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Table of Contents Corporate Finance & Controlling

Course Overview and Topics


1.

Corporate Finance &


International Controlling Context
1. Terminology
2. Organizational Integration

2.

Shareholder Value Analysis


1.
Shareholder Value Approaches
Overview and Comparison
2. Value Added Measurement
3. Balanced Scorecards
4. Integrated Strategic Measures
Cash Planning & Liquidity Management
1. Cash Flow Management
2. Working Capital Management
3. Finance Analysis and Planning

3.

4.

Managerial Accounting (Controlling)


1. Overview
2.
Product Costing Methods
1. Process Costing
2. Activity-based Costing
3. Job-Order Costing

Prof. Dr. Sren Dressler

3.

Special Cost Analysis Methods


1.
Lifecycle Costing
2.
Target Costing
3.
Project Controlling
4.
Value Chain Controlling

5.

Advanced Controlling Topics in international


Corporations
1.
International Harmonization and
Standardization
2.
Transfer Pricing
3.
Profit Center Reporting
4.
Segment Reporting

6.

Corporate Finance
1.
Venture Capital, IPO, and Debt Financing
2.
Capital Markets & Trading
3.
Stocks and Stock Evaluation
4.
Technical Trading
5.
Option Trading

Corporate Finance
Shareholder Value in the overall economic context
Market are continuously moving around an equilibrium
Researchers such as Schumpeter and Kondratieff
perceive this as normal and positive due to increased
innovation activities in downtimes
Also, increased M&A activities eliminate redundancies
and leads to stronger performance of the companies
Overall, cyclicity is a necessity in business life and
wealth building of a society in the long-term

Periods of Shareholder
creation and Shareholder
destruction are alternating
But: how to secure SHV in
the long-term

Development of Global Economy (illustrative)


Long-term creation of
Shareholder Value
Over-Supply

Under-Supply
Oil Crisis 1970s
World War II
Prof. Dr. Sren Dressler

Internet Crisis
September 11/Iraq War
2

Shareholder Value Analysis


The Role of institutional Investors

Insights
Investment Volume TIAA-CREF und CalPERS ($ US billions)

Major large-scale institutional investors such


as retirement funds are managing the majority
of assets on international capital markets
Requirement to pay back pensions including
respective interest demands continuous
increase of Shareholder Value
Speculating or even gambling in order to
achieve short-term profit is no option at all for
institutional investors (the Internet crisis has
taught them a lesson)
Todays focus is on profitability as major value
driver with revenue growth as a close second
(= value potential of future periods
Assumptions that share prices and revenue
goals would overcome profitability as value
drivers have been proven wrong

300
TIAA-CREF
CalPERS
250

200

150

100

50

0
1990

1995

2000

2004

TIAA-CREF = Teachers Insurance and Annuity Association College Retirement Equities Fund
CalPERS = California Public Employees Retirement
Prof. Dr. Sren Dressler

Case & Homework Assignment


April 16, 2015

Please display the stock price development of the following corporations from 1988 (or respectively the point
in time of going public) until today
UPS
Fedex
American Airlines
Lufthansa

Please discuss the stock price development and highlight specific events

Compare the stock price developments with the development of the Facebook stock price and try to outline a
15 year forecast for the Facebook stock provide a rationale for your assessment

Calculate the market capitalization over time as well for all abovementioned companies and compare and
comment on them

Analyze the S&P 500 Transportation Select Industry Index since its introduction and compare it with the
development of the abovementioned companies.

Identify one stock fund who is outperforming all of the companies and the Transportation Index above

Summarize all of your results and derive and assessment with regards to creation of Shareholder Value

Summarize your experience during the research as well


Prof. Dr. Sren Dressler

Case & Homework Assignment


April 16, 2015

Please display the stock price development of the following corporations from 1988 (or respectively the point
in time of going public) until today
Pfizer
Bristol-Myers Squibb
Baxter
Bayer

Please discuss the stock price development and highlight specific events

Compare the stock price developments with the development of the Google stock price and try to outline a
15 year forecast for the Google stock provide a rationale for your assessment

Calculate the market capitalization over time as well for all abovementioned companies and compare and
comment on them

Analyze the S&P 500 Pharmaceuticals Select Industry Index since its introduction and compare it with
the development of the abovementioned companies.

