25 Need-To-Know Management Ratios

12

The corporate valuation model

This chapter reviews:

• Financial leverage
• Internal return versus required return
• The importance of ROE
• The corporate valuation model

Introduction

This chapter is a natural conclusion to all the previous chapters. It integrates the material and illustrates the relationships between many of the ratios. It does this through a single model of corporate value.

Specifically we will:

• establish the financial leverage links between ROTA and ROE
• examine further the great importance of ROE
• tie together:
  • operating efficiency measures
  • leverage ratios
  • valuation factors.

The overall aim of this chapter is to identify and quantify the drivers of corporate value.

To accomplish this we will make much use of the V chart (valuation ...