Capital Allocation and Value Creation A

Market Based Framework for

Executives 1st Edition Arenbo
Visit to download the full and correct content document:
https://textbookfull.com/product/capital-allocation-and-value-creation-a-market-based-
framework-for-executives-1st-edition-arenbo/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

International corporate finance : value creation with

currency derivatives in global capital markets Second
Edition. Edition Jacque

https://textbookfull.com/product/international-corporate-finance-
value-creation-with-currency-derivatives-in-global-capital-
markets-second-edition-edition-jacque/

Market Value Pricing Definitions Concepts and Processes

for Market Value Centric Pricing Gabriel Steinhardt

https://textbookfull.com/product/market-value-pricing-
definitions-concepts-and-processes-for-market-value-centric-
pricing-gabriel-steinhardt/

Sustainable Value Creation 2nd Edition Chandler

https://textbookfull.com/product/sustainable-value-creation-2nd-
edition-chandler/

People Capability Maturity Model A Framework for Human

Capital Management 3rd Edition Bill Curtis

https://textbookfull.com/product/people-capability-maturity-
model-a-framework-for-human-capital-management-3rd-edition-bill-
curtis/
Infrastructure Investments Regulatory Treatment and
Optimal Capital Allocation Under Solvency II 1st
Edition Fabian Regele (Auth.)

https://textbookfull.com/product/infrastructure-investments-
regulatory-treatment-and-optimal-capital-allocation-under-
solvency-ii-1st-edition-fabian-regele-auth/

Artificial Intelligence in Value Creation Andrzej

Wodecki

https://textbookfull.com/product/artificial-intelligence-in-
value-creation-andrzej-wodecki/

Accounting for Value in Marx’s Capital: The Invisible

Hand Robert Bryer

https://textbookfull.com/product/accounting-for-value-in-marxs-
capital-the-invisible-hand-robert-bryer/

The Innovation Revolution in Agriculture: A Roadmap to

Value Creation Hugo Campos

https://textbookfull.com/product/the-innovation-revolution-in-
agriculture-a-roadmap-to-value-creation-hugo-campos/

Demand Forecasting for Executives and Professionals 1st

Edition Kolassa

https://textbookfull.com/product/demand-forecasting-for-
executives-and-professionals-1st-edition-kolassa/
Torbjö rn Arenbo

Capital Allocation and Value Creation

A Market-Based Framework for Executives
Torbjö rn Arenbo
Malmö , Sweden

ISBN 978-3-031-47047-9 e-ISBN 978-3-031-47048-6

https://doi.org/10.1007/978-3-031-47048-6

© The Editor(s) (if applicable) and The Author(s), under exclusive

license to Springer Nature Switzerland AG 2023

This work is subject to copyright. All rights are solely and exclusively
licensed by the Publisher, whether the whole or part of the material is
concerned, specifically the rights of translation, reprinting, reuse of
illustrations, recitation, broadcasting, reproduction on microfilms or in
any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or
dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks,

service marks, etc. in this publication does not imply, even in the
absence of a specific statement, that such names are exempt from the
relevant protective laws and regulations and therefore free for general
use.

The publisher, the authors, and the editors are safe to assume that the
advice and information in this book are believed to be true and accurate
at the date of publication. Neither the publisher nor the authors or the
editors give a warranty, expressed or implied, with respect to the
material contained herein or for any errors or omissions that may have
been made. The publisher remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.

