【正文】 eationAssetsInvested 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:Options 57 byJohnWei,2023The Return Spread? ReturnSpread=ReturnonInvestedCapital(ROIC)–WeightedAverageCostofCapital(WACC)? WhenROICWACC,thefirmcreatesvalue.? WhenROIC=WACC,thefirmneithercreatesvalue,nordestroysvalue.? WhenROICWACC,thefirmdestroysvalue.? EconomicProfitorEVA?=(ROIC–WACC)?InvestedCapitalCFAII_SS18:Options 58 byJohnWei,2023Value Metrics? EPS(Earningspershare)? ProfitMargin(ReturnonSales)? BooktoMarket(B/M)? PriceEarningsratio(P/E)? ROIC(ReturnonInvestedCapital)? EconomicProfitorEVA(EconomicValueAdded)? DCF(DiscountedCashFlow)? CFROI(CashFlowReturnonInvestment)? TRS(TotalReturntoShareholders)? …CFAII_SS18:Options 59 byJohnWei,2023Value Driver Analysis? EconomicProfit=(ROICWACC)?InvestedCapital? Value drivers:167。 Abnormal return:InvestonlywhenROICWACC167。 Growth:g167。 Risk:WACCCFAII_SS18:Options 60 byJohnWei,2023ROIC TreeROICEBIT/InvestedCapitalCashTaxRateEBIT/SalesSales/InvestedCapital OperatingWorkingCapital/SalesNetPPE/SalesOtherAssets/SalesCOGS/SalesDepreciation/SalesSGAExpenses/SalesROIC = Profit margin x Asset TurnoverValue GrowthROICWACCCFAII_SS18:Options 61 byJohnWei,2023Mergers and AcquisitionsCFAII_SS18:Options 62 byJohnWei,2023Identifying Value Creation PossibilitiesWhatmakestwofirmsworthmoretogetherthanapart?? Synergy(relatedness,economiesofscaleandscope):Gillette’sacquisitionofDuracell? Economiesofvertical integration(mergerofpaniesatdifferentstagesofproduction):Time’sacquisitionofWarnerBrothers? Complementaryresources(Thetargetmayhaveauniqueproductbutlacktheengineeringandsalesanizationtoproduceandmarketitonalargescale.)167。 Quickerandcheapertomergewithafirmthatalreadyhasalotoftalentthantodevelopengineeringandsalestalentfromscratch.CFAII_SS18:Options 63 byJohnWei,2023Evidence on Value Creation in MA Transactions? Thebinedvalueofpaniesengagedinmergersandtenderoffersincreasesbyabout7percentaroundtakeoverannouncements.? Howisthevalueshared?167。 Targetsgetthebulkofit.167。 Acquirersgetroughlyzero.CFAII_SS18:Options 64 byJohnWei,2023Reasons For Failures? Overoptimisticappraisalofmarketpotential:skepticalabout167。 Reboundfromacyclicalslump167。 Turnaround167。 Rapidgrowthcontinues? Overestimationofsynergies? Overlookingproblems:duediligence? Overbidding:escalationmitment? PoorpostacquisitionintegrationCFAII_SS18:Options 65 byJohnWei,2023Value Creation or EnhancementSummaryCFAII_SS18:Options 66 byJohnWei,2023Value Enhancement: Summary? Increasecashflowsfromexistinginvestments(NOPLAT)167。 Poorinvests:keep,divest,orliquidate167。 Improveoperatingefficiency:operatingmargin167。 Reducethetaxburden167。 Reducecapitalexpendituresonexistinginvestments167。 Reducenoncashworkingcapital? Increaseexpectedgrowth(g and ROIC)167。 Tradeoffonreinvestment:reducefreecashflowbutincreaseexpectedgrowth167。 Notallgrowthsaregood:onlyROICWACCisgoodCFAII_SS18:Options 67 byJohnWei,2023Value Enhancement: Summary? Prolongtheperiodofhighgrowth(N)167。 Brandnameadvantage167。 Patents,licenses,andotherlegalprotections167。 Switchingcost167。 Costadvantage? Reducethecostoffinancing(WACC )167。 Changeoperatingrisk167。 Reduceoperatingleverage167。 Changethefinancialmix167。 ChangefinancingtypeCFAII_SS18:Options 68 byJohnWei,2023Value Creation: Conclusion? Assets in place167。 Restructuring(increaseoperatingefficiency)? Growth opportunity(g)167。 NewinvestmentswithROICWACC(valuecreation)167。 RDandnewopportunity167。 Mergerandacquisition167。 Prolongpetitiveadvantage? ReducingWACC167。 Improvecorporategovernance167。 Reachoptimalcapitalstructure167。 RiskmanagementtoreduceriskValue, Value, and ValueCFAII_SS18:Options 69 byJohnWei,2023Value Creation ChartAssets in placeValue CreationGrowth options Cost of capital?Restructuringtoimproveoperatingefficiency?SixsigmatoimprovequalityROIC Growth WACC?InvestmentonlyifROICWACC?MA?Prolongpetitiveadvantage?Othergrowthopportunity?Reachoptimalcapitalstructure?Improvecorporategovernance?ReduceriskbyusingriskmanagementMission: Value, Value, and ValueCFAII_SS18:Options 70 byJohnWei,2023Strategic Management via ValuationCFAII_SS18:Options 71 byJohnWei,2023Possible LinksValuation?Economicdevelopment?Capitalmarketdevelopment?Lawandenforcement?Culture?Corporategovernance?DisclosureFocus vs.DiversificationInternal vs.External growthCompetitiveadvantages?Growthstrategy ?Financing?Innovation(RD)?Production?Marketing?Distributionchannel?Management(vision)Strategic management?Markettobook(M/B)?Markettosales(M/S)?ROE,CFOA,ROAInstitutionsSetup (agency)CFAII_SS18:Options 72 byJohnWei,2023Diversification discount or premium? Inthe.,focusedfirmshavehighervaluation? Spinoff:positiveannouncementeffect? Mergingfirms:zeroornegativeannouncementeffect? Mergedfirms:positiveannouncementeffectCFAII_SS18:Options 73 byJohnWei,2023Investment vs. Disinvestment? Repurchase:Positiveannouncements? SEOs:negativeannouncements? Dividendincreaseorinitiation:positiveannouncements? Dividenddecreaseoromission:negativeannouncementCFAII_SS18:Options 74 byJohnWei,2023RD and Advertisements? RDintensityfirms:highervaluation? Marketingintensityfirms:highervaluationCFAII_SS18:Options 75 byJohnWei,2023Corpo