BCG Value Mgmt Framework

:s t , 1998 2:01 1 - 996 N y 00 0606 312:s t , 1998 2:01 2 - 996 :s t , 1998 2:01 3 - 996 CGs by &L to a of s of by to of No to if is or of if in is up or o in to in a by o CGs to in to on on to by of to by of a to of of to to to of 0:s t , 1998 2:01 4 - 996 S A . 0 . 00 . 10 . 20 . 30 . 40 . 50 . 60 . 70 . 80 . 91 . 00 1 2 3 4 5 6 7Y e a rU s e f u lO u t p u t( o rS u r v i v o r s ):s t , 1998 2:01 5 - 996 *) of OC to $357 = 1)(12,000 - 2,000) of a r 1 2 43 843 843 14 714 714 ,557 1,557 1,557 2,000 12,000 12,000 1,286 7,716 3,432 %) %) 13 13 13 %) 10 10 10 = ( )/12,000 $1,557 $2,000 10% :s t , 1998 2:01 6 - 996 r 1 2 ) 843 843 843 ) 11,286 7,716 3,432 of ) ) 1,129 772 343 (286) 71 500 ) 1,557 1,557 1,557 ) 12,000 12,000 12,000 of ) ) 1,200 1,200 1,200 *)(10) 357 357 357 0 0 0 F *) of OC to $357 = 1)(12,000 - 2,000) of a 12,000 $1,557 $2,000 10% :s t , 1998 2:01 7 - 996 c c o u n t i n g M e a s u r e s F a i l( E . P . S . G r o w t h )V a l u e L i n e I n d u s t r i a l s - 1 9 9 4 0 . 0 705101520253035404550- 1 0 0 - 8 0 - 6 0 - 4 0 - 2 0 0 20 40 60 80 100E . P . S . G r o w t h 1 9 9 3 - 1 9 9 4c c o u n t i n g M e a s u r e s F a i l( R O E S p r e a d )V a l u e L i n e I n d u s t r i a l s - 1 9 9 4 0 . 3 30 . 1110- 5 0 - 4 0 - 3 0 - 2 0 - 1 0 0 10 20 30 40 50R O E m i n u s C A P M C o s t o f E q u i t c c o u n t i n g M e a s u r e s F a i l( R O C E S p r e a d )V a l u e L i n e I n d u s t r i a l s - 1 9 9 4 0 . 3 20 . 1110- 2 0 - 1 5 - 1 0 5 10 15 20 25 30R O C E m i n u s C A P M C o s t o f C a p i t a c o n o m i c C a s h F l o w M e a s u r e s D o u b l eA b i l i t y t o E x p l a i n V a l u R O I S p r e a d - V / L I n d u s t r i a l s - 1 9 9 4 0 . 6 10 . 1110- 1 0 5 10 15 20 25 30C F R O I m i n u s D i s c o u n t R a t :s t , 1998 2:01 8 - 996 a l u e / C o s t V e r s u s R O C E - C A P M C o s t o f C a p i t a lV a l u e L i n e I n d u s t r i a l s - 1 9 9 4 0 . 2 80 . 1110- 2 0 - 1 5 - 1 0 5 10 15 20 25 30R O C E - C A P M C o s t o f C a p i t a a l u e / C o s t V e r s u s R O E - C A P M C o s t o f E q u i t yV a l u e L i n e I n d u s t r i a l s - 1 9 9 4 0 . 2 60 . 1110- 5 0 - 4 - 3 0 - 2 0 - 1 0 0 10 20 30 40 50R O E - C A P M C o s t o f E q u i t c o n o m i c C a s h F l o w M e a s u r e s D o u b l eA b i l i t y t o E x p l a i n V a l u R O I S p r e a d - V / L I n d u s t r i a l s - 1 9 9 4 0 . 6 10 . 