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Corporate Value Creation: An Operations Framework for Nonfinancial Managers

توضیحات

A detailed crash course in business management for value creation

Corporate Value Creation provides an operations framework that management can use to optimize the impact decisions have on creating value by growing revenue and profitability. Designed to assist professionals without a strong business or financial education, this book provides a thorough understanding of the qualitative and quantitative aspects of managing a business for the purpose of value creation. Readers will find detailed information on financial reports, valuation, modeling and forecasting, and more, including discussion of best practices that functional management can embrace to leverage performance. The final chapter reviews key concepts and helps the reader tie them all together by using a step-by-step approach to build or modify a business plan that includes a complete set of financial statements. In addition, each chapter includes case studies or exercises so that the reader can practice using the material covered in the chapter.

Corporate Value Creation can also be used as a handbook for managers who are looking for information on specific topics that range from developing financial statements to manufacturing management, to internet marketing and much more. In most cases, individual topics can be reviewed without reading the entire book. Finally, for the manager who wants to quickly understand what's involved in running a successful business, each chapter begins with the key takeaways from that chapter in a section called "Nuggets".

Fundamentally, creating value is as simple as making more money – but therein lies the rub. Effective management of business growth involves a complex interplay of productivity, capital, debt, and margins, and finding the most efficient balance can be challenging. For managers who need a deeper understanding of the forces at work, Corporate Value Creation is a thorough, detailed guide but it is also valuable for managers who are looking for information on a specific topic or simply wanting to understand at a high level what's involved in running a successful business.


Preface

Acknowledgments

Chapter 1: Basic Concepts

Introduction

Financial Statements

The Income Statement

The Balance Sheet

The Cash Flow Statement

Required Revenue for a Given Level of Net Income

Case Study: Advanced Solar Systems Corporation

Chapter 2: The Envelope Equations

Introduction

ROCE and NiROCE

Net Investments,

Investment Rate

Incorporating and into the Expression for Net Income

Incorporating into the expression for Cash Flow after Investing Activities

NI and CFaIA - A Sequential Year by Year Analysis

NI And CFaIA - The General Model

Estimating Growth Rates of Cash Flow after Investing Activities and Net Income

Growth Rate of CFaIAg with Constant IR and NiROCE

The Envelope Equations Methodology for Estimating Net Income, Cash Flow after Investing Activities and Growth Rates

Example 2-1: The Impact of Net Income Return on Capital Employed and Investment Rate on Cash Flow after Investing Activities when NiROCE and IR are Constant

Example 2-2: The impact of Variable NiROCE and IR on CFaIA

Example 2-3: Calculating the growth rate of NI and CFaIA knowing IR and NiROCE

Example 2-4: Impact of NiROCE and target Net Income Growth Rates on the Investment Rate and Cash Flow after Investing Activities

Required Revenue Revisited

Example: 2-5: Calculating Required Revenue for the Stephenson Corporation

Case Study: American Technology Corporation

Chapter 3: The Weighted Average Cost of Capital

Why is a Company’s Weighted Average Cost of Capital Important?

Weighted Average Cost of Capital Defined

Operating and Capital Leases

Weighting of the Components of Capital Structure

Market Value of Debt and Equity

The Impact of Taxes on the Weighted Average Cost of Capital

Estimating the Cost of Debt and Equity and the Capital Asset Pricing Model

General Equations for Estimating the WACC for a Company with One Class of Debt and Equity

Levered and Un-levered Betas

Estimating Beta for Non-public Companies or Business Units

DLK Enterprises Using the Comparable Company Method

Significance and Uses of the WACC

Origin of the Coefficients Used in Calculating a WACC

Example 3-2: Calculating the Cost of Equity Using Market Data for MHH Incorporated

Example 3-3: Estimating the WACC of a Company with one Class of Debt and Equity

Multiple Hurdle Rates

Example 3-4: Retail Corporation’s WACC

Example 3-5: Retail Corporation Decides to Access the Debt Markets

Example 3-6: Comparison of Retail Corporation’s WACC’s

Introduction to Present Value

Example 3-7: Calculating the Value of a Stream of Cash Flows Using the WACC

Case Study: Omega Corporation

Chapter 4: Introduction to Valuation Models

Most Frequently used Single-Stage Valuation Models

Introduction to Estimating Value

Example 4-1: Valuing Amlee Incorporated’s Forecasted Cash Flows

Example 4-2: Company C’s Valuation of Acquisition Target Company A

Example 4-3: Company A Values Various Business Plans

Valuation Considerations – Lessons Learned

Most Frequently used Single Stage Valuation Models

Multi-Stage Valuations

Example 4-4: Multi-Stage Valuation of Company A’s Plan 2

Example 4-5: Company C’s Multi-Stage Valuations of Companies A and B

Equivalence of the Post-forecast Period Models

Impact of 1/(k – g) on the Perpetual Growth Model

Considerations of the Terminal Value Multiplier as Implied by the Equivalency Equations

