【正文】 will be economic profits 163。 is required to breakeven with 30% equity, pared to 163。 163。70K 7% (163。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% BreakEven Example 70% Debt / 30% Equity Revisited Economic Profit 46 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON ?If you could buy the same factory for 163。Equ ityA s s e t s L i a b i l i t i t e s S h a r e h o l d e r s 39。s investment in the pany –total assets less total liabilities Key Observations Balance Sheet Makeup What do we own? Assets NIBLs Debt Shareholder39。s Equity is the accountant39。3B of market value destroyed was the worst of Britain?s 200 largest panies Source: Stern Stewart, Sunday Times Company Market Value Added (Sept 98) 1998 EVA? (163。B) () () n/a Market Value Added UK Company Performance 10 Best 35 CorporatePerformanceMeasurement bc Corporate Performance Measurement LON W a s t eM a n a g e m e n tM e d e v aB C CC a r a d o nA r j oW i l l i a m sI n c h c a p eC o a t s V i y e l l a B r i t i s hE n e r g yP i l k i n g t o nB r i t i s h S t e e l( 0 . 1 ) ( 0 . 1 ) ( 0 . 1 )( 0 . 3 ) ( 0 . 3 ) ( 0 . 3 )( 0 . 4 )( 0 . 5 )( 0 . 6 )( 3 . 0 )( 4 .0 )( 3 .5 )( 3 .0 )( 2 .5 )( 2 .0 )( 1 .5 )( 1 .0 )( 0 .5 )0 . 0163。 8 0 B Shell?s 163。Equi tyM a r k e t V a l u eo f C o m p a n y( D e b t E q u i t y )T o t a l A s s e t s N e t A s s e t s I n v e s t e d C a p i t a lo r C a p i t a l E m p l o y e d020406080100%MVA equals the total market value of the pany less invested capital or assets. Either the Operating or Financing Approach can be used, but Bain typically uses the Operating approach Note: *Shortterm noninterest bearing liabilities Operating Approach (Typically used by Bain) Financing Approach Market Value Added Definition (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: *A