Identify one stock fund who is outperforming all of the companies and the Pharmaceutical Index above

Summarize all of your results and derive and assessment with regards to creation of Shareholder Value

Summarize your experience during the research as well


Prof. Dr. Sren Dressler

Shareholder Value Analysis


Value-based Methods Overview & Summary

Cash Value
Added (CVA)

Discounted
Free Cash
Flows

Economic
Earnings

Cash Flow
Return on
Investment

Discounted
Free Cash
Flows

Market
Capitalization

Market
Capitalization
+ Dividends

Profitability
Measure

Net Operating
Profit After Tax
(NOPAT)

Cash Flow

Cash Flow

(Dividends)

Capital
Investment
Measure

Economic
Book Capital

Invested
Capital

Internal

Internal

Internal

External

External
(internal only
dividends)

Criteria
Leading Metric

Shareholder
Value Creation
Perspective

Economic
Value Added
(EVA)

Market Value
Added (MVA)

Total
Shareholder
Return (TSR)

Attachable to Performance Measurements


Systems
Prof. Dr. Sren Dressler

Shareholder Value Analysis


Economic Value Added (EVA)

Basic Principle
Economic Book Capital

Net
Operating
Profit after
Tax

Capital
Charge

WACC

Economic Value Added

Based on modified Accounting


profits
Applies risk premium to
economic capital
Economic profit oriented:
attempts to determine real
economic performance

(= Shareholder Value)

WACC = Weighted Average Cost of Capital


Prof. Dr. Sren Dressler

Shareholder Value Analysis


Economic Book Capital Simplified Version

Assets

Equity & Liabl.


Equity

Fixed Assets

Liabilities
Current Assets

Non-interest
bearing Liabl.

Economic Book
Capital (w/o
Adjustments)
=
Capital
Employed
Examples
Accruals for
- Pensions
- Tax
Accounts
Payable

Prof. Dr. Sren Dressler

Shareholder Value Analysis


Market Value Added (MVA)

Principle

Market
Value

Economic Book
Capital

Market Value Added


(MVA)

Based on current market


values (Share Price * number
of Shares Outstanding plus
liabilities)
Based on Economic Book
Capital
Values are Market derived
not explicit focus on
Profitability
Has lost importance due to
Internet Crisis

Joel Sterns perspective on MVA & EVA:

http://www.youtube.com/watch?v=ZCaeMTSTWYs
Prof. Dr. Sren Dressler

Shareholder Value Analysis


Total Shareholder Return (TSR)

Principle

Dividends

Market
Capitalization

Market
Market
Capitalization

2010

2011

Prof. Dr. Sren Dressler

Total Shareholder
Return (TSR)

Based on assumption that


Shareholder Value will be created in
yearly increments only
Starting point is Market Value of the
current year compared with last years
value
Does not include capital base and
subsequently capital costs
Dividends will be added to increase
(or decrease) in value to determine
total Shareholder Return

10

Shareholder Value Analysis


Cash Value Added (CVA)

Cash Flow
Investment
(Acquisition
Values)

Cash Flow

Investment
Basis

CFROI
X

WACC

Cash Value
Added
(CVA)

Prof. Dr. Sren Dressler

Principle

Based on Cash Flows and not


Accounting values
Cost of Capital are defined based on
initial investment volumes multiplied
with the WACC
Profitability key driver through Cash
Flow Orientation
Similar Approach to EVA even though
Cash oriented

11

Shareholder Value Analysis


Discounted Free Cash Flow

Principle
Market Value
of Financial
Assets

Company
Value

Market Value
Liabilities

NPV of
Terminal
Value

NPV Free
Cash Flows

Prof. Dr. Sren Dressler

Shareholder
Value

Based upon assumption that


Company Value is determined
through Net Present Values of all Free
Cash Flows and NPV of Terminal
Value
Mainly applied to determine Company
Values for evaluation purpose in
acquisition and/or spin-off situations
Complex method to determine Cash
Flows over a certain planning horizon
transaction-oriented method, not
often used for continuous Shareholder
Value assessments

12

Shareholder Value Analysis


Discounted Free Cash Flow

Free Cash Flows

Prof. Dr. Sren Dressler

6-

Year
Jahr

Terminal
Endwert Value

NPV
NPV ofdes
Barwerte
Barwert
Terminal
FCFs
EndwertsValue

Principle

Key challenge is long-term


perspective of planning of Free
Cash Flows.
oThe longer the planning
horizon the more inaccurate
are planning assumptions and
objectives
oReliable Cash Flow planning
is possible only if planning
horizon can be reliably
forecasted and planning
assumption wont change
over time
Under going concern
assumption are Free Cash Flows
beyond planning horizon based
on last Free Cash Flow planned