1110- 1 0 5 10 15 20 25 30C F R O I m i n u s D i s c o u n t R a t :s t , 1998 2:01 9 - 996 i g h R e t u r n s F a d e D o w n w a r d a n d L o w R e t u r n s F a d e U p w a r d ;T h e F a d e P a t t e r n O c c u r s N o M a t t e r W h a t t h e S t a r t i n g Y e a r . . .A v e r a g e O p e r a t i n g C F R O I b y D e c i l e - 1 9 7 0 , 1 9 8 0 o r 1 9 8 7- 1 0975 1980 1985 1990Y e a rA v e r a g eO p e r a t i n R O D e c i l D e c i l D e c i l D e c i l D e c i l D e c i l D e c i l D e c i l D e c i l - D e c i l 970 980 987 970to be to :s t 0 , 1998 2:01 10 - 996 F O . ( 0% 10% :s t 1 , 1998 2:01 11 - 996 e l a t i v e T o t a l S h a r e h o l d e r R e t u r n ( T S R ) v e r s u s S t e r n M o d e l T S R 1 9 9 0 - 1 9 9 1- 1 0 0- 5 0050100150200- 1 0 0 - 5 0 0 50 100 150 200 250 300S t e r n M l e l a i v e T o t a l S h a r e h o l d e r R e t u r n ( T S R ) v e r s u s E . P . S . M o d e l T S R 1 9 9 0 - 1 9 9 1- 1 0 0- 5 0050100150200- 1 0 0 - 5 0 0 50 100 150 200 250E . P . S . M o d e l T S e l a t i v e T o t a l S h a r e h o l d e r R e t u r n ( T S R ) v e r s u s C a s h F l o w M o d e l T S R 1 9 9 0 - 1 9 9 1- 1 0 0- 5 0050100150200- 1 0 0 - 5 0 0 50 100 150C a s h F l o w M o d e l T S e l a t i v e T o t a l S h a r e h o l d e r R e t u r n ( T S R ) v e r s u s B C G M o d e l T S R 1 9 9 0 - 1 9 9 1- 1 0 0- 5 0050100150200- 1 0 0 - 5 0 0 50 100 150 200 250B C G M o d e l T S =750 =750 =750 =750 :s t 2 , 1998 2:01 12 - 996 t e r n S t e w a r t P e r f o r m a n c e 1 0 0 0M a r k e t V a l u e A d d e d v s . E c o n o m i c V a l u e A d d e d 1 9 8 8 - A f t e r O u t l i e r E l i m i n a t i o 0 0 00500010000- 1 0 0 0 - 5 0 0 0 500 1000E c o n o m i c V a l u e A d d e 4 5 a 44% to 00 31 of to N=861 V A v e r s u s E V A S t e r n S t e w a r t 1991- 2 0 0 0 0- 1 0 0 0 001000020000300004000050000- 3 0 0 - 2 0 0 0 - 1 0 0 0 0 1000 2000E c o n o m i c V a l u e A d d e d ( E V A ) V A v e r s u s C V A B C G 1 9 9 1- 2 0 0 0 0- 1 0 0 0 001000020000300004000050000- 2 0 0 0 - 1 0 0 0 0 1000 2000 3000C a s h V a l u e A d d e d ( C V A ) o t a l S h a r e h o l d e r R e t u r n ( T S R ) V e r s u s % C h a n g e i n E c o n o m i c V a l u e A d d e d ( E V A )1 9 9 2 - 1 9 9 3- 6 0- 4 0- 2 0020406080100- 1 0 0 0 100 200 300 400% C h a n g e i n E V :s t 3 , 1998 2:01 13 - 996 O “ Us in in to of as to :s t 4 , 1998 2:01 14 - 996 F F be so of to = N e t C a s h F 1 + D R ) 1n = S RP r e m i u mE s t i m a t e P r e m i u mA c t u a l:s t 5 , 1998 2:01 15 - 996 ., “in 2:1993, 75. . “t?”, 982, p. 23., “A 1985, 6), 1622., “ 1979, ), 28. . “ 3 102956). . . “s 103., “ 1990, ), 36 1938. :s t 6 , 1998 2:01 16 - 996 s 5, 1986, 122 to , 1987, 40 of , 1989, 5 , 1989, 4 , 1989, 21 of on , 1989, 23 950, 1989, 38 00 in by of , 1989, 4 , 1989, 10 5, 1990, 11 to s 2, 1991, 63 to :s t 7 , 1998 2:01 17 - 996 = of an is &P 400 0 :s t 8 , 1998 2:01 18 - 996 s) O E :s t 9 , 1998 2:01 19 - 996 F 996 1234567891011121950 1955 1960 1965 1970 1975 1980 1985