Value Creation and Enhancement Back to the Future

1 Value Creation and Enhancement: Back to the Future Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 adamodar@stern.nyu.edu 1 2 Abstract In recent years, firms have turned to their attention increasingly to ways in which they can increase their value. A number of competing measures, each with claims to being the best approach to value creation, have been developed and marketed by investment banking firms and consulting firms. In this paper, we begin with a generic discounted cash flow model, and consider the ways in which value can be created or destroyed in a firm. We then look at two of the most widely used value enhancement measures, Economic Value Added and Cash Flow Return on†¦show more content†¦This process is complicated by the fact that while some of the assets of a firm have already been made, and are thus assets-in-place, a significant component of firm value reflects expectations about future investments. Thus, to value a firm we need to measure not just the cash flows from investments already made, but also estimate the expected value from future growth. In the following section, we will consider some of the basic principles that should guide our estimates of cash flows, growth and discount rates. 1 . Cash Flow to the Firm The cash flow to the firm that we would like to estimate should be both after taxes and after all reinvestment needs have been met. Since a firm includes both debt and equity investors, the cash flow to the firm should be before interest and principal payments on debt. The cash flow to the firm can be measured in two ways. One is to add up the cash flows to all of the different claim holders in the firm. Thus, the cash flows to equity investors (which take the form of dividends or stock buybacks) are added to the cash flows to debt holders (interest and net debt payments) to arrive at the cash flow. The other 4 5 approach to estimating cash flow to the firm, which should yield equivalent results, is to estimate the cash flows to the firm prior to debt payments but after reinvestment needs have been met: EBIT (1 - tax rate) –Show MoreRelatedThe Is A New Day796 Words   |  4 PagesIt alerted him to take his chempills. He ordered his dosage and workup while filling his groaning stomach with a freshly printed breakfast of soy eggs on bioharvested algae toast. He stepped outside and made his way towards the tubeline. Sinking back into the grimy contours of the seat, Matisse’s mind was animated as he zipped effortlessly through the city, through the scenic biome bubble and around the frenzied construction site of the megalopolis. He observed as dwellings went up, printed pieceRead MoreThe Future is Here: Genetic Enhancement Essay1762 Words   |  8 PagesThroughout history, society has always placed value on being bigger, stronger, and faster by any means necessary to obtain these abilities. In order to obtain these abilities, society use genetic enhancements. A genetic enhancement is the use of genetic engineering to modify an individual’s biological traits; in addition, it is the alteration of genes in an individual’s body. Scientists are able to alter individual’s genotype with the purpose of choosing desired phenotype of a newborn. The processRead MoreThe Potential Benefits Of Genetic Engineering1721 Words à ‚  |  7 Pagesgeneral public and clouded their moral values. The ultimate goal of genetic engineering is to create a utopian society where problems such as disease and world hunger no longer exist. Genetically engineering humans to be ideal beings may eventually lead to the creation of a â€Å"super race.† A super race is a race of strong, healthy, and highly intelligent individuals who contribute to the advancement of society. Despite the attractive potential benefits of the creation of a super race, there are severalRead MoreCoca Col Transparency, The Formation Of Sustainability Indices1350 Words   |  6 Pagesinto the validity of Coca-Cola’s Sustainability Report (2015) as it relates to both their initiatives, internal strategies, and CSR accountability. According to the company’s Sustainability Report (2015), Coca-Cola is committed creating stakeholder value by continuing to enhance their sustainability efforts in Women (5by20), Water, and Well-Being. These initiatives have the company to provide opportunities for women entrepreneurs to advance their personal careers, improve access of clean water in developingRead MoreThe Identity Theft and Assumption Deterrence Act1823 Words   |  7 PagesAssumption Deterrence Act, The Identity Theft Penalty Enhancement Act, and The Identity Theft Enforcement and Restitution Act of 2008. In addition to these, several states have pending legislation out there to either pass new state laws or revise current ones. In this paper, theses laws and the pending legislation in some of those states will be discussed in detail. Before 1998, identity theft crimes were charged under statutes that dated back to the 19th century. These were called false personationRead MoreChinese and Greek Mythology1564 Words   |  7 PagesThe Diverging Commonalities of Creation Myth’s Long ago, people wanted to acquire a better understanding of the beginning of the universe which ultimately resulted in the establishment of religions, beliefs and most pertinent, creation myths. Mythology provides explanations for the worlds mysteries especially in regards to the creation of Earth, Humans and the environment. This comparative paragraph analyzes the similarities and differences between a Greek myth entitled, The Beginning of ThingsRead MoreCooperative Method of Teaching Maths1131 Words   |  5 Pagesbuilding is in full swing and all endeavors are underway to bring Liberia back to a state of normalcy, out of the darkness of despair and hopelessness that had engulfed the country for the past fifteen years. One of the most important focus of this building process should be the youth of the nation. A sound investment in the future of Liberia must incorporate a renewed interest in the education of the young people who will be the future leaders of the new Liberia. The investment strategy in the educationRead MoreEssay about Cyborgs: a Twisted Double Standard1654 Words   |  7 Pagesourselves and our lives. In books the term cybernetics is used to describe computer gadgets and electrical physical enhancements, like robotic arms. However, cybernetics is more encompassing than that, and includes anything we use to enhance our natural state. In this regard, clothing, utensils, and the simple machines we use in our homes, all count as cybernetic enhancements. Chislenko, in his article on cybernetics, states that these are examples of wrapping and external aids; the simplestRead MoreGovernment Funding of The Fine Arts1172 Words   |  5 PagesWith cities spattered in looming cathedrals a nd marble sculptures and with bookshelves still faithful to classic works of literature and performance, the arts have proved themselves durable to the test of time. Long have these creations provided undying testament to mankind’s achievement and a window into the past. Perhaps no other category of art lends itself more to a view of history than the fine arts, or high arts, tradition with its well preserved pieces guarded and carefully designed toRead MoreConsolidation Concerns : Pentagon s Previous Policies And Their Implications For Competition1419 Words   |  6 Pagesincreased market power can also simultaneously result in a reduction in competition, which can translate into higher prices, lesser innovation, and an overall reduction in consumer welfare. The principal benefits from consolidation include increase value generation and higher cost efficiencies. Most mergers can generate tax gains, increase revenue, reduce uncertainty, and substantially lower the cost of capital. The 2012 proposed BAE System and European Aeronautics Defence and Space (now Airbus) merger