This Palgrave Macmillan imprint is published by the registered

company Springer Nature Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham,
Switzerland
Acknowledgements
This book delves into the concept of capital allocation—how companies
strategically deploy their cash flow to generate value. It draws upon and
reflects the work my team and I have developed over the past ten years.
I have been incredibly fortunate to collaborate with numerous
outstanding colleagues and have gained valuable insights from
countless conversations with clients. In that context, I would like to
extend a special thank you to NIBE’s CEO Gerteric Lindquist and CFO
Hans Backman, who have contributed to the content of the book by
sharing their insightful thoughts on making acquisitions. Their
influence, along with that of Michael Mauboussin and Dan Callahan at
Morgan Stanley, who introduced me to a fresh perspective on capital
allocation, has contributed to shaping the ideas and thoughts presented
in this book.
I am deeply grateful to all the exceptional individuals at Danske
Bank who have worked closely with me in the corporate banking
department. I would like to extend a special thanks to Peter Trigarszky
and Oskar Haglund, my close colleagues for the past 9 years. Their
invaluable contributions have been instrumental in shaping much of
the ideas and content reflected in this book. Additionally, Oskar has
been an invaluable resource throughout the practical preparation of
this book, and I owe its completion to his exceptional support.
I am also deeply grateful to Joacim Nä ssén, my supervisor at Danske
Bank, for his belief in, and support of, this project.
Thanks also go to both present and former colleagues who have
taken the time to read and provide feedback on the draft of this book.
Among them, I am especially thankful to my former colleague from
Copenhagen, John Bä ckman, and my mentor from Lund University, Per
Frennberg, both of whom have influenced and inspired the ideas
presented here.
Additionally, I would like to extend my gratitude to Stefan Lind,
Senior Banker at Danske Bank, Dan Christiernsson, portfolio manager
at Alecta, and Magnus Jonasson, Head of asset allocation at AMF, for
their valuable insights and contributions.
I am also very grateful to my father-in-law, Christer Jö nsson,
professor emeritus at Lund University, for editing the manuscript.
 Lastly, I wish to express my appreciation to my wonderful wife,
Lena, and my children, Lukas and Elsa, for their patience and support
throughout the writing process of this book.
Abbreviations
BCG Boston Consulting Group
BIS Bank for International Settlements
CAGR Compound Annual Growth Rate
CAPE Cyclically Adjusted Price Earnings
CAPM Capital Asset Pricing Model
CEO Chief Executive Officer
CFO Cash Flow from Operations
CFO Chief Financial Officer
COO Chief Operating Officer
DCF Discounted Cash Flow Model
DDM Dividend Discount Model
EBIT Earnings Before Interest and Tax
EBITA Earnings Before Interest, Tax, and Amortization
EBITDA Earnings Before Interest, Tax, Depreciation, and
Amortization
ECB European Central Bank
EPS Earnings Per Share
EV Enterprise Value
FCF Free Cash Flow
GDP Gross Domestic Product
GFC Global Financial Crises
GW Goodwill
IPO Initial Public Offering
KPI Key Performance Indicator
M&A Mergers and Acquisitions
NOPAT Net Operating Profit after Tax
NPV Net Present Value
NWC
Net Working Capital
P/E Price-to-Earnings
PPE Property, Plant, and Equipment
R&D Research and Development
RCF Revolving Credit Facility
ROCE Return on Capital Employed
ROE Return on Equity
ROIC Return on Invested Capital
SBB Share Buyback
TSR Total Shareholder Return
WACC Weighted Average Cost of Capital
Contents
1 Introduction
To Master Capital Allocation, You Have to Think Like an
Investor
The Corporate “Eco-System”
Using the Market for Guidance
The Structure of the Book
References
Part I The Value Drivers That Matters
2 Value Creation—The Theoretical Foundation
The Three Drivers of Value—Profitability, Growth, and Cost of
Capital
Return on Invested Capital
A Basic Understanding of ROIC
ROIC and Competitive Advantage
Differentiation Versus Cost Leadership Strategies
Growth
Balancing Profitability and Growth in the Valuation
Framework
Balancing Profitability and Growth in Real Life
Cost of Capital
Earnings Quality as a Proxy for the Cost of Capital
CFOs Prefer Using the Capital Asset Pricing Model (CAPM)
Why Using CAPM and WACC Could Lead You “Precisely
Wrong” Rather Than “Roughly Right”
The Market-Implied Cost of Capital
Asking the Market Participants
 The Cost of Capital for Your Company
Cost of Capital Over Time and Across Sectors
How to Use and Interpret Valuation Multiples
Which Valuation Multiple Should You Consider?​
Benefits of Understanding Valuation Multiples
Limitations and Common Pitfalls Using Valuation Multiples
Conclusions
References
3 Market-Based Insights to Capital Allocation
A Description of the Total Shareholder Return Framework
Peer-Group TSR Study
General Findings—A Brief Summary
ROIC—Where It All Starts
Growth—A Double-Edged Sword
Margin Stability and the Cost of Capital
Valuation Multiples per Quartiles
Top and Bottom Performers—A Head-to-Head Comparison
Is There a Destiny with Belonging to a Sector?​
Case Study:​Royal Unibrew vs Carlsberg
The Pre-crisis Period (2006–2009)—Focus on Growth
The Post-crisis Period (2009–2012)
From 2013 Onwards
Case Study Summary
Case Study:​Elisa vs Telia
The Local Challenger Versus an Expanding Market Leader
The First Period (2006–2013)—The Devil Is in the Details
 The Second Period (2014–2020)—Time to Harvest the
Investments
The Evidence
Case Study Summary
Conclusions
Reference
4 Earnings quality
What is Earnings Quality?​
Quantifying Earnings Quality
Margin Volatility and Valuation
Business Strategy
Methods for Achieving the Strategy Change
Case Study:​Nolato
Earnings Quality and Shareholder Value Creation
Conclusions
Reference
Part II Cash Flow Deployment Alternatives
5 The Art of Deal-Making
What the Empirical Evidence Tells us About M&​A and Value
Creation
A Meta-Study Review
Public versus Private Deals
Probability of M&​A Success Based on Deal Type
Reviewing our Nordic Peer Group from an M&​A Perspective
Size Seems to Matter a Great Deal
The Nordic Sample According to the Clark and Mills
Categorisation
 Synergies—The Key to Unlock Value
How to Pay for an Acquisition
Conclusions
References
6 Portfolio Optimisation and Why Less So Often Is More
The Investor’s Take On What to Keep and What to Divest
Not Always a Conglomerate Discount
Multiple Drivers Behind Divestiture’s Operational Success and
Failures
Different Ways to Divest a Business Unit
Study Review—Nordic Spin-Offs
Strong Performance on Average But with a Wide Dispersion
TSR Drivers for the Various Groups
Case Study:​Novo Nordisk and Novozymes
Conclusions
References
7 Shareholder Remunerations—Time to Give Back?​
Why Dividend Policy Matters for Value Creation
The Power of Compounded Dividends
Ways to Distribute Excess Cash
Ordinary Dividends
Share Buybacks (SBB)
SBB—What to Consider?​
Conclusions
Reference
8 The Balancing Act of Finding the “Optimal” Capital Structure
 Capital Structure from the Academic Perspective
Minimizing the Cost of Capital
The Pecking Order and the Signalling Theory
Debt as a Corporate Governance Tool
Capital Structure from a Practical Perspective
The Cost of Financial Distress
Option Value of Financial Flexibility
How to Measure Leverage
Rating Agencies and Capital Structure
Conclusion
References
9 Winning Financial Strategies—Funding and Risk Considerations
Liquidity Back-up
Access to Capital
Credit Rating
Maturity Profile
Hybrid Bonds
Key Credit Ratios and FX Risks
Conclusions—Putting the Pieces Together
Part III Reading the Market and Thinking Like an Investor
10 Financial and Macro-economic Backdrop
Pre-COVID-19—Great Moderation and Secular Stagnation
The New Game Has Come—And We Are Still Making Up the
Rules
Post-COVID-19—Are We Heading for a New “Financial Regime”?​
Financial Regimes and Valuation
 Conclusions
References
11 Adopting an Investor Mind-Set
Disciplined Rule-Based Investing
Develop a Risk vs.​Reward Mind-Set
Risk Tolerance
Distribution and Probabilities
Expected Value
Thinking in Scenarios
Benefits of Stress Tests
Capital Budgeting and Scenario Thinking
How to Think When Setting Up Scenarios
Shareholder Activism
Conclusions
References
12 Downturns Rearrange the Board
Sharp Divergence in Performance During the Downturn
Recession Winners Pulled Ahead and Excelled Also in the Post-
recession Period
Growth Was the Largest TSR Driver for Recession Winners
Necessary to Move Past Survival Mode
During a Downturn, the Best Defence Can Be a Good Offensive
A Solid Financial Footing
Case Study:​Lindab
Equity Story and Business Case Leading Up to the Financial
Crisis
Highest Leverage in the Sector
 Growth Took a Beating After the Recession
Could a Stronger Balance Sheet Have Opened Up for a More
Offensive Post-recession Strategy?​
Conclusions
References
Part IV Put It All Together
13 Financial Targets and Policies—Capital Allocation Priorities in
Essence
Starting with Shareholder Feedback
Financial Targets Should Express the Company’s Ambition to
Create Value
Case Study:​A Telecom Company
Case Study:​Church &​Dwight
Capital Allocation Priorities
The “Self-Sustaining” Model
Pros and Cons with Different Targets
Earnings Quality—The Missing Piece of the Target Puzzle
Difficulties with Earnings Quality Targets
Risk with Unbalanced Targets
Earnings Quality in a KPI and Incentives Setting
TSR Rooted Targets That Changed Over Time—Coloplast Case
Study
Stage 1-Growth at Any Price
Stage 2-Balanced Profitable Growth Strategy
Stage 3-Back to a More Rigid Growth Target
Business Strategy and Financial Targets—Atlas Copco Case
Study
Business Strategy
 Financial Targets
Mapping the TSR to the Group-Wide Components of the
Business Strategy
Case Study Summary
Conclusions
References
14 An Investor-Based Evaluation Process
What are the Main Drivers of Total Shareholder Return?​
What do the Capital Allocation Priorities and Historical Cash
Flow Deployment Look Like?​
Financial targets
Cash Flow Deployment
Peer Comparison
What are the Current Market Expectations Embedded in the
Valuation Multiple?​
What Does an “Optimal” Capital Structure Look Like Given the
Capital Allocation Priorities?​
How Can the Capital Allocation and Financial Targets Be
Communicated to the Market?​
Are the Communicated Targets in Line with the Market’s
Views of Value Creation?​
Are the Targets Consistent with Each Other?​
Priority of Targets
15 A Three-Step Capital Allocation Framework
Step 1—Determine the Relative Importance of the Three Value
Drivers
Emphasis on the ROIC and the Durability of Excess Returns
Earnings Quality and Cost of Capital
 Growth—A Double-Edged Sword
Step 2—Evaluating Cash Flow Deployment Options With a
“Risk-Reward” Mind-Set
Maintenance and Strategic Investments
Acquired Growth—Comes With a Higher Risk to TSR
Why Less So Often Is More
Returning Excess Cash
Capital Structure
Step 3—A Practical Guide to Capital Allocation Priorities
Financial Target Priorities Aligned With Long-Term Value
Creation
Reference
Appendix 1:​Evaluating Management’s Capital Allocation Skills
Appendix 2:​A Business Strategy Summary
Appendix 3:​ROIC Calculation Extended
References
Index
List of Figures
Fig.​1.​1 The corporate “eco-system”

