uncertainty



Ghemawat & del Sol: Strat.val.

• looking at the numerator, not the denominator in the DCF formula

• where the alternative NOT is the do-not-invest cashflows

• the flexibility could be to expand the plant re the Nucor example

Corporate Valuation 2001-3 Institut for Regnskab, IC Pontoppidan Agenda Workshop –any group...

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