13

Case & Homework Assignment


April 23, 2015
Assignment questions

Prof. Dr. Sren Dressler

Please analyze the stock price development of the


companies on the left over the course of the past ten
years please comment if these stocks would have
been good investments over this time period and
highlight why significant changes in the stock prices
have occurred

Calculate the ROS and ROCE for each of the


companies for the past three years (2012 2014)

Determine the simplified version of the Market Value


Add for these companies

Determine the Total Shareholder Return (TSR) for


the last three years for the same companies (assume
you bought the shares in April 2014, 2013, 2012 and
2011) and calculate the value for the entire corporation
and per stock

Link the development of the results (ROS, ROCE,


MVA, TSR) to the respective stock price development
are there any correlations?

Compare and discuss the results

Which method do you think is most suitable to


measure Shareholder Value please provide a
rationale!
14

Case & Homework Assignment


April 23, 2015
Assignment questions

Prof. Dr. Sren Dressler

Please analyze the stock price development of the


companies on the left over the course of the past ten
years please comment if these stocks would have
been good investments over this time period and
highlight why significant changes in the stock prices
have occurred

Calculate the ROS and ROCE for each of the


companies for the past three years (2012 2014)

Determine the simplified version of the Market Value


Add for these companies

Determine the Total Shareholder Return (TSR) for


the last three years for the same companies (assume
you bought the share exactly one-year ago) and
calculate the value for the entire corporation and per
stock

Link the development of the results (ROS, ROCE,


MVA, TSR) to the respective stock price development
are there any correlations?

Compare and discuss the results

Which method do you think is most suitable to


measure Shareholder Value please provide a
rationale!
15

Case & Homework Assignment


April 23, 2015
Assignment questions

Prof. Dr. Sren Dressler

Please analyze the stock price development of the


companies on the left over the course of the past ten
years please comment if these stocks would have
been good investments over this time period and
highlight why significant changes in the stock prices
have occurred

Calculate the ROS and ROCE for each of the


companies for the past three years (2012 2014)

Determine the simplified version of the Market Value


Add for these companies

Determine the Total Shareholder Return (TSR) for


the last three years for the same companies (assume
you bought the share exactly one-year ago) and
calculate the value for the entire corporation and per
stock

Link the development of the results (ROS, ROCE,


MVA, TSR) to the respective stock price development
are there any correlations?

Compare and discuss the results

Which method do you think is most suitable to


measure Shareholder Value please provide a
rationale!
16

Shareholder Value Analysis


Cost of Equity

Capital-market driven
Economic Value Added Approach

Assets

Equity & Liab.


Equity

Fixed Assets

Liabilities
Current Assets
Non-Interest
bearing Liabilities

What is the appropriate return Shareholder can


expect under certain market conditions?

Approach is based on the basic principle that


Shareholders can decide flexible and without time
delay upon their respective investments. Main drivers
of investment decisions are
Return on Capital invested
Risk associated with investment

Attention:
Economic Value Added Approach operates
with a different capital basis than the External
Reporting: Economic Capital Accounting
Capital!
Prof. Dr. Sren Dressler

17

Shareholder Value Analysis


Specific Investment Risks according to the Capital Asset Pricing Model:
The Beta-Factor
Basic Principle
The Beta-Factor assigns a companyspecific risk factor in comparison to
an index to each stock
Investors are free to invest in funds or
in specific stocks. Investment decision
in funds allow diversification of risks
but offer lower return perspectives.
Stocks in return are potentially higher
in return but carry higher risks as well
The Beta-Factor was introduced to
quantify company-specific risks
Overall, the Beta-Factor
circumscribes both the market and
liquidity risk
Each publicly listed company carries
its specific Beta-Factor

Stock indices to determine Volatilities


2
Dow Jones

1,8

Stock X

Strong volatilities

1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0

1994

Prof. Dr. Sren Dressler

2000

2004

18

Shareholder Value Analysis


Composition of the DAX

Criteria

Stock Exchange Revenues

Market Capitalization

Weighting

Market Capitalization of
common stocks

Introduced in 1988, indexed with


1,000 points (as of Dec 31,
1987)

