Aantekeningen / Notes
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Value-Based Management
(EBM155A05)
Lecturers: Semester 2B year 2022/2023
- Federico Giesenow
- Sebastian Firk
Index
Lecture 1 – Introduction Value-Based Management & Valuation .......................................................... 3
Introduction value based management .............................................................................................. 3
Introduction to Valuation .................................................................................................................... 5
Value and Price ................................................................................................................................ 5
The dividend discount model .......................................................................................................... 6
Tutorial week 1 – Problems week 1 ........................................................................................................ 9
Lecture 2 – Performance, Continuing value, Cost of capital ................................................................. 13
Performance ...................................................................................................................................... 13
Continuing value................................................................................................................................ 15
Cost of capital .................................................................................................................................... 16
Lecture 3 – Reorganizing financials, multiples and validating the valuation ........................................ 20
Reorganizing financials ...................................................................................................................... 20
Multiples............................................................................................................................................ 26
Validating the valuation .................................................................................................................... 26
Tutorial week 4 – Problems ................................................................................................................... 28
Lecture 4 – Advance issues in business valuation - NO EXAM MATERIAL in 2023/2024 ...................... 29
Lecture 5 – Value-Based Management implementation in practice .................................................... 34
Introduction – Why is value based management important ............................................................ 34
Main benefits of value-based management ..................................................................................... 36
Implementation of value-based management.................................................................................. 36
Selection of a overarching value-based metric ................................................................................. 37
Integration in the steering system .................................................................................................... 38
Connection to the corporate strategy............................................................................................... 38
Integration in the incentive system................................................................................................... 39
Support via external and internal communication ........................................................................... 40
“Managerial” Summary ..................................................................................................................... 41
Lecture 6 – Contingency factors and Value-based Management implementation in practice ............ 42
, Contingency theory of management accounting and control (1) ..................................................... 42
The fit between VBM and contingency factors (2)............................................................................ 44
Empirical results on the fit between VBM and contingency factors (3) ........................................... 45
Summary (4) ...................................................................................................................................... 47
Lecture 7 – Q&A exam........................................................................................................................... 47
,Lecture 1 – Introduction Value-Based Management & Valuation
Introduction value based management
Measuring, creating and managing value
- Value based management encompasses the processes for measuring, creating and managing
value
- Which value?
a. Earnings per share
b. Price per share
c. Value per share
- Whose value?
a. The CEO
b. Shareholders
c. Investors
d. Stakeholders
e. …
- Value is value from the perspective of a long-term passive investor
- The value of a business is the
o Value of the expected future free cash flows of the business
o Is the sum of the invested capital and the value of the expected future economic
profits of the business
Using a CAPM-based opportunity cost of capital
- Managers create value by
o Continuing the business if the return on invested capital exceeds the opportunity
cost of capital (ROIC > WACC)
o Growing the business the return on new invested capital exceeds the cost of capital
(RONIC>WACC)
- Which project(s) would you choose if your pay or if your target is tied to maximizing
1) Total earnings
2) Return on invested capital, or
3) Value?
- Managing for value requires to align the firm’s strategy, key performance metrics, targets
and incentives with value creation in the firm’s control and reporting systems
The course Value-based Management
- After passing the course, you are able to describe, to explain, to motivate, to apply, and to
assess the core principles of value based management
- You use the core principles of finance, accounting, management control and business
analysis
- You apply the best practices as documented by Koller (2020) and use by many practitioners
- You use recent academic literature
, Assignments and teams
- The proof of the pudding is in the eating
Assignment 1 (hand in a valuation model in XLSX) workshop of EY 28 april
o Value a real-world company through a business case of EY
o Hand in a valuation model in XLSX
o Negotiate a deal
- Assignment 2 (hand in a presentation in PPTX) present and discuss
o Assesses value based management of a real-world company
o Hand in a presentation in PPTX
o Present and discuss findings
- Assignments are prepared in teams of 4 students
Meetings
- All meetings are in principle mandatory
- Lectures
o We describe, explain, discuss the core principles of value based management and its
implementation
o Guest lecture EY (week 2)
- Tutorials
o “Starting assignments”
o Q&A assignments 1 and 2
o Presentation and discussion result assignment 2
- Workshop
o Negotiate a deal assignment 1: event EY
Examination
- A digital, two-hours, closed-book, no-notes exam with 12 open questions in which you
describe, determine, explain, motivate, interpret, discuss, evaluate …
- Old exams with and without example answers are going to be available on Brightspace 2
weeks before the exam
- Grading
o The final grade is a weighted average of the grade of the exam (60%) and the
average grade of the assignment (40%), provided that both are at least a 5.5.
o The average grade of the assignment in a weighted average of the grade of
assignment 1 (60%) and the grade of assignment 2 (40%)
o Provided that … (read the Course Manual!!)
EXAM: 12 open questions
Lecture of week 5 are just subject to discuss but not for the exam.
