Assuming there are no changes in the company’s risk profile.
In Chapter 23 we show that the tax savings from debt may increase the company’s cash flows.
A. Marshall, Principles of Economics, vol. 1 (New York: Macmillan, 1890), 142.
C. Shapiro and H. Varian, Information Rules: A Strategic Guide to the Network Economy (Boston: Harvard Business School Press, 1999).
Eduardo Porter, “The Lion, the Bull and the Bears,” New York Times, October 17, 2008.
Richard Dobbs, Bin Jiang, and Timothy Koller, “Why the Crisis Hasn’t Shaken the Cost of Capital,” McKinsey on Finance, no. 30 (Winter 2009): 26-30.
Richard Dobbs and Timothy Koller, “The Crisis: Timing Strategic Moves,” McKinsey on Finance, no. 31 (Spring 2009): 1-5
Sheila Bonini, Timothy Koller, and Philip H. Mirvis, “Valuing Social Responsibility Programs,” McKinsey on Finance, no. 32 (Summer 2009): 11-18.
John R. Graham, Cam Harvey, and Shiva Rajgopal, “The Economic Implications of Corporate Financial Reporting,” Journal of Accounting and Economics 40 (2005): 3-73.
A simple definition of return on invested capital is after-tax operating profit divided by invested capital (working capital plus fixed assets). ROIC’s calculation from a company’s financial statements is explained in detail in Chapters 6 and 7.
In its purest form, value is the sum of the present values of future expected cash flows—a point-in-time measure. Value creation is the change in value due to company performance. Sometimes we refer ...