How the value of a business depends

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Overview: Companies exist to meet customer needs in a way that translates into reliable returns to investors. When people invest they expect their investment to increase by an amount that sufficiently compensate them for the risk they took, as well as for the time value of their money (i.e..TVM).

Therefore, knowing how to create and measure value is an essential tool for managers and executives.

Fact 1: The faster companies can grow their revenues and deploy more capital at attractive rates of return, the more value they create. The combination of growth and return on invested capital (ROIC) drives value and value creation.

Fact 2: There is no such number as an inherent value for a business, rather a business has a given value only relative to who owns and operates it.

Problem 1: Comprehensively explain how the value of a business depends on who is managing it and what strategy they pursue. Different owners will generate different cash flows for a given business based on their unique ability to add value.

 

Reference no: EM132993554

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