Equity Value Enhancement

Chapter 10Valuation versus Value Creation (GRRK)

Stated another way, due to perceived risks, equity investors often expect total returns of 30 to 40 percent compounded, especially for lower middle market companies. The main point is that existing corporate finance tends to focus on modern portfolio theory of efficient markets. Most midmarket companies and their competitive environment are anything but efficient, which is part of the premise of this book. Slee examines cost of capital across a spectrum starting from traditional debt to venture capital and factoring, which is reflective of risks.

Where Slee leaves off on company-specific risks, this book hopes to triangulate with the premise that the goal should be to measure the change (absolute gains) in value such as return on invested capital as a key metric of performance improvement.

—Slee, 2011.

Not even sports is more dog-eat-dog than operating a business in such a competitive environment. This book is intended to provide a leg up to the business owner and trusted advisor. For sure, while the need is great, the demand is likely the 20 percent or fewer who are constantly seeking answers to the proverbial “splinter in my mind” challenge: “What could I be doing better and who is best suited to achieve better to best?”

Since the subject of this book is value creation, it makes sense to dwell on why it's relevant for owners and trusted advisors to have relationships with top-tier business appraisers. But, it's equally ...