Fig.​2.​1 How the enterprise value can be linked to the three value
drivers

Fig.​2.​2 Balancing profitability and growth in an “iso-value” curve

Fig.​3.​1 TSR decomposition

Fig.​3.​2 TSR decomposition per quartile

Fig.​3.​3 Median ROIC development per quartile (Dec 2006–Dec 2020)

Fig.​3.​4 Median growth development per quartile (2007–2020)

Fig.​3.​5 Average “margin quality” per quartile (Dec 2006–Dec 2020)

Fig.​3.​6 12m forward-looking EV/​EBITDA multiple per quartile

Fig.​3.​7 Multiple roads lead to Rome—Quartile 1 companies with

similar TSR performance but different drivers (Dec 2006–Dec 2020)

Fig.​3.​8 TSR CAGR distribution for the telecom and pulp and paper
companies
Fig.​3.​9 TSR development (Dec 2006–Dec 2020)

Fig.​3.​10 ROIC including goodwill (2007–2020)

Fig.​3.​11 TSR development (Dec 2006–Dec 2020)

Fig.​3.​12 ROIC including goodwill (2007–2020)

Fig.​4.​1 “Margin volatility ratio”

Fig.​4.​2 The correlation between our proxy measure for earnings

quality and valuation differs between high and low-growth companies

Fig.​4.​3 Nolato TSR decomposition (Dec 2006–Dec 2020)

Fig.​6.​1 Average excess TSR SpinCo

Fig.​6.​2 TSR decomposition SpinCo (3 years)

Fig.​9.​1 Strike the desired balance and level of risk

Fig.​9.​2 A conceptual approach to calibrating the liquidity buffer

Fig.​9.​3 Balanced risk between business model, capital structure, and
funding

Fig. 10.1 From Keynesianism to free markets and supply-side focus

(Source http://www.econ.yale.edu/~shiller/data.htm)

Fig. 10.2 CAPE ratio (Source

http://www.econ.yale.edu/~shiller/data.htm)

Fig.​11.​1 A stylized version of the probabilities of potential macro-

economic scenarios with a skewed fat-tailed distribution

Fig.​12.​1 Median TSR development (December 2003–December 2012)

Fig.​12.​2 TSR decomposition for our Nordic sample—yearly average

(December 2006–December 2009)

Fig.​12.​3 Median CAPEX/​depreciation ratio for our Nordic sample

(2006–2012)

Fig.​12.​4 Net debt/​equity for our Nordic sample (2006–2012)

Fig.​12.​5 TSR development for Lindab versus peers (November 2007–

December 2012)

Fig.​12.​6 CAPEX/​depreciation and amortization and net acquisition

spend to sales
Fig.​13.​1 Financial targets linked to value creation proposition

Fig.​13.​2 TSR decomposition (Dec 2005–Dec 2022)

Fig.​13.​3 Balanced pay-out ratio given a growth target of 5%

Fig.​13.​4 Financial targets overview linked to the three value drivers

Fig.​13.​5 Coloplast TSR decomposition (Dec 2006–Dec 2012)

Fig.​13.​6 Coloplast TSR decomposition (Dec 2012–Dec 2022)

Fig. 13.7 Atlas Copco’s TSR drivers in a value creation and business
strategy context (Note: CL = Cost Leadership, Diff = Diffrentiation, Div =
Diversification, N = Niche, BO = Blue Ocean (*) Including the spin-off of
Epiroc)

Fig.​14.​1 Sandvik TSR decomposition (Dec 2010–Dec 2022)

Fig.​14.​2 Sandvik’s cash flow deployment (2015–2021)

Fig.​14.​3 Modelled EV/​EBIT Versus Market Observed EV/​EBIT

Fig.​15.​1 Capital allocation in a risk-reward perspective

Fig.​15.​2 Capital aligning the value creation proposition with the
financial targets
© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023
T. Arenbo, Capital Allocation and Value Creation
https://doi.org/10.1007/978-3-031-47048-6_1

