【正文】 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 21 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON 020406080100%Market Value Added (MVA) Invested Capital Goal of Managers should always be to create more shareholder value, or maximise MVA Total Market Value of Firm (includes all debt and equity) Bain?s focus has always been to help the management of the firm to maximise shareholder value, which is equivalent to maximising MVA Market Value Added Definition (1 of 2) 22 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON MVAI nv estedCa pi t alST NIBL*Ne tAsse t sEx cessCa shWorki ngC api talR equ ireme ntsNe t Fix edAssets (nodi stin ct io nbe t w ee nt an gi bl es andin t an gi bl es)S hor t T ermDe btLongT ermDe btS hareho ld ers39。 of market value added is the largest in the UK Source: Stern Stewart, Sunday Times Company Market Value Added (Sept 98) 1998 EVA? (163。B) () () () () () () () () () () Market Value Added UK Company Performance 10 Worst 36 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Agenda ? 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 37 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON ? Definition ? Advantages/Disadvantages ? Framework ? Use in Strategy Work Economic Profit Agenda 38 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Definition (1 of 2) Note: Economic Profit (EP) =Operating Profit (Cost of Capital * Amount of Equity Capital Invested) Re ve n u e sO p e r a t in gCo sts O ve r h e a d sPr o f itBe f o r eT a xT a x Pr o f itAf te rT a xEq u ityCa p ita lCh a r g eEc o n o m icPr o f it0204060801 0 0Economic Profit (EP) is a residual profit concept accounting for the opportunity cost of holding capital Amount ($) Traditional accounting concept of profits Economic Profit 39 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Definition (2 of 2) Note: NOPAT = Net Operating Profit After Tax (See Appendix for details) WACC = Weighted Average Cost of Capital Economic Profit determines a pany?s value creation or destruction ? Easy to use, based on accounting records (for historical values) ? Not prisoners of GAAP ? Can be used to show relative performance of products, segments, regions, etc. in a given year ? Can be calculated for future years and discounted to show value creation ? When Economic Profits are positive over time –value creation is positive –market price per share is more than book value per share –growth creates value EP NOPAT $ Charge for Capital Employed Operating Profit Effective Taxation Invested Capital WACC Gross Profit AP Net Working Capital Net Fixed Assets Overheads Economic Profit 40 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON In order to understand EP it is important to go back to the basic ine statement 020406080100What did we earn? (using what we own) Income Statement (%) Who gets access to these earnings? $100 $100 EBIT PAT Tax Interest Observations ? Debt providers have first access to the interest payments due on money lent ? Governments tax corporate profits ? Shareholders (equity providers) have access to all residual profits (after paying interest and tax) Note: Economic Profit (EP) = Operating Profit (Cost of Capital * Amount of Capital Invested) Key Principles: Access to Company Earnings Economic Profit 41 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Note: NIBL = Noninterest bearing liabilities ?Assets are a pany?s economic resources, items which have the potential to provide future benefits to the anisation ?NIBLs represent a free source of funds to the pany. It is money lent to a firm with no charge or expected return ?Debt is any interest bearing capital, including preferred stock ?Shareholder39。s Equity How did we pay for it? $500 $500 100% Balance Sheet The balance sheet separates what is owned by the firm from how it was paid for Understanding the Balance Sheet Economic Profit 42 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Ca shReceivables+ Inv en tor ies+ Pr epay me ntsF ix ed Asse t sSh orttermNIBLSh ortterm De btLo ng t erm De btLo ng t erm NIBLSh are ho ld ersEqu ityNe t Workin gCa pi t alNe t Fix edAsse t s (Nodi stin ct io nbe tw ee ntan gi bl es andin t an gi bl es)Sho rtt erm De btLo ng t erm De bi tSh are ho ld ers 39。100K, but could only finance 70% with debt and required equity for the remaining 30%, how much aftertax profit would you require to breakeven? –assume tax rate = 40% –assume cost of equity = 15% Debt: Equity: 163。 (cover interest payments) (cover equity charge, which is not taxdeductible) ? Therefore 163。 ? BreakEven Example 70% Debt / 30% Equity Solution Economic Profit 47 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON Economic Profit Agenda ? Definition ? Advantages/Disadvantages ?