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1、BCG SVALUEMANAGEMENTFRAMEWORKANOVERVIEWFORMBASTUDENTS ByRawleyThomasDirectorofResearch TheBostonConsultingGroup200SouthWackerDriveChicago Illinois60606312 627 2618Thomas Rawley BCG com WHATGETSMEASUREDGETSDONE TraditionalValuationTechniquesVersusBCG sValuationFramework TraditionalValuationTechniques
2、ForecastnominalcashflowsbyestimatingP LlineitemsandchangestothebalancesheetEstimateterminalvaluewithaperpetuityoftheforecastedlastyear snetcashflowDeterminecostofcapitalbyweightingequityCAPMcostwithdebtcostDiscountthecashflowsandterminalvaluetopresentvaluewiththeweightedaveragecostofcapitalObservati
3、onsonMissingElementsNoperformancemeasuretodetermineifthebusinessisachievingreturnsaboveorbelowthecostofcapitalorifthetrendinthosereturnsisupordownNofadeinperformancetodeterminelikelycashflowsinacompetitiveenvironmentDiscountratesdeterminedbypastpricechanges notfuturelikelycashflowsNoextensiveempiric
4、altesting BCG sValuationFrameworkTranslateaccountingstatementstogrosscashflowsandgrosscashinvestmentsinconstantdollarstoproducecashoncashreturnsTranslatecashoncashreturnstoeconomicperformancemeasures CFROIs byadjustingforassetlifeandmixofdepreciatingversusnon depreciatingassetsDeterminesustainableas
5、setgrowthratesFadeCFROIsandassetgrowthratestowardcorporateaveragesconsistentwithlifecycletheoryandempiricalevidencetoestimatefuturecashflows replacesterminalvaluation EstimatemarketderivedrealdiscountratebyequatingthepresentvalueofthecashflowsforalargeaggregatetothesumofthepricesofdebtandequityApply
6、themarketderiveddiscountratetothecashflowsderivedfromfadingeconomicperformancetodeterminemarketvaluation subtractdebttodetermineequityvaluationTestmodelvaluesagainstactualstockpricesforthousandsoffirmsfor10 40yearsacrossmanycountries refine refine refine MANYASSETSFOLLOWTHESAMEUSEFULOUTPUTPATTERNASA
7、CAR ConstantDollarLevelAnnuity EconomicLife LikelyActualOutput OutputDeclinewithStraightLineDepreciation ISSUESWITHTRADITIONALRETURNMEASURES Economicdepreciation amountofannualsinking fundpaymentearningCOCrequiredtoreplaceassets 357 0 1 1 114 1 12 000 2 000 Investmentprofileofanewplant Subsequentann
8、ualmeasurement Yr1Yr6Yr12Income843843843Depreciation714714714Cashflow1 5571 5571 557Cashinvested12 00012 00012 000Bookcapital11 2867 7163 432ROCE 7 510 924 6ROGI 131313CFROI 101010 ROCE Income bookcapitalROGI Cashflow cashinvestedCFROI Cashflow economicdepreciation cashinvested Yr1Yr6Yr12NOPAT 1 843
9、843843Bookcapital 2 11 2867 7163 432Costofcapital 3 x10 x10 x10 Capitalcharge 4 1 129772343EVA 1 4 286 71500Cashflow 6 1 5571 5571 557Cashinvested 7 12 00012 00012 000Costofcapital 8 x10 x10 x10 Capitalcharge 9 1 2001 2001 200Economicdep 10 357357357CVA 6 9 10 000 VALUE ADDEDMEASURESREFLECTRETURN CO
10、STOFCAPITALANDSIZEReturnonNewPlant MeasuredOverTime Economicdepreciation amountofannualsinkingfundpaymentearningCOCrequiredtoreplaceassets 357 0 1 1 114 1 12 000 2 000 Investmentprofileofanewplant TrackingtheSampleof1970Companiesthroughtime TrackingtheSampleof1980Companiesthroughtime TrackingtheSamp
11、leof1987Companiesthroughtime Notetheaverages dispersionshaverisenbetween1970 1987 hypothesizedtoberelatedtosupply sidepolicychanges THEMARKETEXPECTSTHEPERFORMANCEOFMERCKTOFADE REGRESSTOWARDMEANPERFORMANCE Fade 0 Fade 10 IllustratesPerpetuityTrap OvervaluesHighReturnFirmsDramatically R2 0 13N 750 R2
12、0 40N 750 R2 0 25N 750 R2 0 25N 750 Onthe24groupsof25firms Stewartclaimsa44 R2 Thishighercorrelationrelatestotheeliminationof300companiesinsteadof31extremeoutliersandthegroupingofcompaniesthatservestoeliminatetheintra groupvariance N 861R2 0 27 R2 0 21 R2 0 67 R2 0 10 APPROACHTOIMPLEMENTATIONWhatFul
13、lEffortMightLookLike Module1 Analyticaldiagnostic valueaudit Module2 Measureselectionandtailoring Module3 ValueDriveranalysisofBU s Module4 Installinplanning budgeting reporting Module5 Installincompensation Module6 Applytoportfoliomanagement ValueanalysisofcompanyandbusinessunitsIdentifyprioritiesa
14、ndissues Reviewoptionsagainstapplica tionsTailorasrequired TransferapproachtoBUsLinktooperatingdecisions Re examineprocessesandlinkagesProvidetraininganddocument ation StructureMeasuresTargeting ResourceallocationPortfoliobalancingExternalreporting COMPARISONOFCOSTOFCAPITALMEASUREMENTMETHODS CAPM Ma
15、rketDerived Assumesinvestordiscountrateriskpremiumsdidnotchangeduringthepastmeasurementperiod Therefore futureriskpremiumsequalpastriskpremiums Assumesfuturecashflowscanbeestimatedsothatthediscountrateequatesthepresentvalueofthosecashflowstotheprice BondInterestRates DividendDiscountModels BCGMarket
16、DerivedCostofCapital STUDIESUSINGMARKETDERIVEDMETHODS Blanchard OliverJ MovementsintheEquityPremium BrookingsPaperonEconomicActivity 2 1993 pp 75 138 Corcoran PatrickJ andLeonardG Sahling TheCostofCapital HowHighisIt TheFederalReserveBankofNewYork QuarterlyReview Summer1982 p 23 31 Farrell JamesL TheDividendDiscountModel APrimer FinancialAnalystsJournal 1985 v41 6 pp 16 19 22 25 Fuller RussellJ ProgrammingtheThree PhaseDividendDiscountModel JournalofPortfolioManagement 1979 v5 4 28 32 Gordon Myr