1. Introduction
Torbjö rn Arenbo1
(1) Malmö , Sweden

In order to run a company efficiently, it is not sufficient to simply be a

competent businessperson. One must also possess the skills of a
knowledgeable investor. The management must determine where to
invest capital given the diverse range of investment options available,
such as mergers and acquisitions (M&A), dividends, share repurchase
programmes, and organic growth opportunities.
By adopting a practical, market-oriented approach to capital
allocation, we aim to shed light on the complex issue of cash flow
deployment and the creation of shareholder value. The book provides a
useful analytical framework for corporate executives to consider when
allocating capital, along with empirical findings from peer-group
studies and company case studies.
The book will help you answer questions like:
What are the primary factors that drive your company’s shareholder
value? And are they aligned with the strategy the company is
pursuing?
What are the key dynamics and trade-offs between return on
investments (ROIC), growth, and earnings quality?
What are the current market expectations embedded in the stock
price?
Given the capital allocation priorities, what does an “optimal” capital
structure look like?
How do you set, and in turn communicate, the capital allocation and
funding priorities?
To Master Capital Allocation, You Have to Think
Like an Investor
The art and science of capital allocation are not taught at the
universities. In order to learn and master this subject you have to find
and put together the pieces yourself. One crucial ingredient to
successful capital allocation is to think and act like an investor. That
typically includes having an analytical mind-set with a clear and
objective stance towards risk and reward. And maybe that is one reason
why so many corporate executives struggle to reach the required skill
set when it comes to capital allocation. Research conducted on CEOs’
personality traits shows a high score for characters like execution
ability, charisma, and strategic ability. However, compared to the larger
peer group consisting of, for example, CFOs and COOs, they score lower
on typical “investor traits” like analytical ability and attention to detail.
See Kaplan and Sorensen (2020) and Graham et al. (2013).
It does, however, not explain the surprisingly limited attention the
capital allocation as a subject gets compared to other financial and
managerial topics. Except for Warren Buffet and Charlie Munger and
the attention Wiliiam Thorndike received for his book “Outsiders”, not
many books have made it to a broader audience. See Thorndike (2012).
But as Warren Buffet puts it: “Most bosses rise to the top because
they have excelled in an area such as marketing, production, engineering,
administration or, sometimes, institutional politics. Once they become
CEOs, they face new responsibilities. They now must make capital
allocation decisions, a critical job that they may have never tackled and
that is not easily mastered. In the end, plenty of unintelligent capital
allocation takes place in corporate America. That’s why you hear so much
about “restructuring.”” Buffet (1987).
What stands out in Thorndike’s “Outsiders” is how the eight
reviewed CEOs manage to think as long-term owners with a strong
focus on how each dollar best can be put into use. In several of the eight
cases, the CEOs had a very close and long-lasting relation with the COO,
who was given a large responsibility for the day-to-day operations of
the firm, allowing the CEO to focus on allocating capital and resources.
The CEO’s skills as a capital allocator will evidently be one of the top
differentiating drivers for the value creation over the longer term. A fact
that will become evident in this book.

The Corporate “Eco-System”

The cash flow a company generates can, broadly speaking, be deployed
in two different ways. Either it is used to grow the business, organically
or through acquisitions, or it is returned to investors through
dividends, share buybacks, or amortization of debt (Fig. 1.1).
Fig. 1.1 The corporate “eco-system”
One of the big challenges with capital allocation is how to compare
different cash flow deployment alternatives with each other. In practice,
it means being able to adequately handle questions like:
How can we ensure that the capital allocation decisions are aligned
with the long-term profitability and growth targets?
How should the CEO allocate resources to different business units
displaying varying prospects for growth and profitability?
What criteria should be used to evaluate potential acquisition targets
or investment opportunities?
What should the balance look like between investing in the core
business versus exploring new growth opportunities?
A company has excess cash to return to shareholders but the share
price trades at a historically low multiple. Should the company
increase the ordinary dividend, pay out an extra dividend, or start
buying back shares?
A company has recently acquired another business, partially funded
by issuing new shares. Despite the recent stock issuance, should the
company still pay the regular dividend to its shareholders?
The debt to enterprise value ratio for a company is indicating a
fragile financial position. What would a cost–benefit analysis of
issuing new shares look like?

Using the Market for Guidance

The financial market is a rich source of information that can provide
guidance to the capital allocation process. According to financial theory,
value creation is determined by a company's return on investment
capital (ROIC), growth, and cost of capital. However, some may question
the relationship between valuation theory and market prices, given the
apparent high volatility in the stock market.
However, when we and others compare the theoretical value drivers
with empirical data, we find a strong correlation between the
performance drivers and stock market valuation, particularly over the
long run. This correlation highlights the valuable insights that the
market can provide to capital allocators.
 In fact, an effective capital allocation process should not only rely on
sound theory but also leverage the valuable information available in the
market. Capital allocators with profound understanding of the market
can greatly impact value creation for their companies.
This book takes a practical approach to help corporate executives
understand how to use the information provided by the market as
input in their capital allocation process. We will discuss how to analyze
market data and use it to evaluate potential investment opportunities,
and how to balance theoretical frameworks with real-world market
insights. By the end of this book, readers will have a solid
understanding of how to optimize their capital allocation decisions
using the market as a powerful tool.

The Structure of the Book

The book is structured in four parts. The first three parts will in turn
focus on various aspects of value creation, the cash flow deployment
alternatives, and the insights gained by being able to read the market
and think like an investor. The fourth and final part is where the
framework comes together.
In Part I, comprising three chapters, we begin by introducing a
theoretical framework for assessing and analyzing value creation. The
aim is to gain a better understanding of the balance and interplay
between ROIC, growth, and the cost of capital. We then supplement the
analytical framework by adopting a market-based approach to shed
light on the delicate question of capital allocation and shareholder
value creation. Finally, in Part I, we discuss how management could
consider the link between earnings quality and shareholder value
creation.
Moving on to Part II, consisting of five chapters, we explore the
various alternatives for capital allocation and cash flow deployment
available to management. We initiate the discussion by focusing on a
topic of high priority on many managers' agendas: Mergers and
Acquisitions (M&As). We then proceed to review different aspects of
business downsizing, such as divestment or spinning off a business
unit. Additionally, we delve into the means by which capital can be
returned to investors through dividends and share buybacks. Part II
concludes by highlighting several aspects related to establishing the
desired risk level for the capital structure and funding.
Part III, consisting of three chapters, starts by providing a macro-
economic background and introducing how investor preferences may
vary across different financial policy regimes. Furthermore, we explore
how corporate managers can benefit from adopting an “investor
mindset” when allocating capital. Specifically, we emphasize three
typical investor skills: developing a well-defined risk-reward mind-set,
employing a rule-based approach to investing, and utilizing various
techniques for scenario modelling. Part III concludes with an empirical
study focused on how a company can emerge as a winner from a
recession.
Finally, in Part IV, we tie the first three parts of the book together in
a capital allocation framework. We start by discussing financial targets
and provide guidance on how to set them in accordance to the company
´s most important value drivers. We then present a case study of what a
markets-based capital allocation process could look like. The summary
chapter of the book contains a comprehensive three-step capital
allocation framework.
Whether you are a business leader, financial analyst, or investor, this
book will provide you with an easy-to-use framework for capital
allocation as well as give you better insights to the workings of the
financial markets, with the ultimate goal to drive value creation.

