贝恩-业绩评估课件

22 七月 2024贝恩业绩评估贝恩业绩评估 Executive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-DiageoAgenda2CorporatePerformanceMeasurement Corporate performance evaluation has evolved from the 1960s focus on ROE to the current variations of economic profit that measure impact on shareholder valuemany firms have devised their own variations of economic profitStern Stewarts Economic Value Added(EVA)TM is best known of these measures Holt/BCGs Cash Flow Return on Investment(CFROI)is a similar concept presented in%return formatBoth ROE and EP are business metrics,tools used to measure the performance of the businessseparate from fundamental business drivers,the actual factors that influence shareholder value,and output measures the backward-looking records of overall company performanceFocusing on EP instead of ROE decreases the likelihood of destructive behavior by managersBy evaluating managers based on EP,manager behavior can be altered such that only projects that add value(with NPV0)are undertaken,which does not always occur with ROE Executive Summary(1 of 2)3CorporatePerformanceMeasurementExecutive Summary(2 of 2)End goal of EP exercises is consistent with traditional Bain focus of maximising shareholder valueBain has measured historical performance with Total Shareholder ReturnStern Stewart devised Market Value Added(MVA)TM as means of measuring market expectations of EP that managers will add in the futuremanagers objective should be to maximise MVAAll economic profit measures deduct charge for use of equity capital from accountings typical net income or profit after tax to reflect the opportunity cost associated with equity investmentsStern Stewart has trademarked EVATM by specifying adjustments to make to EP 4CorporatePerformanceMeasurement AgendaExecutive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-Diageo5CorporatePerformanceMeasurementObjectives There are three objectives of the Corporate Performance Measures Module:To define the most popular measures of corporate performanceTo explain the significance of these measures in the corporate environment and potential applications in Bains strategy workTo outline calculations of each performance measure6CorporatePerformanceMeasurement AgendaExecutive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-Diageo7CorporatePerformanceMeasurement With the rise of conglomerates,most companies focused on Return on Equity,or ROE,as their primary measure of performance led most managers to undertake acquisitions solely to manipulate accounting figures1960s/70s1980s/90sWith the increased focus on delivering shareholder value,managers have accepted systems that measure the change in value managers realised equity is not freeeconomic profit(EP)meets these needs by telling managers where value has been created and where it has been destroyedAs aligning interests between owners and managers has become more important,tying management compensation to EP provided a popular solutionCorporate performance evaluation has evolved from the 1960s focus on ROE to the current variations of economic profit(EP)that measure impact on shareholder valueBackgroundCorporate Performance Evaluation8CorporatePerformanceMeasurement Bain was the first of major consulting firms to focus on creating shareholder valueTo achieve this,Bain has used the output measure of Total Shareholder Return and the accounting measures of ROE and ROIModified accounting measures,such as EP,provide an alternative means of measuring the creation of shareholder valueBackgroundRelevance to Bain9CorporatePerformanceMeasurement To illustrate the role of corporate performance measures and resource allocation to strategy work,an examination of Marakons“program”is usefulMarakon applies the following program,which can take several years to complete,to all of its clients:assess the economic profit of all customer segments and product linescompare company performance to industry performanceinvestigate three or more strategies for each business every planning cycleshift resource allocation from economically unprofitable products/customers to economically profitableleads to yield loss for Marakon and clients since additional scenarios frequently evaluatedMarakon has made economic profit(EP)the central focus of the program they apply to every caseBackgroundLink to Strategy10CorporatePerformanceMeasurement EVA is a registered trademark of Stern StewartA century ago,Alfred Marshall explained that for a company to have genuine profits,the profits must be sufficient to cover the cost of capital as well as the firms operating costsStern Stewart has re-packaged the concept into EVA,which is essentially a