The Value-Based Approach
Why destroy value when you can create it?
Many businesses will quietly destroy capital (and thus value) without owners or shareholders realising it until it is too late. Why? The performance of the organisation is more often than not judged by earnings-based metrics rather than one that factors in all costs including capital costs. Whilst Enron focussed on and promoted growth via the earnings per share measure, the company’s underlying capital and value destruction sealed its fate. This situation persists in business to this day with Carillion’s recent demise serving as a good example. Our role is to help owners and investors understand business performance by tracking the rate of value creation/destruction over time - also known as Economic Performance. We use value-based measures such as Economic Profit along with our own proprietary calculations and indexing methods to deliver a comprehensive perspective of where the business value engines are located and how to manage them in the future whilst identifying the areas within the business that are destroying value.
Our 3-step approach
1. A Financial and Economic Analysis
We undertake a thorough economic analysis to determine the true wealth/value dynamic at 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. Moving to a value-based strategic approach
We assist and advise in the reshaping of corporate strategy to focus on value-creation.