References
Buffet WE (1987) Letter to Shareholders. Berkshire Hathaway Annual Report.

Graham JR, Harvey CR, Puri M (2013) Managerial Attitudes and Corporate Actions.
Journal of Financial Economics 109:103–121.
[Crossref]

Kaplan SN, Sorensen M (2020) Are CFOs Different? Published online. https://​papers.​
ssrn.​c om/​sol3/​papers.​c fm?​abstract_​id=​2747691.

Thorndike WN (2012) The Outsiders: Eight Unconventional CEOs and Their

Radically Rational Blueprint for Success. Harvard Business School Publishing.
Part I
The Value Drivers That Matters

In the first part of this book, we will present a powerful framework for
value creation based on three value drivers: Return on Invested Capital
(ROIC), growth, and cost of capital. We have chosen to use a set-up
based on ROIC rather than a Discounted Cash Flow (DCF) model for
pedagogical reasons. However, the two models are linked, and with
correctly defined terms, they will yield the same results.
The first step business leaders must take on their journey to create
more value is to get the capital allocation priorities right. The specific
strategy to adopt and the appropriate value creation lever to pull can
vary greatly from one company to another. In capital allocation,
unfortunately, "one size fits all" does not apply. Another layer of
complexity is added by the fact that the relationship between the value
drivers is non-linear. This makes it hard to understand the valuation
"trade-offs" between ROIC, growth, and cost of capital intuitively.
As a tool to better understand value creation, we will introduce a
Total Shareholder Return (TSR) model. The TSR model allows
managers to evaluate the overall performance of a company's stock
over a given period of time. By analyzing the different factors that
influence TSR, managers can gain important insights into what drives
the market value of the company. We highlight how the TSR framework
can be used in practice by conducting a large peer-group study as well
as through two in-depth case studies.
We conclude part one by shedding some extra light on the
sometimes overlooked role that earnings quality plays in the valuation
process. Earnings quality is tightly linked to valuation through its
strong correlation with the cost of capital. The last two decades have
been characterized by low nominal growth, which has led many
managers to prioritize growth as a top strategic priority. However, for a
large proportion of companies, increased profitability and margin
stability would bring much greater reward in terms of shareholder
Another random document with
no related content on Scribd:
A boa arte de reinar
Em um coração rendido,
A não serdes vós nascido,
Não se pudera imitar:
Vós não podeis ensinar
Com paridades e apodos
Os bons meios e os bons modos,
Com que todo o mundo embaça,
Porque sempre estaes de graça,
Por fazer-nos graça á todos.

O generoso da mão,
O coração varonil,
Onde vos cabe o Brazil,
E sobeja coração:
Com pobres a compaixão,
Com ricos o liberal,
Na amizade tão leal,
Na palavra tão massiço,
Para mim tudo é feitiço,
Sendo tudo natural.
 DESPEDE-SE
O P. DA BAHIA QUANDO FOI DEGRADADO PARA ANGOLA

Adeus, praia; adeus, cidade,

E agora me deverás,
Velhaca, dar eu a Deus
A quem devo ao demo dar.

Quero agora que me devas

Dar-te a Deus, como quem cahe,
Sendo que estás tão cahida,
Que nem Deus te quererá:

Adeus, povo; adeus, Bahia,

Digo canalha infernal,
E não fallo na nobreza,
Tabula era que se não dá.

Porque o nobre emfim é nobre,

Quem honra tem, honra dá,
Picaros dão picardias,
E ainda lhes fica que dar

E tu, cidade, és tão vil,

Que o que em ti quizer campar
Não tem mais do que metter-se
A magano, e campará.

Seja ladrão descoberto,

E qual aguia imperial
Tenha na unha o rapante,
E na vista o prespicaz.
A uns compre, a outros venda,
Que eu lhe seguro o medrar,
Seja velhaco notorio,
E tramoeiro fatal.

Compre tudo e pague nada,

Deva aqui, deva acolá,
Perca o pejo e a vergonha,
E si casar case mal.

Porfiar em ser fidalgo,

Que com tanto se achará:
Si tiver mulher formosa,
Gabe-a por esses poiaes;

De virtuosa talvez,
E de entendida outro tal;
Introduza-se ao burlesco
Nas casas onde se achar.

Que ha donzellas de belisco,

E aos punhos se gastára,
Tracte-lhes um galanteio,
E um....., que é o principal.

Arrime-se a um poderoso,
Que lhe alimente o gargaz,
Que ha pagadores na terra
Tão duros como no mar

A estes faça alguns mandados

A titulo de agradar,
E conserve o affectuoso
Confessando desegual.
Intime-lhe a fidalguia,
Que eu creio que lh’o crerá,
E que fique ella por ella
Quando lhe ouvir outro tal.

Vá visitar os amigos
No engenho de cada qual,
E comendo-os por um pé
Nunca tire o pé de lá.

Que os Brazileiros são bestas,

E estarão a trabalhar
Toda a vida, por manterem
Maganos de Portugal.

Como se vir homem rico,

Tenha cuidado em guardar,
Que aqui honram os mofinos,
E mofam dos liberaes.

No Brazil a fidalguia
No bom sangue nunca está,
Nem no bom procedimento:
Pois logo em que póde estar?

Consiste em muito dinheiro,

E consiste em o guardar,
Cada um a guardar bem,
Para ter que gastar mal.

Consiste em da-lo a maganos

Que o saibam lisongear,
Dizendo que é descendente
Da casa de Villa Real.
Si guardar o seu dinheiro,
Onde quizer casará,
Que os sogros não querem homens,
Querem caixas de guardar.