more palatable form of the same ideaMcKinsey has been using economic profit for many yearsBCG uses Cash Flow Return on Investment(CFROI)for a similar analysisTo avoid infringing upon Stern Stewarts trademark,many consulting firms have developed their own terms for the same conceptHow new is Economic Value Added (EVA)?EVATM is one variation of EPBackgroundEconomic Value Added11CorporatePerformanceMeasurement AgendaExecutive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-Diageo12CorporatePerformanceMeasurementMeasures*For a discussion of WACC and discount rates,please see the Investment Appraisal Module in the BVUDescription:EVA/MVA,EP,and CFROI are modified accounting measures used to measure the performance of the businessInputs/Measures:Fundamental Business DriversBusiness MetricsOutput MeasuresPrimary business-specific factors influencing shareholder value Tools used to measure performance of business Backward-looking measures of overall company performance as viewed by marketOperating profitsvolumepricecostsFinancial Cost of Capital Employedfixed assetsworking capitalWACC*Accounting ROEROAModified accountingEVA/MVAEPCFROICVATotal Shareholder Return(TSR)Total Business Return(TBR)Framework13CorporatePerformanceMeasurement The fundamental business drivers provide a framework for identifying the sources of shareholder value creation or destructionShareholder Value Creation/DestructionOperating ProfitCost of CapitalVolumePriceCostsWorking CapitalWACCFixed AssetsX+XDirect costsmateriallabourIndirect costsSG&ADepreciationAverage selling price#of units soldWeighted average cost of capital based on market values of debt and equityUse after-tax cost of debtCurrent assets less current liabilitiesProperty,plant&equipmentIntangibles LIFO vs FIFODepreciation estimatesCost of equity for private firmsIntangible measurementComponents:Issues:FrameworkFundamental Business Drivers14CorporatePerformanceMeasurement*Sometimes referred to as Return on Investment(ROI)ROE measures returns to shareholders,while ROA measures returns to investors of all forms of capitalFormula:Measures:ROAProfitability of all capital employed,including debtUses:Return on Assets(ROA)*Return on Equity(ROE)Net IncomeAssets=ROENet IncomeEquity=Profitability of equity invested in business(net equity issued plus retained earnings)Returns of enterprise as a wholeReturns to shareholdersFrameworkAccounting Business Metrics15CorporatePerformanceMeasurement The DuPont formula is used to separate ROE into its components in order to assess the performance of the businessROENet IncomeEquity=Net IncomeSales=SalesAssetsAssetsEquityXXROSAsset TurnoverLeverageROE=ProfitabilityAsset TurnoverLeverageXX=ROAFrameworkAccounting Business Metrics-DuPont Formula16CorporatePerformanceMeasurement*EVA=EVA with depreciation added backMany consulting companies attempt to brand the modified accounting business metrics they useEconomic ProfitMeasureConsulting CompaniesBain McKinseyMarakon(through Value-Based Management)LEKEVA /MVA Stern StewartAT KearneyAccounting firmsBCGHoltBCGCash Value Added*(CVA)Cash Flow Return on Investment(CFROI)FrameworkModified Accounting Business Metrics17CorporatePerformanceMeasurement*only backward-lookingThe modified accounting business metrics,which include EP,enable relatively accurate levels of corporate performance measurement at lower levels of decision making in the organisationAccuracy as Measure of Corporate PerformanceLevel of Decision MakingHighLowLowHighMVAModified Accounting Business MetricsTSR*ROE/ROAFundamental Business DriversEP/EVA/CFROIRole in OrganisationFramework18CorporatePerformanceMeasurement*Adjusted for all stock splits and assuming all dividends reinvested While TSR calculates return to shareholders for publicly-listed companies,BCGs TBR calculation estimates equivalent returns for privately-held firmsTotal Shareholder Return(TSR)in CAGR FormatMarket value of share at end of period*Market value of share at beginning of period=Total Business Return(TBR)=Estimated market value of shares of privately-held company at end of period*number of years1number of years111Estimated market value of shares of privately-held company at beginning of period*FrameworkOutput Measures19CorporatePerformanceMeasurement Bains client stock performance slide is calculated using TSR,which is used to measure the shareholder value createdFrameworkOutput Measures20CorporatePerformanceMeasurement AgendaExecutive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-Diageo21CorporatePerformanceMeasurement Market Value Added(MVA)Invested CapitalGoal of Managers should always be to create more shareholder value,or maximise MVATotal Market