Goals , Values and

Performance

Business is all about????

Strategy as a quest for profit

Goals
Value
Production, Commerce, trade, Speculation
Creating value through arbitrage across time and space

Profitability underlying goal of the firm

What is profit?
Does profit maximization means total profit or rate of
profit?
Over what time period is profitability being maximized?
How is profit measured?
From accounting profit to economic profit
Economic value added
Shareholder value approach

Values
Valuing companies and businesses
Valuing strategies
Problems of applying DCF approach to shareholder value
maximization
Strategies as options
Short term bias
Problems of estimating cash flows

Linking value based

management to strategy
Practical Issues???

Some simple guidelines

On existing investments, firm should seek to maximize its
after tax rate of return
On new investments, the firm should seek an after tax rate
of return that exceeds its cost of capital

Analysing past performance

Return on capital employed
Disaggregating ROCE
Sales margin and capital turnover
Sales margin
COGS/Sales
Depreciation/Sales
SG expense/Sales
Capital turnover
Fixed asset turnover
Inventory turnover
Creditor turnover
Turnover of other items of working capital

Balanced Scorecards
Robert Kaplan and David Knorton
Setting targets and measuring performance

How do we look at shareholders?

How do customers see us?
What must we excel at?
Can we continue to improve and create value?

Values and mission

Where do values fit in?
Role of mission