Current value:
11.868 points
(April 23, 2015)

Source: Wikipedia
Prof. Dr. Sren Dressler

19

Shareholder Value Analysis


Cost of Equity

According to Theory of Capital Markets


multiplied with the
Beta-Factor

According to the Theory


of Capital Markets:
Risk Free Premium

(Starting
point usually
Government
bond return
rate)

High Risk
Investment,
e.g. S&P 500

Risk free
investment, e.g.
Government
Bonds

Cost of Equity
From practical perspective:
Average Interest rate on Liabilities
(means: investor would like to earn at
least the interests paid to loan givers)

Formula
Cost of Equity = (Risk Free Premium + Beta (S&P 500 Return Government Bonds Return))/ (1-t)
t = tax rate; applicable when EBIT (Earnings before Interest and Tax) is used to determine Profits. If Profits are calculated based on NOPAT (Net
Operating Profit after Tax) no tax rate is required in the formula
Prof. Dr. Sren Dressler

20

Shareholder Value Analysis


Costs of Equity & Weighted Average Costs of Capital (WACC)

Assets

Fixed
Assets

Equity & Liab.


Equity

Liabilities

Cost of Equity x Percentage Equity

+
(Interests (1-t)) x Percentage Liabilities

Current
Assets
NIBL

=
Weighted Average Costs of Capital
(WACC)

t = tax rate, taxes are deductible from the taxable income


Prof. Dr. Sren Dressler

21

Shareholder Value Analysis


Cost of Equity

Formula
Cost of Equity =
(Risk free return + Beta Factor (S&P 500 Return Government Bond Return))/ (1-t)

Usually = Government
Bond Return
In practical application
often used = interests
(in %) granted to loan
givers
( Based on Balance Sheet
and P&L (Liabilities and
Interests)
Simplification:
Interest payments compared
with liabilities in Balance
Sheet leads to average
interest rate of a company)
Prof. Dr. Sren Dressler

Calculated by
Investment Banks

Average Return rates of


indices, in US S&P 500
or Dow Jones, in
Available at companies
Germany Dax
(Investor Relations)
compared with
Government Bond
Returns over a period of
12 years

Many stock analysis websites these days offer data on


the Cost of Equity and the WACC calculations, i.e.
www.stock-analysis-on.net
22

Shareholder Value Analysis


EVA Simplified Version

Product Revenues
Revenues

+
Other Revenues

EBIT

COGS

+
Costs

SG&A

+
R&D

ROCE
(Return on
Capital
Employed)

:
Accounts Receivable

+
Current Assets

Economic
Value
Created

Inventories

Others

+
Weighted
Average
Cost of
Capital

Capital
Employed

Fixed Assets

Intangibles
PP&E

+
Financial Assets

Equity
Liabilities
Debt Ratio
Prof. Dr. Sren Dressler

Accounts Payable

+
Non-interest
bearing Liabilities

Accruals

+
Others
23

Shareholder Value Analysis


Summary of Formulas

With NOPAT to determine Economic Earnings


Cost of Equity = (Risk Free Rate + Risk Premium(S&P 500 Return Rate Government Bond Return Rate))
= Risk Free Rate + Beta (Market Risk Premium)

With EBIT to determine Economic Earnings


Cost of Equity = (Risk Free Rate + Risk Premium(S&P 500 Return Rate Government Bond Return Rate))
/(1-t)
= (Risk Free Rate + Beta (Market Risk Premium))/(1-t)

WACC = (Percentage Debt * Interest (1-t) + (Percentage Equity * Cost of Equity)

Prof. Dr. Sren Dressler

24

Shareholder Value Analysis


Economic Book Capital Build up

Economic
Capital
Adjustments

NIBLs

NonOperating
Assets
Total
Book
Assets

Net Book
Assets

Economic
Capital
Adjustments

Economic
Book
Capital

NIBLs
NonOperating
Assets

Debt
+
Preferred
Stock
Book Value
of Capital
Invested
Book
Equity

Economic Book Capital is generally much greater than


total Book Assets appearing on the Accounting Balance Sheet
Prof. Dr. Sren Dressler

25

Shareholder Value Analysis


Elimination of non-interest bearing liabilities and non-operating assets
Add:
Less:
NIBLs

