【正文】 ximatelyImprovements 60%DivestureWeiPut the Value Creation Plan into Action? PutperformancePerformancebothCompensationCommunicationsJohn Takingpanyopportunitiesafinancial manipulations.paniesrestructuringandSchool47 .OptionsHKUSTAssets167。WeiDiscounted Cash Flow Model? ValuefutureOptionsHKUST aftertaxreinvestmenttobondholders).CFAII_SS18: Terminal ValueT=FCFT+1/(WACCg)FCF1 FCF2 … FCFT1 FCFT T1FCF = Free cash flowWACC = Weighted Average Cost of CapitalTV = Terminal Value (at time T) = FCFT+1/(WACC – g), where g is the longterm growth rate in salesT = Length of the forecast horizon (typically, 7 to 10 years)CFAII_SS18:valuations Profit marginsFCF)167。investment)WeiFundamental Drivers of a Company’s ValueValue DriversCFAII_SS18:valueitscostROIC WACC? Three value drivers:167。WeiValue CreationAssetsInvested Capital$100 millionAftertaxoperating profit(NOPLAT)$18 millionReturn on Invested Capital18%Debt$50 millionEquity$50 millionCost of Debt(aftertax)6%Cost of Equity16%Invested Capital$100 millionWeighted AverageCost of Capital11%CFAII_SS18:onofcreatescreatesthe(ROICSchool58 .onCapital)? EconomicCashReturnProfit Abnormal return:g167。WeiROIC TreeROICEBIT/InvestedAssets/SalesCOGS/SalesDepreciation/SalesSGABusinessmoreand(mergerTime’smayengineeringittoaandJohnmergerspercent TargetsgetappraisalaofintegrationCFAII_SS18:School66 .(NOPLAT)167。operating Reducenoncashreinvestment:growthROICJohn Brandprotections167。financing ChangeBusiness(g)(valueacquisition167。 ReachriskValue, Value, and ValueCFAII_SS18:operatingoptimalusingriskgrowthonlytotocorporate MergeroperatingtypeCFAII_SS18:operatingcostothergrowthBusinessgood:increase Tradeoffinvestments167。taxliquidate167。existingOptionsHKUSTmitment? Poorgrowth ReboundJohn167。valueaboutengagedBusinessdevelopalreadyandandlack(TheofofoffirmsWeiMergers and AcquisitionsCFAII_SS18:Capital/SalesNetSchool60 .WACC167。InvestedJohnInvestment)? TRSAdded)? DCFonMarginOptionsHKUSTEVA?firmtheAverageSpreadSchool56 .ThatthanreturnfirmSchool54 .workingcost(affectssensitivityshareholdersforafterflows Timing167。ofSchool50 .Capital167。JohnOptionsHKUSTtheyreviewdevelopingvaluereanization)167。onwithinbroadBusinessInvestments? DevelopcapitalthatTargetsandSchool45 .operatingindicatesbreakdownBusiness(BankruptcyprovidelessrepayIPOoff)Initial Public Offerings? Allow(maymanagementOptionsHKUSTshould HighcreationlookBusiness Inventory167。 RawWeiImprove Operations: Internal ImprovementsChallengeunprofitableexpectation$950Valueanalystpricepanyreduction?Capitalimprovements?CorporateexternalimprovementsDCFvalueTotal(VBM implemented)? IncentiveWeiRestructuring Process? Diagnostic(WACC,businessefficiency)167。toworstJohninvaluetheir Layoffs? Developingthatongoingvalue? Finally,business? WillingnesscapitalwhenquartertoquarterSchool34 . weave core values into everythingCFAII_SS18:core,toemployeesforaChaOptionsHKUSTpartLloydsCustomer,employees,internalgoverningexistingofPitman:of2023):OptionsHKUSTjobs167。ablemoreSchool30 .aWeiShareholderOriented Firms Benefit All200., Investedto167。andleadpershareholderBusinessaopportunities=debt? Firmvalueonlytheirgeneratefocusesshareholders ratherisisValueBasedand.OptionsHKUSTJohnOptionsHKUSTJohnBusinessBusinessBusinessnominatingboard216。theindependentownresponsibilityencouragestoisandof2023)167。WeiGood governance practice? What ExpropriationshareholdersmanagersOptionsHKUSTaretheinvestors,toBusinesstheir profitabilityreducepoint167。costpoints167。theCGWeivalue of the firms167。corporate20%byOptionsHKUSTcapabledelegate? PassIntegrity)? Cannotdestroyingbecrossholding)167。John Moreandlossinoptions)? Consequences167。Elan? Motivation:ArthurAdelphiaWeiRecent corporate governance problems in the .? ManipulationsBusiness ReserveUMC)167。andLeverageofrisk:Johnfirm Atabnormal$50,sales,Capitalmargin(patents),cost:Dell,industry)? Low(priceJohnthe(3)(2)industry167。 GrowthwhenJohnthe Prolong167。in IncreasevalueSchool5 .NOPLAT/ICg/ROICROICROICcapitalgaveragetaxesEBITiswhereofpetencevalue?InternalWeiValue creation via financial strategiesDividend policy:ReinvestmentShareholder valueInvestment decision:Growth optionsFinancing decision:WACCCorporate governance:Asymmetric informationApproaches tovaluationMergers AcquisitionsValue creationROIC WACC?DCFBusinessDaimler/Chrysler,provincialHKUST,? Prof.aconsultancycalledanddevelopProf.newspaperregularmarket.stockoftheinofhighmarkets,derivativesresearchcurrentlyAustintheWeiAugustthefullanbeen1992.anmovedas1988.an1984.FinanceWeiProfile of Prof. . John Wei? Prof. Fax: (852)23581749Email: Department of Finance, HKUST and Visiting Department of Finance, Peking UniversityPrepared for CCER, Peking University November 8, 2023CFAII_SS18:WeiUniversitythefromservingProfessorUniversity,from1992,HKUSTandservedFinanceFebruarybeenAsianvisitingtoSchoolempiricalpricinghasonwerehave(inmarketsaddition,forfinancialhelpedfinancialdevelopSolutions.”byforbeenHonggeneralAspire,WeiValue creation and business strategiesValuationCreationQij