Value of Firm(includes all debt and equity)Bains focus has always been to help the management of the firm to maximise shareholder value,which is equivalent to maximising MVAMarket Value AddedDefinition(1 of 2)22CorporatePerformanceMeasurement MVA equals the total market value of the company less invested capital or net assets.Either the Operating or Financing Approach can be used,but Bain typically uses the Operating approachNote:*Short-term non-interest bearing liabilitiesOperating Approach(Typically used by Bain)Financing ApproachMarket Value AddedDefinition(2 of 2)23CorporatePerformanceMeasurement The 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 cycleNote:*Short-term non-interest bearing liabilitiesAmount($)Market Value AddedOperating Approach-Excess Cash24CorporatePerformanceMeasurementNext,The working capital requirements are the firms net investments in the operating cycle,or the net amount of short-term investment required to fund operationsAmount($)WorkingCapitalRequirementsMarket Value AddedOperating Approach-Working Capital Requirements25CorporatePerformanceMeasurementWhen calculating MVA,Net Fixed Assets is defined as Net PP&E plus other Investment(tangible and intangible).The third and final step to calculate Net Assets is Net PP&E,which is the amount of long-term investment required to fund operationsAmount$Net PP&EMarket Value AddedOperating Approach-Net Fixed Assets26CorporatePerformanceMeasurement Market value added(MVA)reflects the markets expectations of the EP managers will add in the futurePercent of TotalMVA is the markets expectation of discounted future EPsMarket Value AddedLink to EP27CorporatePerformanceMeasurement 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 company?Market Value AddedLink to EP-Example28CorporatePerformanceMeasurement 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 company?MVA=PV of EPs=$25 M13%-3%=$250 M=MVA +Invested Capital=$250 M +$100 M=$350MMarket Value of the CompanyMarket Value AddedLink to EP-Solution29CorporatePerformanceMeasurement EP measures managers performance in the past,since it represents the market value added created over one yearNote:*Assumes Invested Capital ConstantMarket Value AddedLink to EP(1 of 2)30CorporatePerformanceMeasurement EP is used to evaluate manager performance because the change in MVA over a period of time is measuredGoal of companys managers should always be to maximise MVAWhen managers make any investment decisions,if the project is:value-creating NPV 0 MVA increasesvalue-destroyingNPV 0MVA decreasesReason that EP is the focus of most attention is because MVA is a stock or wealth measure,so MVA will show how much value has been added at that point in timeEP measures the amount of value added over a period of time,which is far more useful when measuring manager performanceMarket Value AddedLink to EP(2 of 2)31CorporatePerformanceMeasurement Which UK sectors would you expect to have the highest market value added?and the lowest?Which UK companies would you expect to have the highest market value added?and the lowest?Market Value AddedActual Performance32CorporatePerformanceMeasurement Banks,integrated oil and drugs were the UK sectors with the highest market value added Source:Stern Stewart,Sunday TimesSector Market Value Added(Sept 98)Market Value AddedUK Sector Performance-10 Best33CorporatePerformanceMeasurement Distributors,print and packaging and construction had the lowest market value added in the UK Source:Stern Stewart,Sunday Times Sector Market Value Added(Sept 98)Market Value AddedUK Sector Performance-10 Worst34CorporatePerformanceMeasurement Shells 69.5B of market value added is the largest in the UK Source:Stern Stewart,Sunday TimesCompany Market Value Added(Sept 98)1998 EVA (B)(1.506)0.4160.8030.7100.402(0.024)1.4000.231n/a0.098Market Value AddedUK Company Performance-10 Best35CorporatePerformanceMeasurement British Steels 3B of market value destroyed was the worst of Britains 200 largest companies Source:Stern Stewart,Sunday TimesCompany Market Value Added(Sept 98)1998 EVA (B)(0.071)(0.012)(0.054)(0.087)(0.050)(0.108)(0.120)(0.320)(0.284)(0.352)Market Value AddedUK Company Performance-10 Worst36CorporatePerformanceMeasurement AgendaExecutive SummaryObjectivesBackgroundPerformance Measurement FrameworkMarket Value Added(MVA)Economic Profit(EP)Cash Flow Return on Investment(CFROI)Exercises MVAEconomic ProfitCase Study-Diageo37CorporatePerformanceMeasurement DefinitionAdvantages/Disadvantages FrameworkUse in Strategy WorkEconomic ProfitAgenda38CorporatePerformanceMeasurementDefinition(1 of 2)Note:Economic Profit(EP)=Operating Profit-(Cost of Capital*Amount of Equity Capital