Pt 1: Fundamental Principles of Value Creation

Question 1

Describe the fundamental principles of value creation for companies.

Answer 1

Companies create value by investing cash to generate more cash in the future, with value being the difference between cash inflows and the cost of investments, considering time value of money and riskiness of future cash flows.

Question 2

What factors govern the amount of value a company creates?

Answer 2

A company’s value creation is governed by its return on invested capital (ROIC), revenue growth, and its ability to sustain both over time.

Question 3

Define ROIC and its significance in value creation.

Answer 3

ROIC stands for return on invested capital and is crucial in determining the amount of value a company creates, as value is only created if ROIC exceeds the cost of capital.

Question 4

How does growth impact a company’s value creation?

Answer 4

Growth increases a company’s value only if ROIC exceeds the cost of capital; growth at lower returns can actually reduce a company’s value.

Question 5

What role do the fundamental principles of value creation play for managers and investors?

Answer 5

These principles help managers decide on strategies and investments that create long-term value for shareholders, and assist investors in assessing the potential value of companies for investment purposes.

Question 6

Explain the relationship between cost of capital and value creation.

Answer 6

A company will create value only if its ROIC is greater than its cost of capital; growth can increase a company’s value only if ROIC exceeds the cost of capital.

Question 7

Describe the relationship between growth, ROIC, cash flows, and value in the context of value creation principles.

Answer 7

High-ROIC companies typically create more value by focusing on growth, while lower-ROIC companies create more value by increasing ROIC.

Question 8

Define the principle that is often forgotten by executives in value creation.

Answer 8

Anything that doesn’t increase cash flows, such as noncash accounting charges or changes in accounting methods, won’t create value.

Question 9

How do earnings and cash flow relate to value creation according to the content?

Answer 9

While earnings and cash flow are often correlated, earnings alone do not tell the whole story of value creation.

Question 10

Do earnings growth alone fully explain shareholder returns, as illustrated by the example of Costco and Brown-Forman?

Answer 10

No, earnings growth alone cannot fully explain shareholder returns, as demonstrated by the similar shareholder returns of Costco and Brown-Forman despite different growth rates.

Question 11

Describe the key factor that allowed Brown-Forman to create the same value as Costco despite slower growth.

Answer 11

Brown-Forman was able to create the same value as Costco due to its higher ROIC of 29% compared to Costco’s 13% ROIC.

Question 12

Explain the importance of focusing on ROIC in value creation strategies.

Answer 12

Focusing on ROIC is crucial as it can enable companies to create value even with slower growth rates, as demonstrated by Brown-Forman’s success despite its slower growth compared to Costco.

Question 13

Describe the relationship between growth, ROIC, and cash flow in companies.

Answer 13

Growth, ROIC, and cash flow are interconnected elements that impact a company’s performance. Disaggregating cash flow into revenue growth and ROIC helps evaluate economic performance.

Question 14

Define ROIC and its significance in evaluating a company’s performance.

Answer 14

ROIC stands for Return on Invested Capital and is a key metric used to assess how efficiently a company is using its capital to generate profits.

Question 15

How are growth, ROIC, and cash flow mathematically linked in companies?

Answer 15

Growth, ROIC, and cash flow are mathematically linked as they collectively determine a company’s performance and value.

Question 16

Do revenue growth and ROIC play a role in evaluating a company’s economic performance?

Answer 16

Yes, revenue growth and ROIC are crucial factors in assessing a company’s economic performance as they impact cash flow and overall profitability.

Question 17

Describe the impact of revenue growth and ROIC on a company’s cash flow.

Answer 17

Revenue growth and ROIC influence a company’s cash flow by determining the sources of increase, such as higher revenues or improved capital efficiency.

Question 18

How can comparing a company’s growth rate and ROIC with industry benchmarks help in evaluation?

Answer 18

Comparing a company’s growth rate and ROIC with industry benchmarks allows for assessing its performance relative to peers and industry standards.

Question 19

Describe the concept of free cash flow in value creation.

Answer 19

Free cash flow is what remains for investors after subtracting investments from earnings.

Question 20

Define investment rate in the context of value creation.

Answer 20

Investment rate refers to the percentage of profits a company invests to achieve profit growth.

Question 21

How can companies be valued using future free cash flows?

Answer 21

Companies can be valued by discounting their future free cash flows at a discount rate reflecting the cost of capital.

Question 22

Do price-to-earnings ratios (P/Es) differ between companies with identical earnings and growth rates?

Answer 22

Yes, P/Es can differ due to different cash flows, even with identical earnings and growth rates.

Question 23

Describe the role of ROIC in driving differences in investment rates.

Answer 23

ROIC, which measures incremental NOPAT relative to prior year’s investment, influences differences in investment rates.

Question 24

How does Value Inc. achieve higher cash flows compared to Volume Inc. with the same profit growth?

Answer 24

Value Inc. invests only 25% of its profits, resulting in 50% higher cash flows compared to Volume Inc. which invests 50% of its profits.

