Английский язык. Практический курс для решения бизнес-задач Пусенкова Нина

Measuring Value Creation

The metrics that measure «value» or «value creation» were originally based on DCF techniques and these are most commonly applied to individual project evaluations. The first step in measuring the value created from any investment project is to calculate the net present value (NPV). The NPV represents:

– The sum of the «present values» of future cash flows resulting from an investment that is discounted at a given rate of interest, the «cost of capital». This gives a sum for the future receipts from the investment expressed in today’s monetary values.

– Less the cost of the investment. This determines whether, again in today’s money, there is a surplus or deficit from the investment.

The NPV that results simply represents the «present value» of the future cash flows less the original cost of the investment. If the NPV is positive then the return from the investment has exceeded the cost of capital and the value of the company should increase by the amount of value created. If, however, the NPV is negative the company’s value should theoretically decrease.

In reality there are many complications to this simple scenario. Companies represent a composite portfolio of numerous investment projects that have been made at different points of time and they do not convey all the information investors need to adjust values accordingly. Complex investment project scenarios can be extremely difficult to analyze and there are many arguments about the correct discount rates to use.

In spite of the difficulties, and although investors cannot always delve into the results of individual projects, it is possible for them to study the accounts of companies and to infer from them whether value has been added or destroyed. Investors can also extend this approach further by analyzing the forecast for companies to determine whether they are likely to add value in the future. This can help with their investment decisions and will, in turn, affect share prices.

Strictly speaking, companies wishing to deliver and maximize shareholder value creation need to focus on two things:

– Maximizing the stream of future cash flows;

– Minimizing the interest charged against that stream by reducing the «cost of capital».

Some would argue that influencing the cost of capital charge significantly is almost impossible and that the sole focus therefore should be on cash flow maximization. At its most basic level, then, a successful VBM approach means achieving a positive stream of future cash flows to give shareholders a return on capital in excess of its cost.

There are many ways of measuring this value but two are the most well known. The first is total shareholder returnand the second is economic profit.

From an investor’s perspective, when measuring the value that has been created the most important measure to use is total shareholder return. It is the sum of two components, which represent the benefits to the shareholder from owning the share:

– The percentage share price appreciation over the period being measured;

– The dividend yield during the period, expressed as a percentage of the share price.

Internally, companies that adopted VBM often use the second most popular measure of value. This is known as «economic profit». It measures the return earned by the company in a period after deducting a charge for the cost of capital employed within the business. Economic profit is often considered as the internal VBM measure that acts as a proxy for the shareholder value measured externally by the total shareholder return.

A Case Study in Delivering Shareholder Value – BP

BP is one of the few companies that regularly receives awards for its delivery of shareholder value. Peter Hall, the Director of Investor Relations at BP, highlights a number of key factors that keep BP near the top of the shareholder value league tables:

– The concept of shareholder value is very important within the business culture. The group actively attempts to manage and integrate the shareholder value perceived externally within the stock markets with the value created internally by the managers of the business. There is a very close link between the investor relations team and the Group CEO and CFO, who continually take a strong interest in the company’s share price. The group’s investor relations department is eight strong and has dedicated experts both in London and New York.

– The company has adopted total shareholder return as its main way of measuring shareholder value. Absolute growth in TSR is not sufficient. BP must also improve relatively against its peer group. BP has also used TSR in a sophisticated way by:

Calculating total shareholder return over a three-year period to smooth out short-term fluctuations in the stock markets;

Using a comparative peer group of companies (against whom they measure their relative TSR performance). This group includes the major six key players within the oil industry – ExxonMobil, Shell, ChevronTexaco, TOTAL, ENI and Repsol YPF.

– TSR has been adopted internally as a way of driving business performance. This has been achieved through the use of two additional performance measures, earnings growth coupled with return on capital employed. By setting business unit targets based on both of these measures, managers need to deliver growth in earnings and an increasingly effective utilization of the assets within their business. Success with these parameters should translate into improved TSR.

