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W2. IB and Value Creation - Coggle Diagram
W2. IB and Value Creation
Value Creation
ROIC > WACC
g has no impact on value if ROIC=WACC
g adds value if ROIC>WACC
g destroys value if ROIC<WACC
Focus on revenue growth
CF = Earnings x (1-IR)
CF = (1-g/ROIC)
g = ROIC x Investment Rate (IR)
PV of cash inflows > Cost
ROIC Drivers
Competitors
ROIC variation
Competitive Advantage
Premium Pricing
Brand
Customer Lock-in
Quality
Rational price discipline
Innovative Products
Cost/Capital Efficiency
Innovative Business Method
Unique Resources
Economies of Scale
Scalable Product/Business
Firm Performance
Industry
Sustainable ROIC
Persistence of Competitive Advantage
Potential for Product Renewal
Long Product Life Cycle
Growth Drivers
Adds value only if incremental ROIC > incremental WACC
Harder for larger/mature companies
If ROIC>WACC, focus on g to add value even if ROIC falls
If ROIC<WACC, focus on improving ROIC than g
Revenue Growth
Market share performance - market share gains
M&A - added revenue from acquired company
Portfolio momentum (most value adding) - market expansion
Attract new customers
More/repeat purchases by existing customers
Create new products/services
Product price increase - growth at the expense of customers
Revenue Growth Variations
Different product segments
Different geographic segments