Ways of Increasing Value
Afirmcanincreaseitsvaluebyincreasingcashflowsfrom
current operations, by increasing expectedgrowth and the
periodofhighgrowth,andbyreducingitscompositecostof
financing. In reality, however, none of these is easily
accomplished,andwhetherthesechangescanbemadeisa
function of allof the qualitativefactors that weare often
accusedofignoringinvaluation—thequalityofmanagement,
the strength of brand name, strategic decisions, and good
marketing.
Increase Cash Flows from Assets in Place
Thefirstplacetolookforvalueisintheassetsinplaceofthe
firm.Theseassetsreflectinvestmentsthathavealreadybeen
madebythefirmthatgeneratethecurrentoperatingincome
forthefirm.Totheextentthat theseinvestments earnless
thanthecostofcapital,orareearninglessthantheycouldif
optimallymanaged, thereispotentialforvalue creation.In