Alternative methods


Adjusted present value

Economic profit



Traditional analysis using discounted cash flows finds a single value but does not provide detailed information on the constituents of value or the breakdown of constituents. Figure 14.1 shows the sources of potential value in terms of:

  • current market value;
  • internal improvements such as cost cutting and savings;
  • external improvements such as liquidations, acquisitions, disposals and strategic improvements;
  • financial engineering, which includes borrowing costs, changing leverage and lowering the cost of capital.

Figure 14.1 Value gap


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