introduction prof. luc keuleneer. 2 value creation i.introduction i.a. ultimate objective of a...
TRANSCRIPT
INTRODUCTION
Prof. Luc Keuleneer
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Value Creation
I. Introduction
I.A. Ultimate objective of a company
What about shareholder value?
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Key value drivers
Cash flows: operational cash flow free cash flow to the firm
WACC: ‘weighted average cost of capital’
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I.B. Definition Value Based Management
Implement concept of value creation at all levels in the company
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Key factors in VBM
Value based Management
Increase cashflows / decrease WACC
Balanced Scorecard
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Balanced Scorecard
FinancialKSF
Performance indicator
ClientDoelstellingPerformance
indicator
Organizational
KSFPerformance
indicator
R & DKSF
Performance indicator
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II. Value creation on company level
Yes ! IF
ROIC > WACC
ROIC = return on invested capitalWACC = weighted average cost of capital
EVA = Economic Value Added
= (ROIC – WACC) * Average invested capital
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III. Does a project create value?
Methods Average accounting rate of return Pay back method Internal rate of return Net present value method
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IV. Example
Initial investment 18.000
EBITDA 7.600
Lifetime 5 years
Tax rate 50%
Accounting O.C.F.approach
EBITDA 7.600 +7.600
Dep. 3.600 -
EBT 4.000 -
Tax 2.000 -2.000
Net profit 2.000O.C.F. +5.600
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A. Accounting rate of return – ARR
Definition
ARR = average net profit = 2000 = 22,2% average investment 9000
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B. Pay Back method
Definition
Pay back = how long does it take to earn back the investment
18.000 = 3,2 years 5.600
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C. Internal rate of return
Definition
18.000 =
IRR : 16,8%
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1 )1(
600.5
t tIRR
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D. Net present value
Definition
Dus NCW = 000.18)1(
600.55
1
t tr
If r = 10%
NPV = 5. 600 x 3.7908 – 18.000 = 3.228
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V. Conclusion