Case Study: NexgenSonics

Chapter 5: ROCE and Cash Flow Analytics

Introduction

Basic Drivers of ROCE

Some Practical Aspects of Managing Return on Capital Employed

Case Study: Pharos Corporation … The Early Days

Chapter 6: Strategies & Best Practices for Managing ROCE & Cash Flow

Introduction to Maximizing Return on Capital Employed and Cash Flow

Basic Pricing Driven Models

Value Added Models

Introduction to Factors That Impact the Cost of Goods Sold

Depreciation and Amortization

Example 6-5 Calculating Balance Sheet Statistics

Case Study

Chapter 7: Productivity and Operating Margin

Productivity

Cycle Time

Closing Comments on Value Added and Cost

Case Study

Chapter 8: The Expense Coverage Ratio

The Expense Coverage Ratio

Concluding Comments

Case Study: Safety Solutions Corporation

Chapter 9: Debt and Leverage

Introduction

Debt and Leverage

LIBOR and Pricing Loans

Debt Financing Alternatives

Credit Ratings

Relative Cost of Debt Financing

Impact of Debt on Return on Capital Employed and Return on Equity

Example 9-1: Impact of Leverage on Capital Structure, ROCE and ROE

Financial Covenants

Example 9-2: Financial Performance Covenants

Case Study: Edsson Corporation

Chapter 10: Understanding Financial Statements

Introduction

The Income Statement

The Balance Sheet

Some Complications

Case Study: Light Technologies, Inc.

Appendix A: Present Value Models

Present Value of any Stream of Cash Flows

Present Value of a Cash Flow “E” that Takes Place at the End of Year “n”

Present Value of the Terminal Value of a Cash Flow at the End of Year “n”

Present Value of a Stream of Fixed Cash Flows “E” for “n” Years

Present Value of a Fixed Stream of Cash Flows in Perpetuity (n = infinity)

Single-Stage Growth Models

Present Value of a Stream of Cash Flows that Grow at a Fixed Rate for a Finite Period

Present Value of a Stream of Cash Flows that Grow at a Fixed Rate in Perpetuity

General Equation for Present Value of Single-Stage Cash Flows that Grow at a Fixed Rate

Multistage Growth Models

Two-Stage Growth Models

Three-Stage Growth Models

Appendix B: Business Valuation Models

Introduction Stream of Distinct Cash Flows

Stream of Distinct Cash Flows Followed by a Stream of Perpetual Fixed Cash Flows

Stream of Distinct Cash Flows Followed by a Stream of Finite Fixed Cash Flows

Stream of Distinct Cash Flows Followed by a Stream of Perpetual Growth Cash Flows

Stream of Distinct Cash Flows Followed by a Stream Finite Growth Cash Flows

Stream of Distinct Cash Flows Followed by a Terminal Cash Flow

Initial Cash Flow Sequentially Followed by a Finite Period of Cash Flows that Grow at a Fixed Rate “gFG” and a Terminal Cash Flow

Initial Cash Flow Sequentially Followed by a Finite Period of Cash Flows that Grow at a Fixed Rate “gFG” and a Perpetual Fixed Cash Flow

Initial Cash Flow Sequentially Followed by a Finite Period of Cash Flows that Grow at a Fixed Rate “gFA” for “NA” Periods and Perpetual Cash Flows that Grow at a Fixed Rate “gPB

Stream of Cash Flows that Grow at a Fixed Rate “gA” for “NA” Periods, Followed by a Stream of Cash Flows that Grow at a Fixed Rate “gB” for “NB” Periods, and a  Stream of Perpetual Growth Cash Flows that Grow at a fixed Rate “gC

Appendix C: Growth Models

Introduction

The General Compound Annual Growth Rate Model

General Expression for CFaIAg, the growth rate of CFaIA

General Expression for NIg, the growth rate of NI

Appendix D: General Equations for Estimating NI and CFaIA

Introduction

ROCE and NiROCE

The General Case for the Envelope Equations

Special Case: Constant Investment Rate and Net Income Return on Capital Employed

Special Case: Focus on Operational Cash Flows

Net Income and Cash Flow Growth Equations

Appendix E: R & D Growth and Investment Equation

Introduction

Generational Cost Factor

Product Life Cycle

Developing an Expression for the Cost of the Next Generation

Life Time Revenue Factor

Example E-1: Calculating the R&D Cost of the Next Generation

Growth Rates and Product Life Cycles that Satisfy the Requirement I current = I next

Example E-2: Determining “g” and “PLC when Icurrent = Inext

Appendix F: Inventory Considerations and the EOQ Model

Introduction

Components of Inventory Costs

Economic Order Quantity

Shortage Costs

References

About the Author

Index