Question 25

Describe the relationship between growth, ROIC, and cash flow as per the provided content.

Answer 25

The relationship states that Growth = ROIC x Investment Rate and Cash Flow = Earnings x (1 - Investment Rate).

Question 26

How does the investment rate impact a company’s growth according to the formula provided?

Answer 26

A higher investment rate is required to achieve the same growth, as seen in the comparison between Value Inc. and Volume Inc.

Question 27

Define ROIC and its significance in analyzing a company’s performance.

Answer 27

ROIC stands for Return on Invested Capital and is crucial in evaluating how efficiently a company is using its capital to generate profits.

Question 28

How can a company’s performance be described using growth and ROIC according to the content?

Answer 28

A company’s performance can be analyzed by looking at growth and ROIC across time and in comparison to its peers.

Question 29

Explain the formula for calculating cash flow in relation to earnings, growth, and ROIC.

Answer 29

The formula is Cash Flow = Earnings x (1 - Growth/ROIC), where the investment rate is equal to growth divided by ROIC.

Question 30

Describe the relationship between growth, ROIC, and cash flow available for distribution as shown in Exhibit 3.4.

Answer 30

Different combinations of growth and ROIC result in varying levels of cash flow that can be paid out to investors.

Question 31

How does slowing growth impact the cash generated per dollar of NOPAT according to Exhibit 3.4?

Answer 31

As growth slows at any level of ROIC, the cash generated per dollar of NOPAT increases.

Question 32

Define NOPAT in the context of the provided content.

Answer 32

NOPAT represents the profits available for distribution to investors.

Question 33

Explain the significance of high ROIC for companies in terms of cash flow generation.

Answer 33

Companies with high ROIC tend to generate significant cash flow as long as they are growing modestly.

Question 34

How does Exhibit 3.4 illustrate the relationship between growth, ROIC, and cash flow generation for companies?

Answer 34

It shows that companies with high ROIC can generate substantial cash flow even with modest growth rates.

Question 35

Describe the impact of finding more investment opportunities at a higher ROIC and increased growth on cash flow and value according to the content.

Answer 35

Finding more opportunities at a higher ROIC and increased growth may initially lower cash flow, but it can significantly increase the company’s long-term value.

Question 36

Describe the relationship between growth, ROIC, and cash flow in the context of the provided content.

Answer 36

The value of a company is influenced by growth, return on invested capital (ROIC), and cash flow, as illustrated in the example.

Question 37

Define the value driver formula mentioned in the content.

Answer 37

The value driver formula simplifies the relationship between growth, ROIC, and cost of capital in determining the value of a company.

Question 38

How does improving ROIC impact the value of a company according to the content?

Answer 38

Improving ROIC increases the value of a company as it reduces the investment needed for growth.

Question 39

Do faster growth rates always increase the value of a company according to the content?

Answer 39

Faster growth rates increase value only when a company’s ROIC is higher than its cost of capital.

Question 40

Describe the impact of growth on the value of a company as explained in the content.

Answer 40

The impact of growth on value is ambiguous as it affects both the numerator and the denominator in the value driver formula.

Question 41

Explain why the value driver formula is not commonly used in practice according to the content.

Answer 41

The formula assumes constant growth and ROIC forever, which is not realistic in practice, but it serves as a reminder of the factors driving value.

Question 42

Describe the concept of balancing ROIC and growth to create value.

Answer 42

Balancing ROIC and growth involves analyzing how different combinations of growth and ROIC impact the present value of future cash flows, considering the company’s cost of capital.

Question 43

How does ROIC affect value creation in comparison to growth?

Answer 43

For any level of growth, value increases with improvements in ROIC. Higher ROIC means the company can achieve a given level of growth without needing to invest as much, leading to value creation.

Question 44

Describe the impact of growth on value creation when ROIC is lower than the cost of capital.

Answer 44

When ROIC is lower than the cost of capital, faster growth can destroy value as it means investing more at a value-destroying return.

Question 45

Do companies with high ROIC and low growth have a higher valuation multiple than those with low ROIC and high growth?

Answer 45

Yes, a company with high ROIC and low growth may have a similar or higher valuation multiple than a company with low ROIC and high growth.

Question 46

Explain the significance of the dividing line between creating and destroying value through growth.

Answer 46

When ROIC equals the cost of capital, the dividing line is drawn where value is neither created nor destroyed through growth. This indicates a point where growth does not impact the company’s overall value.

Question 47

Describe the relationship between growth and ROIC in mature companies according to the content.

Answer 47

In mature companies, a low ROIC often indicates a flawed business model or unattractive industry structure, and growth may not necessarily lead to an increase in ROIC.

Question 48

Define ROIC as mentioned in the content.

Answer 48

ROIC stands for Return on Invested Capital, which is a financial metric used to evaluate the efficiency of a company in generating profits from its capital investments.

Question 49

How did Rockwell Automation achieve high total shareholder returns despite a decrease in revenues?

Answer 49

Rockwell Automation achieved high total shareholder returns by significantly increasing its ROIC from about 12% to 35% through operational improvements in its core industrial-automation business.

