FAQ
We provide answers to your questions
Performance and Value Creation
- How to define and measure financial performance?
- What are the main operational levers for sustainable improvement in financial performance?
- What is the relationship between growth, financial performance (ROCE) and value creation (MVA)? Is growth always desirable?
- Why is the increase in Net Earnings Per Share (EPS ) not always synonymous with value creation?
- Why is growth not a source of value in itself, but an amplifier?
- What is the “sustainable growth rate”, how is it calculated and what is its contribution to the financing of growth?
- What does a Market-to-Book ratio above 1 mean?
- What is the difference between commercial profitability (ROS) and economic profitability (ROCE)?
- Why can EVA management sometimes lead to underinvestment?
- Should the company set differentiated performance objectives according to its areas of activity?
- Why can the alignment of interests between managers and shareholders via stock options sometimes encourage value-destroying behavior?
Weighted Average Cost of Capital (WACC)
- Why do we need to measure the Weighted Average Cost of Capital (WACC)?
- How is the WACC calculated?
- Why is the WACC considered an opportunity cost?
- How is the ß calculated and what are the factors that influence its value?
- How does Hamada’s formula make it possible to deleverage, and then to re-leverage, a ß?
- What is the equity market risk premium (EMRP) and how does it influence the cost of equity?
- How to estimate the interest rate on debt and the tax rate on profits?
- Why should market (and not book) values be used to weight the WACC?
- What makes it right to calculate a specific WACC for an investment project instead of taking the company’s WACC?
- Why is the tax deductibility of interest the main lever for creating debt value according to Modigliani and Miller?
- How do default or bankruptcy costs influence debt structure?
- Does debt actually reduce the cost of capital (WACC) and is there an optimal financial structure?
- How to carry out a cost/benefit analysis of under-indebtedness?
Investment decision
- How do you evaluate an investment project using the criteria of NPV, IRR and Payback?
- How does the Working Capital Requirement influence the investment?
- How is the residual value of an asset treated in the calculation of a NPV?
- What is the difference between the accounting break-even point and the discounted break-even (or project break-even)?
- Why should nominal cash flows be discounted with a nominal rate in times of inflation?
- What is the difference between nominal payback and discounted payback?
- Why are finance costs excluded from the calculation of free cash flows in a project evaluation?
- How does the Internal Rate of Return (IRR) differ from the Net Present Value (NPV) in project valuation, and why does the flow reinvestment assumption make the IRR less robust?
- How to carry out a sensitivity analysis and what managerial lessons can be learned from it?
- What does the distinction between NPV and ENPV mean?
- How to calculate the shareholder IRR in the case of an investment abroad?
- How do the annual ROCE and IRR of a project compare?
- How does “double materiality” (ESG) fit into modern investment appraisal?
Business valuation
- Why do we need two different methods to value a company?
- How to use EBITDA to value a company?
- How does the “multiples” method differ from the discounted flow method (DCF) for business valuation?
- What is the Free Cash Flow formula?
- Why are financial expenses excluded from the calculation of free cash flows in a company valuation?
- How is the Terminal Value calculated in a business valuation?
- How do you evaluate a company at maturity (one-period model)?
- How do you evaluate a fast-growing or restructuring company (two-period model)?
- How do you evaluate a company based on its financial performance?
Risk Value and Real Options
- What are the lessons learned from the comparison between zero-growth market-to-book and market-to-book observed in the capital markets ?
- How does the Real Options approach change the perception of risk and the management of strategic investments compared to the classic NPV method?
- What is the fundamental difference between a financial option and a real option?
- How can uncertainty become a source of value in the optional approach?
- What are the different categories of Real Options?
- Why is an R&D project is a sequential process of building options rather than an option in itself?
- What is a “shared option” vs. a “proprietary option”?
- How does the optional approach justify launching a negative NPV “pilot”?
- How to carry out a cost/benefit analysis of under-indebtedness?
- What is the difference between PORO and GORO?
- What are the main applications of the Real Options concept in the valuation of natural resources?
Cases & Strategies
- Can we improve the productivity of assets without deteriorating commercial profitability?
- How can growth be financed: advantages and disadvantages of each financial resource that can be mobilised ?
- What questions should you ask yourself when considering outsourcing part of your production activity?
- How do economies of scale contribute to value creation?
- How can financing growth through debt put a company in a vulnerable position?
- What is the impact of capital intensity on the requirement for commercial profitability?
- Should we focus on investment or on returning shareholders?
- Should we reduce production costs?
- Advantages and disadvantages for Coca-Cola to control the bottling business?