– The organizational structure is deliberately flat and is geared towards effective management and delivery against these key targets. There are approximately 150 business units in BP, each on average with around $0.5 billion in capital employed. This is small enough to enable the CEO, if he wants to communicate an important message, to bring together all the managers of the business units into one room if necessary.

– The business units within BP also compete against each other for capital allocation. Peer group results are regularly reported through BP’s financial systems. This internal competition also drives selective investment into business projects that generate the best shareholder value in the medium to long term.

– The remuneration of the management team is heavily dependent on their relative performance against demanding three-year TSR, earnings growth and return on capital employed targets. It is not enough for managers to deliver TSR, earnings growth or ROCE in isolation. To earn the maximum award they have to deliver all three and they have to outperform their peer group. Performance below the peer group median results in no award. The remuneration contract of BP’s executive directors ties as much as 70% of their earnings to these factors so they really do bear similar risks to the shareholders for whom they act. The contracts of all other senior managers are similarly structured to reflect both their own targets and the company’s results relative to its peers.

BP also recognizes the need to manage effectively its communications with journalists and the investment community. Peter’s team actively monitors the information that is currently available about BP within the investment community. Often analysts send drafts of their reports and models to the company for comment. The team reviews these to correct any factual errors but they do not comment on the broker’s recommendations. BP is also in regular contact with large institutional investors, such as Fidelity and Merrill Lynch Asset Management, who by virtue of the amount of their funds under management can make a significant difference to BP’s share price performance relative to its competitors within the industry.

This BP case study highlights an important truth about managing for shareholder value. It is not sufficient for companies merely to convey to investors messages about shareholder value. They must also back up those messages with a real implementation of practical measures and actions designed to create and deliver that value consistently.

Source: G. Ashworth, P. James, Delivering Superior Shareholders Value, 2001

Essential Vocabulary

1. rationale n – логическое обоснование, основная причина, подоплека

2. cost of capital – стоимость капитала

3. debt capital – заемный капитал

4. value-based management – менеджмент, основанный на ценности

5. peer n – ровня, равный, сопоставимый; пэр

6. underperformance n – результаты деятельности ниже возможных или ниже рынка

underperformer n – юридическое или физическое лицо, показывающее результаты деятельности ниже возможных или ниже рынка

underperform v – показывать результаты деятельности ниже возможных или ниже рынка

7. tier n – эшелон, ряд, слой, уровень, ярус

8. net present value (NPV) – чистая приведенная ценность

9. receipt(s) n – расписка, денежные поступления, платежи

10. surplus n – избыток, излишек, активное сальдо, профицит

11. discount rate – ставка дисконтирования

12. total shareholder return (TSR) – суммарная доходность акционеров

13. economic profit – экономическая прибыль

14. appreciation n – высокая оценка, признательность, оценка по достоинству; повышение цены, удорожание, повышение курса (валюты или акций)

appreciate v – ценить, оценивать по достоинству, хорошо разбираться; повышаться (о курсе валют или акций)

15. dividend yield – дивидендная доходность

16. deduction n – вычет, вычитание

deduct v – вычитать

deductible a – подлежащий вычету (напр. для целей налогообложения)

17. investor relations – отношения с инвесторами, работа с инвесторами

18. fluctuation n – колебание

fluctuate v – колебаться

19. peer group of companies – группа равных (сопоставимых) компаний

20. flat a – плоский (напр. налог, структура компании); стандартный; разовый

21. outperformance n – результаты деятельности выше ожидаемых или выше рынка

outperformer n – юридическое или физическое лицо, показывающее результаты деятельности выше ожидаемых или выше рынка

outperform v – показывать результаты деятельности выше ожидаемых или выше рынка

22. investment community – инвестиционное сообщество

23. draft n – проект, план, набросок, эскиз; чек, тратта, получение денег по чеку; отбор, призыв, вербовка

draft v – делать эскиз, составлять план, законопроект; выделять, отбирать

24. institutional investors – институциональные инвесторы

Exercise 1. Answer the following questions.