Não coma o genro, nem vista,

Que esse é genro universal,
Todos o querem por genro,
Genro de todos será.

Oh! assolada veja eu

Cidade tão suja e tal,
Avesso de todo o mundo,
Só direita em se entortar.

Terra, que não se parece

Neste mappa universal
Com outra; e ou são ruins todas,
Ou ella sómente é má.

FIM DO TOMO PRIMEIRO

 INDICE DO TOMO I
Introducção V
Vida do dr. Gregorio de Mattos Guerra pelo 1
licenceado Manuel Pereira Rebello
Aos vicios: tercetos 41
Benze-se o P. de varias acções que 45
observava na sua patria
Reprovações 48
Verdades 53
Justiça que faz o P. na honra hypocrita pelos 67
estragos que anda fazendo na verdadeira
honra
Dialogo entre o Demonio e a Alma 73
Contra os ingratos murmuradores do bem 77
que actualmente recebem da mãe universal,
que os affaga, se queixa a Bahia,
confessando-se das culpas, que lhe dão,
pelos preceitos do Decalogo
Á gente da Bahia 100
Observações criticas sobre varias materias 109
por occasião do cometa apparecido em 1680
A fome que houve na Bahia no anno de 1691 116
Retrato do governador Antonio Luiz da 120
Camara Coutinho
Milagres do Brazil. Ao padre Lourenço 126
Ribeiro, homem pardo, que foi vigario da
freguezia de Passé
A um homem humilde que se metteu a 130
fidalgo
A uma briga que teve certo vigario com um 134
ourives por causa de uma mulata
A prisão de duas mulatas por uma querella 138
que d’ellas deu o celebre capitão Domingos
Cardoso, de alcunha o Mangará, pelo furto
de um papagaio
Epigramma sobre varios assumptos 141
Descreve o P. racional e verdadeiramente 144
queixoso os extravagantes meios com que
os extranhos dominam indignamente sobre
os naturaes na sua patria
Retrato do governador Antonio de Sousa de 154
Menezes, chamado o Braço de Prata: sylva
Ao confessor do arcebispo d. frei João da 159
Madre de Deus
Em 1686 diminuiram aquelle valor a que se 164
havia erguido a moeda quando o P. estava
na côrte, onde então com seu alto juizo
sentiu mal do arbitrista que assim o
aconselhára a el-rei, &
Retrato do padre Damaso da Silva 168
Marinicolas 172
Ao Braço Forte, estando preso por ordem do 180
governador Braço de Prata
Á D. João de Alencastre, que vindo do 185
governo de Angola por escala a Bahia, e
estando nella hospede do governador
Antonio Luiz Gonçalves da Camara
Coutinho, seu cunhado, em cujo desagrado
se achava o P., se queixou de que este o não
houvesse visitado, pedindo-lhe que ao
menos lhe fizesse uma satyra por obsequio
Á João Gonçalves da Camara Coutinho, filho 188
do dito governador Antonio Luiz Gonçalves
da Camara, tomando posse de uma
Companhia de infantes em dia de S. João
Baptista, assistindo-lhe de sargento seu tio
dom João de Alencastre
Á Pedro Alvres da Neiva, quando embarcou 191
para Portugal: romance
No Boqueirão de S. Antonio do Carmo, 197
dentro de uma peça de artilharia
descavalgada esteve muitos dias uma cobra
surucucú assaltando aos que passavam com
morte de varias pessoas, sendo governador
Antonio Luiz Gonçalves da Camara Coutinho
(é este o assumpto da poesia): romance
Á Brites, uma parda dama, vulgarmente 200
chamada Betica, pedindo-lhe cem mil réis:
romance
Á Annica, outra similhante parda, pedindo- 204
lhe um cruzado para pagar uns sapatos:
romance
Á umas moças que costumavam ir a uma 207
roça: romance
Á mulata Joanna Gafeira, estando queixosa 209
do P. a haver satyrisado
Á Damazia, outra mulata que chamava seu 212
um vestido que trazia de sua senhora:
romance
Á uma dama por nome Ignacia Paredes: 215
romance
Á uma moça por nome Barbara: romance 219
Satyrisa allegoricamente a varios ladrões da 223
republica: romance
Ao padre Damaso da Silva: romance 232
Á Bento Pereira: romance 237
Aos cavalleiros que correram na Festa das 239
Virgens no anno de 1685, primeiro do
govêrno do marquez das Minas
Á cavallaria da Festa das Virgens no tempo 249
do governo de João de Alencastre, sendo
juiz Gonçalo Ravasco Cavalcante de
Albuquerque
Chegando o marquez das Minas a governar 264
o Estado com o conde do Prado, seu filho,
tractou logo de alliviar os magnates da
Bahia, chamando-os do desterro em que
padeciam, amedrontados do seu antecessor
pela morte que outros deram ao alcaide mór
Francisco Telles, e por acção de graças lhe
fez o secretario de Estado Bernardo Vieira
Ravasco esta decima, que o P. glozou com
os primeiros costumados metaphoricamente
Á uns clerigos, que indo ao exame do 270
cantochão para ordens sacras na presença
do arcebispo d. João Franco de Oliveira,
desafinaram perturbados
Epistola ao conde do Prado: romance 273
Á tres freiras do Convento da Rosa, todas 277
irmãs, a quem ouviu o auctor cantar, e a uma
tanger rabecão
Á duas moças pardas 280
Á sogra de Gonçalo Dias, mandando-lhes 283
uns sonhos
Á Brites, uma dama pretendida de muitos e 286
de nenhum lograda
Conversa que teve o auctor em uma roça 289
com a mesma dama
Á mesma Brites, arrependida de haver 291
casado
Á uma moça chamada Thereza, de côr 294
trigueira
Á uma dama a quem o P. em certa occasião 296
achou mais formosa do que costumava ver
Á uma dama esquiva 299
Dando uma que da á vista de uma dama, 302
que se entende ser a celebrada Babú
Julga o P. com subtileza a culpa de 305
acontecimentos iniquos no tempo abstracto.
Entende-se ser esta obra satyra ao
governador Antonio de Sousa de Menezes,
por alcunha o Braço de Prata
Á Luiz Cesar de Menezes, governador de 309
Angola, pedindo-lhe de Carconda certo favor
ou despacho por titulos de comedias
Redargue o P. a doutrina ou maxima do bem 312
viver que muitos politicos seguem de
involver-se na confusão de homens perdidos
o nescios, para passarem com menos
incommodo esta humana vida
Descreve o rico feitio de um celebre Gregorio 318
de Negreiros, em que varias vezes falla,
moço com quem gracejava com divertimento
naquelle sitio
Á Henrique da Cunha, chegando do sitio da 321
Itapema á Cajahyba
Pedindo-se a soltura de um mulato á seu 326
senhor
Á Antonia, moça parda de Pernamirim 329
chamada vulgarmente Catona
Á mesma Catona, despedindo-se o auctor de 332
Pernamirim para a villa de S. Francisco
Á Annica, uma mulata da Cajahyba 335
Á uma mulata de Pernamirim chamada Luzia 338
Á Antonia, moça parda, chamada a 341
Marimbonda, que morava na rua da Poeira, e
a viu o P. no Campo da Palma debaixo de
uma urupemba em casa de uma amiga.
Allude ao remedio sympathico de se queimar
a casa dos marimbondos, para se extinguir
logo a dôr das suas picadas
Saudoso de Pernamirim e por occasião de 344
haver visto na villa de S. Francisco, onde
estava, um moleque chamado Moçorongo,
escreve a um amigo d’aquelle sitio: romance
Escreve tambem queixoso a um seu amigo 347
Ignacio, morador em Pernamirim, em quem
falla no romance antecedente: romance
Á Antonio de Andrade, sendo dispenseiro da 351
Misericordia
Ao capitão João Rodrigues dos Reis, homem 354
generoso e alentado, grande amigo do P.
Despede-se o P. da Bahia quando foi 357
degradado para Angola
 Nota
A capa foi criada pelo transcritor e se coloca no dominio publico.
 *** END OF THE PROJECT GUTENBERG EBOOK OBRAS
POETICAS DE GREGORIO DE MATTOS GUERRA - TOMO I ***

