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1、BCGS VALUE MANAGEMENT FRAMEWORKAN OVERVIEW FOR MBA STUDENTS,By Rawley Thomas Director of Research,The Boston Consulting Group 200 South Wacker Drive Chicago, Illinois 60606 312-627-2618 Thomas.RawleyBCG.com,WHAT GETS MEASURED GETS DONE,Traditional Valuation Techniques Versus BCGs Valuation Framework
2、,Traditional Valuation Techniques Forecast nominal cash flows by estimating P subtract debt to determine equity valuation Test model values against actual stock prices for thousands of firms for 10-40 years across many countries; refine, refine, refine,MANY ASSETS FOLLOW THE SAMEUSEFUL OUTPUT PATTER
3、N AS A CAR .,Constant Dollar Level Annuity,Economic Life,Likely Actual Output,Output Decline with Straight Line Depreciation,ISSUES WITH TRADITIONAL RETURN MEASURES,(*) Economic depreciation = amount of annual sinking-fund payment earning COC required to replace assets ($357 = 0.1/1.114 - 1)(12,000
4、- 2,000),Investment pro a new plant,Subsequent annual measurement,Yr 1Yr 6Yr 12 Income843843843 Depreciation714714714 Cash flow1,5571,5571,557 Cash invested12,000 12,00012,000 Book capital11,2867,7163,432 ROCE (%)7.510.924.6 ROGI (%)131313 CFROI (%)101010,ROCE= Income/book capital ROGI= Cash flow/ c
5、ash invested CFROI= (Cash flow - economic depreciation(*)/cash invested,Yr 1Yr 6Yr 12 NOPAT(1)843843843 Book capital(2)11,2867,7163,432 Cost of capital(3)x10%x10%x10% Capital charge(4)1,129772343 EVA(1-4)(286)71500 Cash flow(6)1,5571,5571,557 Cash invested(7)12,00012,00012,000 Cost of capital(8)x10%
6、x10%x10% Capital charge(9)1,2001,2001,200 Economic dep.(*)(10)357357357 CVA(6-9-10)000,VALUE-ADDED MEASURES REFLECT RETURN,COST OF CAPITAL AND SIZEReturn on New PlantMeasured Over Time,(*) Economic depreciation = amount of annual sinking fund payment earning COC required to replace assets ($357 = 0.
7、1/(1.114 - 1)(12,000 - 2,000),Investment pro a new plant,Tracking the Sample of 1970 Companies through time,Tracking the Sample of 1980 Companies through time,Tracking the Sample of 1987 Companies through time,Note the averages -7.00 on Corporate Tax Rate Correlation between Inflation and Tax Rates:
8、 0.00%,CFROI Actual,R2 = 0.76,TO SMOOTH ECONOMIC CYCLES, BUT INCORPORATE STRUCTURAL SHIFTS, BCGS VALUATION MODEL ASSUMES CURRENT CFROI LEVELS FADE TOWARD THE 5-YEAR PAST MEDIAN OF THE DISCOUNT RATE SAMPLE AT A 10% RATE,Annual CFROIs,5-Year Past Median CFROIs,BCGS VALUATION MODEL ANTICIPATES THAT THE
9、 GROSS ASSET GROWTH RATE OF ALL COMPANIES IN THE USA FADE TOWARD THE LONG TERM ECONOMY AVERAGE,Annual GDP Growth Rates,3.2 % Compounded Annual Growth Rate in GDP from 1950-1996,Unlike CFROIs, where clear trends are evident, there does not appear to be a clear trend in growth rates for the economy. C
10、onsequently, a long term average smooths out the annual fluctuations with no loss in investor anticipated trend.,Price = Discounted Present Value of Expected Future Net Cash Flows,THE INVESTORS DISCOUNT RATE IS THAT RATE WHICH EQUATES THE PRESENT VALUE OF CASH FLOWS FROM BCGS VALUATION MODEL TO THE
11、MARKET VALUE OF DEBT AND EQUITY,Market Value of Debt and Equity of S May Represent a Proxy for Other Effects,Discount Rates Based on 1996 Discount Rate Sample of 279 S&P Industrials,R2 = 0.91,CFROI Effects,CFROIS NORMALLY EXCEEDTHE MARKET DERIVED DISCOUNT RATES1996 DISCOUNT RATE SAMPLE,CFROIs,Market
12、 Derived Discount Rates,Differences,Politics/Policies Change,CFROIS NORMALLY EXCEEDTHE MARKET DERIVED DISCOUNT RATES,Even though many economists believe that all returns must converge, in a healthy capitalist economy, CFROIs on hard assets will exceed investor required returns on financial assets mo
13、st of the time, because: Continuous new entrepreneurial innovations prevent CFROIs from converging completely to promised financial returns (imperfect arbitrage) and Entrepreneurs must be rewarded with greater returns to assume the greater dispersion and higher risk of loss associated with CFROIs on
14、 illiquid hard assets compared to financial returns on marketable, liquid financial assets,Producer Price Index % Change,GNP/GDP Deflator % Change,Inflationary Expectations,0.0% Base Rate 1950-1980 2.6% Base Rate 1981-1996,Inflationary Expectations based on 0-2.6 base rates follow actual inflation m
15、ore closely, but avoid the sharp volatility of actual PPI and GNP/GDP annual inflation.,2.48,Note: the base rate is defined as the after-investor tax, after inflation required return on Government long term bonds.,BCG CALCULATES INFLATIONARY EXPECTATIONS BY SUBTRACTING TAX PREMIUMS AND A BASE RATE F
16、ROM LONG TERM GOVERNMENT BOND YIELDSUSA - 1950-1997,MARKET DERIVED NOMINAL EQUITY RATES COME FROM MARKET DERIVED REAL EQUITY RATES PLUS THE COMPOUNDED EFFECT OF INFLATIONARY EXPECTATIONS,Market Derived Nominal Equity Rate,9.17,6.53,2.48,Market Derived Real Equity Rate,Inflationary Expectations,THE EQUITY RISK PREMIUM HAS DECLINED TO THE 2-3% RANGE,Risk Premium Differences,Market Derived Nominal Equity Rate