Less:
NIBLs

Total
Book
Assets

Prof. Dr. Sren Dressler

Accounts Payable
Selected Other
Current Liabilities
Accrued Expenses

NonOperating
Assets
Non-Operating
Assets
Cash
Investments
Marketable
Securities
Long-Term and
Short-Term
Notes
Receivable
Deferred Tax
Asset

Economic
Capital
Adjustments

Economic Book
Capital
Adjustments

Economic
Book
Capital

R&D Capitalization
Goodwill
Accumulated
Amortization
Capitalized
Operating Leases
LIFO Adjustments
Etc. (See Appendix)

26

Shareholder Value Analysis


Economic Book Capital und NOPAT

Income Statement

Operating
EBIT

+
NOPAT
Adjustments

NOPAT

Provide Parallel Treatment


of Economic Income Statement
and Economic Balance Sheet

Economic
Earnings

Cash Taxes

Economic
Book Capital
Capital
Charge

Provide Full Accountability


of the
Economic Balance Sheet

x
WACC

Balance Sheet
Prof. Dr. Sren Dressler

27

Shareholder Value Analysis


Selected Adjustments in the EVA Approach

Converting from
Accounting Life to Economic Life
R&D

Accounting for
Off-Balance Sheet Transactions
Operating leases

Advertising
Recorded goodwill

Classifying
Non-Debt Capital as Debt

Accounting for the


Opportunity Cost of Capital

Pension liabilities

Non-recurring gains and losses

Employee benefit obligations

State inventory at its current value


(adjust from LIFO)

Prof. Dr. Sren Dressler

28

Shareholder Value Analysis


Examples for EVA Adjustments Operating Leasing

Basic Principle

EVA Adjustments
Balance Sheet

Operating Leasing differs from


Financial Leasing because it refers
to essential assets that are directly
used to create business value.
Operating Leasing is usually not
capitalized
From an economic perspective is
Operating Leasing seen as regular
assets (PP&E)
According to that are Lease rates to
be replaced by depreciation on the
leased property

Asset, but Off-Balance


transaction

Assets

E&L

FA

CA

+
50 Mill

P&L
Lease Contract 5 Years,
payment p.a. 8 Mill (= NPV
30.5 Mill)
8 Mill 8 Mill

8 Mill 8 Mill

3
Yearly

8 Mill

Elimination of
Lease rates and
replacement by
depreciation on
NPV of leased
Asset

Yearly cost item in P&L


Prof. Dr. Sren Dressler

29

Shareholder Value Analysis


Examples for EVA Adjustments R&D Expenses (same principle applies to Advertising)

Basic Principle

R&D is conducted to ensure


revenues in future periods. R&D
expenses are, however, expensed
directly in the P&L of the current
period only.
Focused and highly expensive R&D
activities are tracked in one
respective period only and not
compared with the related revenues
in consecutive periods
From an economic perspective are
R&D expenses equal to investments
and need to be depreciated over the
period of related revenues

EVA Adjustments

Balance Sheet

Investment Value of
R&D Investment

Assets

E&L

FA

CA

2*

P&L
R&D Expenses
R&D Amortization
Investment Value of
R&D Investments =

Total Revenues
past 5 years

Average R&D Expenses


past 5 years
Average Revenues
past 5 years

*) Divided by 2, based on general assumption that only 50% of R&D efforts lead to revenues
Prof. Dr. Sren Dressler

30

Shareholder Value Analysis


The EVA Value Tree

Price
Revenues
Volume
EBIT

COGS

Costs

SG&A

Inventories

Others

Accounts
Receivable

NOPAT
Adjustments

NOPAT

Tax
Economic
Earnings

Assets

Economic
Book Capital

PP&E

Investments
Accounts
Payable
Non-interest
bearing Liabl.

Cost of
Capital

Intangibles
(e.g.
Goodwill)

Other NIBL

x
Interest

WACC

Economic
Capital
Adjustments

Cost of
Equity

Debt Ratio
Prof. Dr. Sren Dressler

31

Shareholder Value Analysis


Sensitivity Analysis based on the EVA Approach

Revenue

Expenses

Assets

$80.0

Shareholder Value Increase if


selected cost and revenue
drivers change by 5%
$30.0

$31.0
$28.0

$29.0

$27.0

$26.0
$19.0
$12.0

Alcoholic
Beverages

Soft Drinks

Prof. Dr. Sren Dressler

Snacks

Mate- Salaries
rial & Wages

Depreciation

Repair

Leasing

$12.0

$8.0
G&A

PP&E

Working
Capital

$7.0

Intangibles

32

Homework Assignment
April 30, 2015
Assignment questions

Prof. Dr. Sren Dressler

Determine the Economic Value Add for the companies


on the left

For this please research the Cost of Equity and WACC


respectively of each of these firms

Please calculate the EVA for each firm based on the


annual data for 2014 use the simplified version to
determine Economic Book Capital