Updated editions will replace the previous one—the old editions

will be renamed.

Creating the works from print editions not protected by U.S.

copyright law means that no one owns a United States copyright
in these works, so the Foundation (and you!) can copy and
distribute it in the United States without permission and without
paying copyright royalties. Special rules, set forth in the General
Terms of Use part of this license, apply to copying and
distributing Project Gutenberg™ electronic works to protect the
PROJECT GUTENBERG™ concept and trademark. Project
Gutenberg is a registered trademark, and may not be used if
you charge for an eBook, except by following the terms of the
trademark license, including paying royalties for use of the
Project Gutenberg trademark. If you do not charge anything for
copies of this eBook, complying with the trademark license is
very easy. You may use this eBook for nearly any purpose such
as creation of derivative works, reports, performances and
research. Project Gutenberg eBooks may be modified and
printed and given away—you may do practically ANYTHING in
the United States with eBooks not protected by U.S. copyright
law. Redistribution is subject to the trademark license, especially
commercial redistribution.

START: FULL LICENSE

THE FULL PROJECT GUTENBERG LICENSE
 PLEASE READ THIS BEFORE YOU DISTRIBUTE OR USE THIS WORK

To protect the Project Gutenberg™ mission of promoting the

free distribution of electronic works, by using or distributing this
work (or any other work associated in any way with the phrase
“Project Gutenberg”), you agree to comply with all the terms of
the Full Project Gutenberg™ License available with this file or
online at www.gutenberg.org/license.

Section 1. General Terms of Use and

Redistributing Project Gutenberg™
electronic works
1.A. By reading or using any part of this Project Gutenberg™
electronic work, you indicate that you have read, understand,
agree to and accept all the terms of this license and intellectual
property (trademark/copyright) agreement. If you do not agree to
abide by all the terms of this agreement, you must cease using
and return or destroy all copies of Project Gutenberg™
electronic works in your possession. If you paid a fee for
obtaining a copy of or access to a Project Gutenberg™
electronic work and you do not agree to be bound by the terms
of this agreement, you may obtain a refund from the person or
entity to whom you paid the fee as set forth in paragraph 1.E.8.

1.B. “Project Gutenberg” is a registered trademark. It may only

be used on or associated in any way with an electronic work by
people who agree to be bound by the terms of this agreement.
There are a few things that you can do with most Project
Gutenberg™ electronic works even without complying with the
full terms of this agreement. See paragraph 1.C below. There
are a lot of things you can do with Project Gutenberg™
electronic works if you follow the terms of this agreement and
help preserve free future access to Project Gutenberg™
electronic works. See paragraph 1.E below.
1.C. The Project Gutenberg Literary Archive Foundation (“the
Foundation” or PGLAF), owns a compilation copyright in the
collection of Project Gutenberg™ electronic works. Nearly all the
individual works in the collection are in the public domain in the
United States. If an individual work is unprotected by copyright
law in the United States and you are located in the United
States, we do not claim a right to prevent you from copying,
distributing, performing, displaying or creating derivative works
based on the work as long as all references to Project
Gutenberg are removed. Of course, we hope that you will
support the Project Gutenberg™ mission of promoting free
access to electronic works by freely sharing Project
Gutenberg™ works in compliance with the terms of this
agreement for keeping the Project Gutenberg™ name
associated with the work. You can easily comply with the terms
of this agreement by keeping this work in the same format with
its attached full Project Gutenberg™ License when you share it
without charge with others.

1.D. The copyright laws of the place where you are located also
govern what you can do with this work. Copyright laws in most
countries are in a constant state of change. If you are outside
the United States, check the laws of your country in addition to
the terms of this agreement before downloading, copying,
displaying, performing, distributing or creating derivative works
based on this work or any other Project Gutenberg™ work. The
Foundation makes no representations concerning the copyright
status of any work in any country other than the United States.

1.E. Unless you have removed all references to Project

Gutenberg:

1.E.1. The following sentence, with active links to, or other

immediate access to, the full Project Gutenberg™ License must
appear prominently whenever any copy of a Project
Gutenberg™ work (any work on which the phrase “Project
Gutenberg” appears, or with which the phrase “Project
Gutenberg” is associated) is accessed, displayed, performed,
viewed, copied or distributed:

This eBook is for the use of anyone anywhere in the United

States and most other parts of the world at no cost and with
almost no restrictions whatsoever. You may copy it, give it
away or re-use it under the terms of the Project Gutenberg
License included with this eBook or online at
www.gutenberg.org. If you are not located in the United
States, you will have to check the laws of the country where
you are located before using this eBook.