1. Why should today’s business leaders be able to understand how to create, measure, manage and deliver shareholder value? 2. What does the term «cost of capital» mean? 3. What forms do returns to shareholders usually take? 4. Why is it undesirable for managers to irritate shareholders? 5. What is the essence of value-based management? 6. Why is shareholder value becoming increasingly popular? 7. What does NPV mean? 7. What should companies wishing to deliver and maximize shareholder value focus on? 8. What are the best-known metrics of created shareholder value? 9. What is BP famous for and how does it consistently manage to be near the top of the shareholder value league tables?

Exercise 2*. Which of the following statements are not correct and why?

1. Most organizations successfully translate the aim of delivering shareholder value into reality. 2. Today’s business leaders must be able to understand how to create, measure, manage and deliver shareholder value. 3. The returns to shareholders can take the form of dividends and growth in the value of their shares. 4. Lloyds Bank adopted a value-based management approach in the mid-1980s and, as a result, its shares showed significant underperformance in relation to its peers. 5. Shareholder value became a business mantra in the 1990s, but its popularity is likely to fade in the new millennium. 6. What gets measured gets done. 7. NPV represents the «present value» of the future cash flows. 8. It is possible for investors to study the accounts of companies and to infer from them whether value has been added or destroyed. 9. BP is rarely able to deliver high shareholder value. 10. Absolute growth in TSR is deemed by BP to be sufficient. 11. The organizational structure of BP is deliberately flat. 12. The business units within BP compete against each other for capital allocation. 13. The system of remuneration in BP is such that it is enough for managers to deliver TSR, earnings growth or ROCE in isolation.

Exercise 3*. Find terms in the text that match definitions given below and make sentences of your own with each term.

1. an oral, written, or signaled communication sent from a person to another; an inspired communication to be delivered to the world

2. minimum level of return required by the providers of capital

3. the proportion of profit or gain made by a corporation, which is divided among the stockholders

4. the act or manner of exhibiting an art, skill or capacity; the degree to which anything functions as intended

5. one of the same rank or qualities; an equal

6. the «present value» of the future cash flows less the original cost of the investment

7. an increase in value or worth

8. a measure of return (or profit) earned by the company in a period after deducting a charge for the cost of capital employed within the business

9. a market where securities are traded

Exercise 4*. Fill in the blanks using terms given below.

Value-based Management inThyssenKrupp Group

The ThyssenKrupp Group is managed and controlled on the basis of an Economic Value Added («EVA») management system. The key goal of this system is to maintain continuous increases in……… by focusing on business……… which – with respect to their performance – are among the best………. To achieve this objective, an integrated controlling concept is………. It allows for……… controlling and coordination of activities of all segments, supports………. responsibility and promotes overall transparency.

By taking timely appropriate actions, the integrated controlling concept realizes the increase of corporate value by bridging operating and strategic……….. between the actual and……… situation. The prerequisite for this concept is the existence of high quality operational and strategic reporting systems for the accounting of actual and………. results as well as internal and external…………

In the ThyssenKrupp controlling concept, strategic and operational elements are………. to timely reporting which is accompanied by regular………. communication. The concrete elements of this strategy are: economic value added performance measures and active portfolio management.

The central performance measures are return on capital employed (ROCE) and Economic Value Added (EVA). These two ratios reflect the……… of capital employed in the form of a relative quantity (ROCE) and an absolute value (EVA).

ROCE is calculated as follows:

ROCE = incomebeforeincometaxes, minority interest and interest/ capital employed

EVA is computed as the difference between ROCE and the…………., multiplied by the capital employed. Additional value is created only if the ROCE exceeds the weighted cost of capital. Accordingly, cost of capital reflects the minimum acceptable……….. In addition, individual target……….. is agreed for individual activities, which are based either on the best competitor or on an inter-industry………. This management and controlling system is linked to the………. system in such a way that the amount of the performance-related………. is determined by the achieved EVA.

ThyssenKrupp’s active portfolio management directly follows the result of the analysis of the……….. measures. It involves structural measures which are principally of a strategic nature, including the selection and………. of………… with which the targeted increases in EVA or value are to be realized, as well as the timely and profitable………… from activities which do not achieve adequate increases in EVA. These measures further aim at creating new operating activities through a favorable………. in evolving markets. For the Group as a whole these measures are of particular importance when it comes to establishing a balance between………. and…….. This is a basic prerequisite for……… continuity and sustained growth in………. activities.