-
Value-Based Management
(EBM155A05)
Lecturers: Semester 2B year 2022/2023
- Federico Giesenow
- Sebastian Firk
Index
Lecture 1 – Introduction Value-Based Management & Valuation .......................................................... 3
Introduction value based management .............................................................................................. 3
Introduction to Valuation .................................................................................................................... 5
Value and Price ................................................................................................................................ 5
The dividend discount model .......................................................................................................... 6
Tutorial week 1 – Problems week 1 ........................................................................................................ 9
Lecture 2 – Performance, Continuing value, Cost of capital ................................................................. 13
Performance ...................................................................................................................................... 13
Continuing value................................................................................................................................ 15
Cost of capital .................................................................................................................................... 16
Lecture 3 – Reorganizing financials, multiples and validating the valuation ........................................ 20
Reorganizing financials ...................................................................................................................... 20
Multiples............................................................................................................................................ 26
Validating the valuation .................................................................................................................... 26
Tutorial week 4 – Problems ................................................................................................................... 28
Lecture 4 – Advance issues in business valuation - NO EXAM MATERIAL in 2023/2024 ...................... 29
Lecture 5 – Value-Based Management implementation in practice .................................................... 34
Introduction – Why is value based management important ............................................................ 34
Main benefits of value-based management ..................................................................................... 36
Implementation of value-based management.................................................................................. 36
Selection of a overarching value-based metric ................................................................................. 37
Integration in the steering system .................................................................................................... 38
Connection to the corporate strategy............................................................................................... 38
Integration in the incentive system................................................................................................... 39
Support via external and internal communication ........................................................................... 40
“Managerial” Summary ..................................................................................................................... 41
Lecture 6 – Contingency factors and Value-based Management implementation in practice ............ 42
, Contingency theory of management accounting and control (1) ..................................................... 42
The fit between VBM and contingency factors (2)............................................................................ 44
Empirical results on the fit between VBM and contingency factors (3) ........................................... 45
Summary (4) ...................................................................................................................................... 47
Lecture 7 – Q&A exam........................................................................................................................... 47
,Lecture 1 – Introduction Value-Based Management & Valuation
Introduction value based management
Measuring, creating and managing value
- Value based management encompasses the processes for measuring, creating and managing
value
- Which value?
a. Earnings per share
b. Price per share
c. Value per share
- Whose value?
a. The CEO
b. Shareholders
c. Investors
d. Stakeholders
e. …
- Value is value from the perspective of a long-term passive investor
- The value of a business is the
o Value of the expected future free cash flows of the business
o Is the sum of the invested capital and the value of the expected future economic
profits of the business
Using a CAPM-based opportunity cost of capital
- Managers create value by
o Continuing the business if the return on invested capital exceeds the opportunity
cost of capital (ROIC > WACC)
o Growing the business the return on new invested capital exceeds the cost of capital
(RONIC>WACC)
- Which project(s) would you choose if your pay or if your target is tied to maximizing
1) Total earnings
2) Return on invested capital, or
3) Value?
- Managing for value requires to align the firm’s strategy, key performance metrics, targets
and incentives with value creation in the firm’s control and reporting systems
The course Value-based Management
- After passing the course, you are able to describe, to explain, to motivate, to apply, and to
assess the core principles of value based management
- You use the core principles of finance, accounting, management control and business
analysis
- You apply the best practices as documented by Koller (2020) and use by many practitioners
- You use recent academic literature
, Assignments and teams
- The proof of the pudding is in the eating
Assignment 1 (hand in a valuation model in XLSX) workshop of EY 28 april
o Value a real-world company through a business case of EY
o Hand in a valuation model in XLSX
o Negotiate a deal
- Assignment 2 (hand in a presentation in PPTX) present and discuss
o Assesses value based management of a real-world company
o Hand in a presentation in PPTX
o Present and discuss findings
- Assignments are prepared in teams of 4 students
Meetings
- All meetings are in principle mandatory
- Lectures
o We describe, explain, discuss the core principles of value based management and its
implementation
o Guest lecture EY (week 2)
- Tutorials
o “Starting assignments”
o Q&A assignments 1 and 2
o Presentation and discussion result assignment 2
- Workshop
o Negotiate a deal assignment 1: event EY
Examination
- A digital, two-hours, closed-book, no-notes exam with 12 open questions in which you
describe, determine, explain, motivate, interpret, discuss, evaluate …
- Old exams with and without example answers are going to be available on Brightspace 2
weeks before the exam
- Grading
o The final grade is a weighted average of the grade of the exam (60%) and the
average grade of the assignment (40%), provided that both are at least a 5.5.
o The average grade of the assignment in a weighted average of the grade of
assignment 1 (60%) and the grade of assignment 2 (40%)
o Provided that … (read the Course Manual!!)
EXAM: 12 open questions
Lecture of week 5 are just subject to discuss but not for the exam.