1.E.2. If an individual Project Gutenberg™ electronic work is

derived from texts not protected by U.S. copyright law (does not
contain a notice indicating that it is posted with permission of the
copyright holder), the work can be copied and distributed to
anyone in the United States without paying any fees or charges.
If you are redistributing or providing access to a work with the
phrase “Project Gutenberg” associated with or appearing on the
work, you must comply either with the requirements of
paragraphs 1.E.1 through 1.E.7 or obtain permission for the use
of the work and the Project Gutenberg™ trademark as set forth
in paragraphs 1.E.8 or 1.E.9.

1.E.3. If an individual Project Gutenberg™ electronic work is

posted with the permission of the copyright holder, your use and
distribution must comply with both paragraphs 1.E.1 through
1.E.7 and any additional terms imposed by the copyright holder.
Additional terms will be linked to the Project Gutenberg™
License for all works posted with the permission of the copyright
holder found at the beginning of this work.

1.E.4. Do not unlink or detach or remove the full Project

Gutenberg™ License terms from this work, or any files
containing a part of this work or any other work associated with
Project Gutenberg™.
 1.E.5. Do not copy, display, perform, distribute or redistribute
this electronic work, or any part of this electronic work, without
prominently displaying the sentence set forth in paragraph 1.E.1
with active links or immediate access to the full terms of the
Project Gutenberg™ License.

1.E.6. You may convert to and distribute this work in any binary,
compressed, marked up, nonproprietary or proprietary form,
including any word processing or hypertext form. However, if
you provide access to or distribute copies of a Project
Gutenberg™ work in a format other than “Plain Vanilla ASCII” or
other format used in the official version posted on the official
Project Gutenberg™ website (www.gutenberg.org), you must, at
no additional cost, fee or expense to the user, provide a copy, a
means of exporting a copy, or a means of obtaining a copy upon
request, of the work in its original “Plain Vanilla ASCII” or other
form. Any alternate format must include the full Project
Gutenberg™ License as specified in paragraph 1.E.1.

1.E.7. Do not charge a fee for access to, viewing, displaying,

performing, copying or distributing any Project Gutenberg™
works unless you comply with paragraph 1.E.8 or 1.E.9.

1.E.8. You may charge a reasonable fee for copies of or

providing access to or distributing Project Gutenberg™
electronic works provided that:

• You pay a royalty fee of 20% of the gross profits you derive from
the use of Project Gutenberg™ works calculated using the
method you already use to calculate your applicable taxes. The
fee is owed to the owner of the Project Gutenberg™ trademark,
but he has agreed to donate royalties under this paragraph to
the Project Gutenberg Literary Archive Foundation. Royalty
payments must be paid within 60 days following each date on
which you prepare (or are legally required to prepare) your
periodic tax returns. Royalty payments should be clearly marked
as such and sent to the Project Gutenberg Literary Archive
Foundation at the address specified in Section 4, “Information
 about donations to the Project Gutenberg Literary Archive
Foundation.”

• You provide a full refund of any money paid by a user who

notifies you in writing (or by e-mail) within 30 days of receipt that
s/he does not agree to the terms of the full Project Gutenberg™
License. You must require such a user to return or destroy all
copies of the works possessed in a physical medium and
discontinue all use of and all access to other copies of Project
Gutenberg™ works.

• You provide, in accordance with paragraph 1.F.3, a full refund of

any money paid for a work or a replacement copy, if a defect in
the electronic work is discovered and reported to you within 90
days of receipt of the work.

• You comply with all other terms of this agreement for free
distribution of Project Gutenberg™ works.

1.E.9. If you wish to charge a fee or distribute a Project

Gutenberg™ electronic work or group of works on different
terms than are set forth in this agreement, you must obtain
permission in writing from the Project Gutenberg Literary
Archive Foundation, the manager of the Project Gutenberg™
trademark. Contact the Foundation as set forth in Section 3
below.

1.F.

1.F.1. Project Gutenberg volunteers and employees expend

considerable effort to identify, do copyright research on,
transcribe and proofread works not protected by U.S. copyright
law in creating the Project Gutenberg™ collection. Despite
these efforts, Project Gutenberg™ electronic works, and the
medium on which they may be stored, may contain “Defects,”
such as, but not limited to, incomplete, inaccurate or corrupt
data, transcription errors, a copyright or other intellectual
property infringement, a defective or damaged disk or other
medium, a computer virus, or computer codes that damage or
cannot be read by your equipment.

1.F.2. LIMITED WARRANTY, DISCLAIMER OF DAMAGES -

Except for the “Right of Replacement or Refund” described in
paragraph 1.F.3, the Project Gutenberg Literary Archive
Foundation, the owner of the Project Gutenberg™ trademark,
and any other party distributing a Project Gutenberg™ electronic
work under this agreement, disclaim all liability to you for
damages, costs and expenses, including legal fees. YOU
AGREE THAT YOU HAVE NO REMEDIES FOR NEGLIGENCE,
STRICT LIABILITY, BREACH OF WARRANTY OR BREACH
OF CONTRACT EXCEPT THOSE PROVIDED IN PARAGRAPH
1.F.3. YOU AGREE THAT THE FOUNDATION, THE
TRADEMARK OWNER, AND ANY DISTRIBUTOR UNDER
THIS AGREEMENT WILL NOT BE LIABLE TO YOU FOR
ACTUAL, DIRECT, INDIRECT, CONSEQUENTIAL, PUNITIVE
OR INCIDENTAL DAMAGES EVEN IF YOU GIVE NOTICE OF
THE POSSIBILITY OF SUCH DAMAGE.

1.F.3. LIMITED RIGHT OF REPLACEMENT OR REFUND - If

you discover a defect in this electronic work within 90 days of
receiving it, you can receive a refund of the money (if any) you
paid for it by sending a written explanation to the person you
received the work from. If you received the work on a physical
medium, you must return the medium with your written
explanation. The person or entity that provided you with the
defective work may elect to provide a replacement copy in lieu
of a refund. If you received the work electronically, the person or
entity providing it to you may choose to give you a second
opportunity to receive the work electronically in lieu of a refund.
If the second copy is also defective, you may demand a refund
in writing without further opportunities to fix the problem.

1.F.4. Except for the limited right of replacement or refund set

forth in paragraph 1.F.3, this work is provided to you ‘AS-IS’,
WITH NO OTHER WARRANTIES OF ANY KIND, EXPRESS