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Enterprise Value Management

Shareholder value is driven by four basic “Value Drivers”:  Revenue Growth, Operating Margin, Asset Efficiency, and Expectations.  This essentially means that, if three Value Drivers are held constant, improvement in the fourth value driver will typically increase value for shareholders.  For example, if operating margins, assets and expectations don’t change, growth in revenue will increase shareholder value.  In reality, these drivers typically have substantial influence on one another.

The brief working definitions of the key drivers are as follows:

1.  Revenue Growth:  Growth in the company’s “top line,” or payments received from customers in exchange for the company’s products and services.  The key measure of operational effectiveness.

2.  Operating Margin (after tax):  The portion of revenues that remains after taxes and the costs of providing goods and services are subtracted.  The key measure of operational and tax efficiency.

3.  Asset Efficiency:  The value of assets used in running the business relative to its current level of revenues.  The key measure of investment efficiency.

4.  Expectations:  The confidence shareholders and analysts have in the company’s ability to perform well in the future.

Focusing on the areas that matter most and finding practical, value-creating solutions are concepts that are much simpler in theory than in practice.  The ability to do these things consistently well is one of the defining characteristics of strong leaders, and it is seldom accomplished without the coordinated insight and effort of people with varied perspectives and skills.

Our role as business advisors is not simply to add our insight and expertise in helping companies get their initiatives done.  We add the most value when we help leaders focus on the right things, find the most practical ways to get the right things done, and get the intended business value out of their initiatives, leveraging on both local and international Best Practices Databases of our global firm.

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