Invested)Economic Profit(EP)is a residual profit concept accounting for the opportunity cost of holding capitalAmount($)Traditional accounting concept of profitsEconomic Profit39CorporatePerformanceMeasurementDefinition(2 of 2)Note:NOPAT=Net Operating Profit After Tax(See Appendix for details)WACC=Weighted Average Cost of CapitalEconomic Profit determines a companys value creation or destructionEasy to use,based on accounting records(for historical values)Not prisoners of GAAPCan be used to show relative performance of products,segments,regions,etc.in a given yearCan be calculated for future years and discounted to show value creationWhen Economic Profits are positive over timevalue creation is positivemarket price per share is more than book value per sharegrowth creates valueEPNOPAT$Charge forCapitalEmployedOperatingProfitEffectiveTaxationInvestedCapitalWACCGross ProfitA&PNet WorkingCapitalNet FixedAssetsOverheadsEconomic Profit40CorporatePerformanceMeasurement In order to understand EP it is important to go back to the basic income statement What did we earn?(using what we own)Income Statement(%)Who gets access to these earnings?$100$100 EBIT PAT Tax Interest ObservationsDebt providers have first access to the interest payments due on money lentGovernments tax corporate profitsShareholders(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 EarningsEconomic Profit41CorporatePerformanceMeasurement Note:NIBL=Non-interest bearing liabilitiesAssets are a companys economic resources,items which have the potential to provide future benefits to the organisationNIBLs represent a free source of funds to the company.It is money lent to a firm with no charge or expected returnDebt is any interest bearing capital,including preferred stockShareholders Equity is the accountants estimate of the value of the shareholders investment in the companytotal assets less total liabilitiesKey ObservationsBalance Sheet MakeupWhat do we own?AssetsNIBLsDebtShareholders EquityHow did we pay for it?$500$500100%Balance SheetThe balance sheet separates what is owned by the firm from how it was paid forUnderstanding the Balance SheetEconomic Profit42CorporatePerformanceMeasurementEconomic Profit Balance Sheet Note:NIBL=Non-interest bearing liabilitiesIn order to develop the EP balance sheet,short-term non-interest bearing liabilities must be removed and adjustments for accounting distortions must be made Short-term NIBL are removed from the EP balance sheet since capital returns are not expected on the amounts owed(e.g.wages payable)EP Balance Sheet Net Assets amount may be much larger than the traditional accounting value after adjustments for accounting distortions(e.g.,adding internally-generated intangible assets)are madeRegular Balance SheetEP Balance SheetFinancing ApproachOperatingApproachEconomic Profit43CorporatePerformanceMeasurement Dividend PolicyThe traditional linkage of the Income Statement and Balance Sheet is the connection between net income and retained earnings or dividendsIncome attributable to shareholders(EBIT-Interest-Tax)Cash“in”from shareholders perspectiveCash“out”from shareholders perspectiveNet IncomeRetained EarningsDividendsManagement DecisionReinvest it in the CompanyDistribute it to ShareholdersIncome Statement and Balance Sheet Traditional Link(1 of 2)Economic Profit44CorporatePerformanceMeasurement Economic ConsequenceThe traditional linkage of the Income Statement and Balance Sheet is the connection between net income and retained earnings or dividends=Retained Earnings=Net Income-DividendsRevenue-CostsIncome StatementBalance SheetAssetsLiabilitiesCurrentAssetsNet FixedAssetsOtherAssetsNIBLsDebtEquityIncome Statement and Balance Sheet Traditional Link(2 of 2)Economic Profit45CorporatePerformanceMeasurement If you could buy the same factory for 100K,but could only finance 70%with debt and required equity for the remaining 30%,how much after-tax profit would you require to break-even?assume tax rate=40%assume cost of equity=15%Break-Even Example -70%Debt/30%Equity RevisitedEconomic Profit46CorporatePerformanceMeasurement If you could buy the same factory for 100K,but could only finance 70%with debt and required equity for the remaining 30%,how much after-tax profit would you require to break-even?assume tax rate=40%assume cost of equity=15%Debt:Equity:70K 7%(30 15%)(1-40%)4.9K7.5K (cover interest payments)(cover equity charge,which is not tax-deductible)Therefore 12.4K is required to break-even with 30%equity,compared to 7K with 100%debt financingAny after-tax profits beyond 12.4K will be economic profits12.4K Break-Even Example -70%Debt/30%Equity-SolutionEconomic Profit47CorporatePerform