Source: ThyssenKrupp Group Annual Report 2004/2005, p. 91—93, www.thyssenkrupp.com

Terms:

dividend, bonus, budgeted, entry, corporate value, cash providers, linked, profitability, business units, rate of return, segments, performance, expansion, withdrawal, core, worldwide, applied, goal-driven, decentralized, gaps, earning power, target, reporting, proactive, cost of capital, benchmark, remuneration, value generators

Exercise 5. Translate into English.

Value-Based Management и показатели стоимости

Value-Based Management – концепция управления, направленная на качественное улучшение стратегических и оперативных решений на всех уровнях организации за счет концентрации усилий всех лиц, принимающих решения, на ключевых факторах стоимости. Из всего множества альтернативных целевых функций в рамках концепции VBM выбирается максимизация стоимости компании. Стоимость же компании определяется ее дисконтированными будущими денежными потоками, и новая стоимость создается лишь тогда, когда компании получают такую отдачу от инвестированного капитала, которая превышает затраты на привлечение капитала.

Но, как известно, для того чтобы управлять чем-либо, необходимо уметь это измерять. В приложении к VBM это означает, что необходим инструмент, позволяющий оценить отдачу от инвестированного в компанию капитала. Таким образом, мы можем выделить основные факторы, влияющие на стоимость компании, которые обязательно должны учитываться в показателе, отражающем создание стоимости – затраты на собственный и заемный капитал и доходы, генерируемые существующими активами (при этом доход может выражаться в различных формах: прибыль, денежный поток и т. д.). В 80—90-х годах появился целый ряд показателей (на основе некоторых из них в дальнейшем возникли даже системы управления: например, EVA и EVA-based management), отражающие процесс создания стоимости. Наиболее известные из них – EVA, MVA, SVA, CVA и CFROI.

Market Value Added (MVA)

По-видимому, MVA – самый очевидный критерий создания стоимости, рассматривающий в качестве последней рыночную капитализацию и рыночную стоимость долгов компании.

MVA рассчитывается как разница между рыночной ценой капитала и инвестированным в компанию капиталом:

MVA = рыночная стоимость долга + рыночная капитализация – совокупный капитал

С точки зрения теории корпоративных финансов MVA отражает дисконтированную стоимость всех настоящих и будущих инвестиций.

Показатель, лежащий в основе системы VBM, должен не только отражать стоимость компании, но и показывать эффективность принятия решений на всех уровнях иерархии, а также служить инструментом мотивации. Рассматриваемый показатель (MVA) не отвечает данным требованиям, т. к. на рыночную капитализацию оказывают влияние многие факторы, часть из которых неподконтрольна менеджменту компании.

Более того, если результаты работы компании будут оцениваться по данному показателю и мотивационные схемы будут также привязаны к нему, то это может привести к тому, что руководство будет принимать решения, оказывающие краткосрочное влияние на курсовую стоимость акций, но разрушающие стоимость в долгосрочной перспективе (например, программы сокращения затрат за счет масштабного сокращения бюджета научно-исследовательских разработок). Но, как известно, одной из основных целей системы VBM является координация и мотивация принятия решений, ведущих к созданию долгосрочных конкурентных преимуществ, так как стоимость компании определяется суммой будущих денежных потоков. В ответ на данные недостатки возник целый ряд альтернативных показателей стоимости.

Economic Value Added (EVA)

Наверно, из всех существующих показателей, предназначенных для оценки процесса создания стоимости компании, EVA является самым известным и распространенным. Причина этого в том, что данный показатель сочетает простоту расчета и возможность определения стоимости компании, а также позволяет оценивать эффективность как предприятия в целом, так и отдельных подразделений. EVA является индикатором качества управленческих решений: постоянная положительная величина этого показателя свидетельствует об увеличении стоимости компании, тогда как отрицательная – о ее снижении.

Источник: В.Д. Степанов (отрывок из статьи), www.man.con.ua