LOGISTICS

• Shareholder value


  Determined by the market value of a company's shares
• Equity


  Investment by shareholders in the company
• Market value of shares

  The discounted projected free cash flows at a rate that equals the cost of Equity
• Increasing market value


  1. Increasing and expediting the projected free cash flow of the company

  2. Reducing the risk of the company, thereby reducing the cost of equity
• Cost of Equity


  The return that shareholders require on their investment
• Risk-free rate


  Long-term government bond rates, after tax rate
• Market risk premium


  The average risk of the market, the difference between the expected rate of return on the market as a whole that shareholders require and the risk-free rate of return over the same period
• Beta factor


  Represents the relative movement of an individual share's return compared to the market return
• Free cash flow


  The cash flow from operating activities actually available for distribution to the shareholders
• Increasing free cash flow

  1. Increase the profit after tax

  2. Decrease the investment in working capital

  3. Decrease the investment in property, plant and equipment
• Expediting free cash flow

  Increase the present value of the discounted free cash flow
• The closer the cash flow is to the present date, the higher the present value
• Economic value added (EVA)

  A residual income measure that subtracts the cost of capital employed from the operating profits generated
• Market value added (MVA)


  Measures the difference between the market value of the firm and the amount of Capital invested

  
• Value drivers


  • Revenue
  • Operating costs
  • Tax
  • Working capital
  • Property, plant and equipment
• Revenue


  Increase the volume of sales / maximise sales, made difficult by competition, substitute products, and bargaining power of buyers
• Operating costs


  All costs, budgets, gross margin, net profit
• Working capital


  Cash, accounts receivable, inventories
• Income statement example
• Return on investment


  Profit margin, asset turnover, financial leverage