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  • Coursework - SA-Fall - Valuation Matrix

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    The document discusses the competitive position of a company based on the relationship between its return on invested capital (ROIC) and weighted average cost of capital (WACC). It analyzes three scenarios: when ROIC is less than, equal to, or greater than WACC. For each scenario, it evaluates whether the company is at a disadvantage, neither advantaged nor disadvantaged, or at an advantage. It also considers whether growth has value and provides recommendations based on industry conditions and valuation metrics.

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    The document discusses the competitive position of a company based on the relationship between its return on invested capital (ROIC) and weighted average cost of capital (WACC). It analyzes three scenarios: when ROIC is less than, equal to, or greater than WACC. For each scenario, it evaluates whether the company is at a disadvantage, neither advantaged nor disadvantaged, or at an advantage. It also considers whether growth has value and provides recommendations based on industry conditions and valuation metrics.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    11 views1 page

    Coursework - SA-Fall - Valuation Matrix

    Uploaded by

    mannimanoj
    The document discusses the competitive position of a company based on the relationship between its return on invested capital (ROIC) and weighted average cost of capital (WACC). It analyzes three scenarios: when ROIC is less than, equal to, or greater than WACC. For each scenario, it evaluates whether the company is at a disadvantage, neither advantaged nor disadvantaged, or at an advantage. It also considers whether growth has value and provides recommendations based on industry conditions and valuation metrics.

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    © All Rights Reserved
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    Competitive

    ROIC vs WACC Position Does growth have value? Industry Valuation Metric Comment

    1 ROIC < WACC Disadvantage No Competitive pressures will continue to mount < Liquidation value or EPV Close down as quickly as possible
    Neither A or D No In decline or excess capacity < Liquidation value or EPV Remove capacity from industry
    Advantage No Bad management < Replacement value or EPV Fire management as quickly as possible

    2 ROIC = WACC Disadvantage No Competitive pressures will continue to mount < Liquidation value or EPV Move quickly before ROIC < WACC
    Neither A or D No Steady state if industry is healthy < Replacement value or EPV
    Advantage No, not with ROIC = WACC Bad management < Replacement value or EPV Fire management as quickly as possible

    3 ROIC > WACC Disadvantage No, will accelerate disadvantage Competitive pressures will continue to mount < Liquidation value or EPV Move quickly before ROIC < WACC
    Neither A or D No, may accelerate disadvantage Competitive pressures may continue to mount < Replacement value or EPV Move quickly before ROIC = WACC
    Advantage Yes, but only within franchise Must match challengers EPV, DCF Growth has value, but be careful

    1 ROIC < WACC Disadvantage No Competitive pressures will continue to mount < Liquidation value or EPV Close down as quickly as possible
    ROIC = WACC Disadvantage No Competitive pressures will continue to mount < Liquidation value or EPV Move quickly before ROIC < WACC
    ROIC > WACC Disadvantage No, will accelerate disadvantage Competitive pressures will continue to mount < Liquidation value or EPV Move quickly before ROIC < WACC

    2 ROIC < WACC Neither A or D No In decline or excess capacity < Liquidation value or EPV Remove capacity from industry
    ROIC = WACC Neither A or D No Steady state if industry is healthy < Replacement value or EPV
    ROIC > WACC Neither A or D No, may accelerate disadvantage Competitive pressures may continue to mount < Replacement value or EPV Move quickly before ROIC = WACC

    3 ROIC < WACC Advantage No Bad management < Replacement value or EPV Fire management as quickly as possible
    ROIC = WACC Advantage No, not with ROIC = WACC Bad management < Replacement value or EPV Fire management as quickly as possible
    ROIC > WACC Advantage Yes, but only within franchise Must match challengers EPV, DCF Growth has value, but be careful

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