1. INTRODUCTION
Prof. Luc Keuleneer

2. Introduction I.A. Ultimate objective of a company
Value Creation
What about shareholder value?

3. Key value drivers
Cash flows:  operational cash flow  free cash flow to the firm
WACC:  ‘weighted average cost of capital’

4. I.B. Definition Value Based Management
Implement concept of value creation at all levels in the company

5. Value based Management Increase cashflows / decrease WACC
Key factors in VBM
Value based Management
Increase cashflows / decrease WACC
Balanced Scorecard

6. Balanced Scorecard Financial KSF Performance indicator
Client Doelstelling Performance indicator
Organizational KSF Performance indicator
R & D KSF Performance indicator

7. II. Value creation on company level
Yes ! IF ROIC > WACC
ROIC = return on invested capital WACC = weighted average cost of capital
EVA = Economic Value Added
= (ROIC – WACC) * Average invested capital

8. III. Does a project create value?
Methods
Average accounting rate of return
Pay back method
Internal rate of return
Net present value method

9. IV. Example Initial investment 18.000 EBITDA 7.600 Lifetime 5 years
Tax rate 50%
Accounting O.C.F. approach
EBITDA
Dep
EBT
Tax
Net profit O.C.F

10. A. Accounting rate of return – ARR
Definition
ARR = average net profit = 2000 = 22,2% average investment

11. B. Pay Back method Definition
Pay back = how long does it take to earn back the investment
= 3,2 years

12. C. Internal rate of return
Definition =
IRR : 16,8%

13. D. Net present value Definition Dus NCW = If r = 10%
 NPV = x – = 3.228

14. V. Conclusion