The importance of value
Measuring the value dynamic within a business delivers the clearest indicator of wealth generation/destruction. Many businesses quietly destroy capital (and thus value). It is a process that usually goes unnoticed by the business owners and shareholders. Why? Investment professionals frequently focus on the performance of the organisation using earnings-based metrics, not by a total economic perspective. Unfortunately, an earnings-driven perspective does not account for the cost of capital. Think Enron and its fixation on Earnings Per Share growth whilst the company's underlying economic and capital position was being simultaneously eroded. Our role is to assist companies in measuring and understanding their underlying business performance by tracking the rate of value creation/destruction. This is also known as Economic Performance. Additionally, we provide strategic solutions for businesses that wish to make the transition towards value creation. After all, as the late Roberto Goizueta (former CEO of The Coca-Cola Company) said, ‘When you start charging people for their cost of capital, all sorts of good things happen’.
Our 3-step approach
1. A Financial and Economic Analysis
We undertake a thorough economic analysis of the business (and peers) to determine the true wealth/value dynamic at a company and market-level.
2. Assessment of business performance
We identify the areas of the business that are creating value and those which are destroying value. We determine the reasons for good and not so good economic performance eg assessing the cost of revenue against the economic return, identifying the effect of disposals and acquisitions on the value creation dynamic and measuring the economic efficiency of the business using our proprietary indexing capabilities.
3. Deploying a value-based strategic approach
We assist and advise in the re-shaping of corporate strategy to focus on value-creation and the generation of shareholder wealth.