Research the Profit & Loss statements and Balance


Sheets of the companies in more detail and try to identify
all expenses related to Research & Development

If you do not find any insights please research the 10k and
Appendix (for German companies) for further hints but
please aware do not invest too much time in researching
data: if cannot find any insights please search the internet
or use an assumption (i.e. R&D as % of revenue)

Please calculate the respective R&D adjustments and


make the required changes to the P&L and Balance Sheet

Please plot your results in an EVA value tree displaying


Economic Earnings, NOPAT and Cost of Capital and
highlight the adjustments

Summarize your research results and comment on the


shareholder value of each firm compare the insights
through the EVA to other methods
33

Homework Assignment
April 30, 2015
Assignment questions

Prof. Dr. Sren Dressler

Determine the Economic Value Add for the companies on


the left

For this please research the Cost of Equity and WACC


respectively of each of these firms

Please calculate the EVA for each firm based on the annual
data for 2014 use the simplified version to determine
Economic Book Capital

Research the Profit & Loss statements and Balance Sheets


of the companies in more detail and try to identify all
expenses related to Advertising (Marketing)

If you do not find any insights please research the 10k and
Appendix (for German companies) for further hints but
please aware do not invest too much time in researching
data: if cannot find any insights please search the internet or
use an assumption (i.e. R&D as % of revenue)

Please calculate the respective Advertising (Marketing)


adjustments and make the required changes to the P&L
and Balance Sheet

Please plot your results in an EVA value tree displaying


Economic Earnings, NOPAT and Cost of Capital and
highlight the adjustments

Summarize your research results and comment on the


shareholder value of each firm compare the insights
through the EVA to other methods

34

Shareholder Value Analysis


Integrated Strategic Measures (ISM)

Value-Based Approach

Strategy-oriented Approach

Financials
Good for planning insufficient
guidance for execution

Good for execution typically lacks


strong analytical validation
Market/
Clients

Operations

Resourcen

Developed by A.T. Kearney in 1997/1998


Implemented with 100+ Companies globally (e.g.. Air France, Office Max, South Korean Telecom)
Integrates value-based-perspective with Strategy focus of Balanced Scorecard

Prof. Dr. Sren Dressler

35

Shareholder Value Analysis


Strategy Breakdown and Development of Potential Candidate Measures
Strategic
Objectives

Critical
Success
Factors

Potential
Candidate
Measure

Strategy Breakdown

Visions

Prof. Dr. Sren Dressler

36

Shareholder Value Analysis


ISM Strategy Tree - Example

Vision

To be the most
innovative
telecommunications service
provider in
Europe

Prof. Dr. Sren Dressler

Functional
Strategy

Objectives

CSF

Potential
Measures

Product
Strategy

Customer
Strategy

Market
Strategy

R&D
Strategy

Operations
Strategy

HR Strategy

37

Shareholder Value Analysis


Measurement Prioritization

Measurement Prioritization

Approach

High

Value Tree

Priority
Measures

Value
Impact
Low
Low

Strategic
Significance

High

Candidates are analyzed with


regard to value creation
potential
Candidates are assessed
towards strategic impact
All existent and new candidates
will be evaluated and ranked

Strategy
Breakdown

Prof. Dr. Sren Dressler

38

Shareholder Value Analysis


Measurement Prioritization Table
Criteria
Potential Candidate
Measures

Strategic
Importance

Value Impact

Controllability

Measurability

Prioritization

Revenue with new products

R&D budget/revenue

Market share growth

Revenue growth/industry
growth

Economic Earnings

Cash Flow

COGS reduction

Inventory reduction

Work safety ratio

Training days

5 = Very high 1 = Very low


Prof. Dr. Sren Dressler

39

Shareholder Value Analysis


High Priority Measures and Dashboard Categories

Measurement Screening
Approach

Value
Indicator 1
Indicator 2

High
Priority
Measures

Value
Impact

Low
Low

Prof. Dr. Sren Dressler

Strategic
Significance

High

Market

Operations

Resources

Indicator 1
Indicator 2

Indicator 1
Indicator 2

Indicator 1
Indicator 2

40

Shareholder Value Analysis


Dashboard Categories and Core Questions

Value

What is our progress


toward achieving our
strategic objectives?
Is the strategy creating
value?
Market

Operations

Are we
Are we managing
effectively
for superior cost,
penetrating our
quality, time and
target markets
flexibility?
and meeting
the needs of
our customers?

