【正文】 2 of 2) 23 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON O p e r a t in gCa sh T o t a l C a s hC a s h R e q u i r e d i nO p e r a t i n g C y c l eE x c e s s C a s hThe first step required to calculate Net Assets with the Operating Approach is to identify excess cash, which is total cash less cash required in the operating cycle Note: *Shortterm noninterest bearing liabilities Amount ($) Market Value Added Operating Approach Excess Cash 24 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON O pe rati ng Ca shP rep aid Ex pen se s an dOt he r Cu rren t Asse t sI nv en t ori esRe cei vab le sA dva nce Pay me ntsAcco un t sPay ab leA ccrue dEx pe ns es an d O the r Cu rren tLi ab il itie s T o t a l I n v e s t m e n t si n O p e r a t i n g C y c l eL i a b i l i t i e s I m p l i c i ti n O p e r a t i n g C y c l eN e t I n v e s t m e n t si n O p e r a t i n g C y c l eNext, The working capital requirements are the firm?s investments in the operating cycle, or the amount of shortterm investment required to fund operations Amount ($) Working Capital Requirements Market Value Added Operating Approach Working Capital Requirements 25 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON When calculating MVA, Net Fixed Assets is defined as Net PPE plus other Investment (tangible and intangible). The third and final step to calculate Net Assets is Net PPE, which is the amount of longterm investment required to fund operations N e t F i x e dA s s e t sP r o p e r t y , P l a n t a n d E q u i p m e n tA c c u m u l a t e dD e p r e c i a t i o nO t h e rI n v e s t m e n t sAmount $ Net PPE Market Value Added Operating Approach Net Fixed Assets 26 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Market V al ueAd de d (MVA)I nve stedCa pi t alPV of EPsBe y on d Y ea r 5P V of E PYea r 5P V of E PYea r 4P V of E PYea r 3P V of E PYea r 2P V of E PYea r 1M a r k e t V a l u e o f t h eC o m p a n y ( D e b t + E q u i t y )M a r k e t V a l u e A d d e d( M V A )0204060801 0 0 % Market value added (MVA) reflects the markets expectations of the EP managers will add in the future Percent of Total MVA is the market’s expectation of discounted future EPs Market Value Added Link to EP 27 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON After extensive work by a diligent Bain team, Acme Industries is expected to generate $25M in economic profits next year, which is expected to grow at 3% forever. If the cost of capital is 13% and the invested Capital is $100M, what is the MVA and the market value of the pany? Market Value Added Link to EP Example 28 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON After extensive work by a diligent Bain team, Acme Industries is expected to generate $25M in economic profits next year, which is expected to grow at 3% forever. If the cost of capital is 13% and the invested Capital is $100M, what is the MVA and the market value of the pany? MVA = PV of EPs = $ 25 M 13% 3% = $ 250 M = MVA + Invested Capital = $ 250 M + $100 M = $350M Market Value of the Company Market Value Added Link to EP Solution 29 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON EP measures managers? performance in the past, since it represents the market value added created over one year Note: *Assumes Invested Capital Constant M a r k e t V a l u eA d d e d * T o d a yM a r k e t V a l u eA d d e d * L a s t Y e a rE c o n o m i c P r o f i tO v e r L a s t Y e a rMarket Value Added Link to EP (1 of 2) 30 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON EP is used to evaluate manager performance because the change in MVA over a period of time is measured ?Goal of pany?s managers should always be to maximise MVA ?When managers make any investment decisions, if the project is: –valuecreating NPV 0 MVA increases –valuedestroying NPV 0 MVA decreases ?Reason that EP is the focus of most attention is because MVA is a stock or wealth measure, so MVA will show how much value has been added at that point in time –EP measures the amount of value added over a period of time, which is far more useful when measuring manager performance Market Value Added Link to EP (2 of 2) 31 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON ?Which UK sectors would you expect to have the highest market value added? –and the lowest? ?Which UK panies would you expect to have the highest market value added? –and the lowest? Market Value Added Actual Performance 32 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON B a n k s I n t e g r a t e d O i lD r u g sM e d i aF o o dM a n u f a c t u r e r sT e l e c o m sR e t a i l e r sG r o c e r sE l e c t r i c i t yD r i n k s1 0 2 . 59 4 . 38 9 . 34 2 . 93 8 . 73 6 . 13 3 . 81 8 . 51 7 . 2 1 6 . 802550751 0 0163。 1999 Bain Company, Inc. CorporatePerformanceMeasurement bc Corporate Performance Measurement LON ? Executive Summary ? Objectives ? Background ? Performance Measurement Framework ? Market Value Added (MVA) ? Economic Profit (EP) ? Cash Flow Return on Investment (CFROI) ? Exercises –MVA –Economic Profit ? Case Study Diageo Agenda 2 CorporatePerformanceMeasurement bc Corporate Perf