Prof. Dr. Sren Dressler

Resources
Are we
properly
managing our
tangible and
in-tangible
assets?

41

Shareholder Value Analysis


High Priority Measures and Dashboard Categories

Value

High Priority
Measures
Economic Earnings
Cash Flow

Sales with innovative


Products

Cost Reductions
Error Rates

Training Days

Prof. Dr. Sren Dressler

Market

Operations

Resources

42

Shareholder Value Analysis


Cascading of Dashboards

Cascading

Corporate Dashboard
Holding

Alcoholic
Beverages

Sales &
Marketing

Prof. Dr. Sren Dressler

Divisional Dashboard

Soft
Drinks

R&D /
Operations

Functional
Dashboard

Starting Point is the


Corporate Dashboard
Dependent on the
chosen organizational
model are the
Divisional or
Functional
Dashboards next
Division/Functional
Dashboards need to
be integrated with the
Corporate one but on
top contain specific
KPIs

43

Shareholder Value Analysis


ISM Dashboard - Example

Finance

Market &
Customer
Product Margins

Prof. Dr. Sren Dressler

ROCE
EBIT
Capital Employed
Debt/Equity Ratio

Operations

Resources

Costs of Goods
sold
Quality
Delivery Reliability
Total Productivity
Material Costs
Reduction

Capital
Expenditure Ratio
Employee
Satisfaction

44

Shareholder Value Analysis


Dimensions of the Balanced Scorecard

Financial
Perspective
How do we look to
shareholder?

Customer
Perspective

Internal Business
Perspective

How do customers
see us?

What must we
excel at?

Innovation and
Learning
Can we continue to
improve and
create value?
Prof. Dr. Sren Dressler

45

Balanced Scorecard - Example


Perspective

Customer
Perspective

Internal
Business
Perspective

Goals

Measures

Win new key clients

Revenue with target key clients

Reliable delivery

% on-time delivery

Best after sales services

% of solved customer requests

Reduce response time to


customer request

% of immediately solved customer


claims

Continuous cost
improvement

Cost per unit

Operational excellence

% of assembly line outages

Innovation leader

# of new patents

Market success of new


products

Revenue with products introduced in


the last 24 months

Highly skilled workforce

Average training days per employee

Keep pace with market


growth

Revenue growth relative to


competition

Generate Shareholder Value

Economic Value added

Reduce capital intensity

Working Capital

Strategy
Innovation &
Learning
Perspective

Financial
Perspective

Prof. Dr. Sren Dressler

46

Shareholder Value Analysis


Basic Principle of a Strategic Map

Mission & Goals


Values

Strategy Dimension

Strategic Capabilities

Change

Creativity

Entrepreneurship

Innovation and Learning


Perspective

Internal Process Optimization

Internal Process
Perspective

Customer Value Optimization

Customer Perspective

Revenue Growth
Strategy
Shareholder Value
Optimization
Prof. Dr. Sren Dressler

Productivity
Strategy
Financial Perspective

47

Shareholder Value Analysis


Balanced Scorecard as Management System

Translating the Vision

Clarifying the visions


Gaining consensus

Communicating and
Linking
Communicating and
educating
Setting goals
Linking rewards to
performance measures

Feedback and
Learning
Balanced
Scorecard

Articulating the shared


vision
Supplying strategic
feedback
Facilitating strategy
review and learning

Business Planning
Setting targets
Aligning strategic
initiatives
Allocating resources
Establishing milestones
Prof. Dr. Sren Dressler

48

Shareholder Value Analysis


ISM Dashboards - Example

Financials

Market/ Customer
Product
Profitability

Prof. Dr. Sren Dressler

ROCE
EBIT
Capital Employed
Debt/Equity Ratio
Processes

COGS
Quality
Delivery
Capabilities
Productivity
Material Cost
Reduction

Resources
Investments
Employee
Satisfaction

49