Question 50

Do scale economies automatically increase a company’s return on capital for mature businesses?

Answer 50

No, scale economies almost never lead to an automatic increase in return on capital for mature businesses, as mentioned in the content.

Question 51

Describe the impact of growth and ROIC on the value of companies like Costco and Brown-Forman in the stock market.

Answer 51

The content explains that despite faster earnings growth for Costco, the shareholder returns for both Costco and Brown-Forman were similar, highlighting the importance of considering both growth and ROIC in determining a company’s value.

Question 52

Define TSR as mentioned in the content.

Answer 52

TSR stands for Total Shareholder Returns, which represent the total return of a stock to an investor, including both capital appreciation and dividends over a specific period.

Question 53

Describe the median P/E ratio of consumer packaged-goods companies compared to the S&P 500 companies in 2018.

Answer 53

The median P/E ratio of consumer packaged-goods companies was about 15, almost the same as the median S&P 500 company.

Question 54

Define ROIC and explain its significance in company valuation.

Answer 54

ROIC stands for Return on Invested Capital and is a measure of how efficiently a company generates profits from its capital investments. Higher ROIC indicates better value creation.

Question 55

How do large U.S. companies compare to large European companies in terms of median enterprise value to invested capital?

Answer 55

Large U.S. companies had a median enterprise value to invested capital of 5.4, while large European companies had 3.2, indicating higher valuation relative to invested capital in the U.S.

Question 56

Describe the difference in ROIC between large U.S. companies and large European companies in 2018.

Answer 56

The median large U.S. company earned a 30 percent ROIC, while the median large European company earned 19 percent, showing higher returns on invested capital in the U.S.

Question 57

What are some industries in the United States that contribute to higher ROIC compared to Europe?

Answer 57

The United States has more high-ROIC industries like pharmaceuticals, medical devices, and technology companies.

Question 58

Do changes in ROIC or growth have a greater impact on a company’s value, according to the content?

Answer 58

Companies with high ROIC can generate more additional value by increasing their rate of growth, as per the content.

Question 59

Describe the impact of higher growth and ROIC on value for high-ROIC and moderate-ROIC companies.

Answer 59

High-ROIC companies benefit more from focusing on growth, while moderate-ROIC companies see greater value increase by improving returns on invested capital.

Question 60

What strategic priorities should high-ROIC and low-ROIC companies focus on based on the analysis?

Answer 60

High-ROIC companies should focus on growth, while low-ROIC companies should prioritize improving returns before growing.

Question 61

Define the pecking order of growth-related value creation mentioned in the content.

Answer 61

The pecking order refers to understanding which types of growth create more value based on the industry and company type.

Question 62

How does the value created from different types of growth vary for a typical consumer products company?

Answer 62

New products typically create more shareholder value, while acquisitions create the least value due to differences in returns on capital.

Question 63

Describe the importance of understanding the impact of growth and ROIC on value creation for companies.

Answer 63

Companies need to analyze the effects of growth and returns on invested capital to set strategic priorities and maximize shareholder value.

Question 64

How does the content suggest companies should approach achieving growth and improving returns on invested capital?

Answer 64

Companies should understand the varying difficulty levels of achieving growth and improving ROIC, and tailor their strategies accordingly to create maximum value.

Question 65

Describe the different types of growth strategies for value creation outlined in the content.

Answer 65

The different types of growth strategies include introducing new products, expanding an existing business, increasing share of a growing market, competing for share in a stable market, and acquiring businesses.

Question 66

How do growth strategies based on organic new-product development differ from acquisitions in terms of required investment?

Answer 66

Organic new-product development strategies require incremental investments and can be scaled back or canceled if results are not promising. Acquisitions require upfront payment of the entire investment.

Question 67

Define the interaction between growth and ROIC in assessing the impact of investments on a company’s overall ROIC.

Answer 67

The interaction between growth and ROIC refers to how the rate of return on invested capital (ROIC) is influenced by the company’s growth strategies and investments.

Question 68

How do successful companies with high ROIC sometimes approach investments in growth projects, according to the content?

Answer 68

Some successful companies with high ROIC may be reluctant to invest in growth projects if the projected returns are lower than their current ROIC, fearing a dilution of average returns.

Question 69

Describe the impact of cost of capital on the value creation of an investment with a lower return but a cost of capital that is even lower.

Answer 69

Even if an investment opportunity has a lower return than the current ROIC, it can still create value as long as the cost of capital is lower, despite the resulting decline in average ROIC.

Question 70

Explain the difference in risk between organic new-product development and acquisitions in terms of failure.

Answer 70

Organic new-product development carries the risk of failure for individual product ideas, while acquisitions typically bring existing revenues and cash flows that limit the downside risk to the acquirer.

Question 71

Describe the impact of growth and ROIC on high- and low-ROIC companies based on Exhibit 3.9.

Answer 71

High-ROIC companies that grew fastest and maintained high ROICs created the most value. Low-ROIC companies that pursued growth without fixing their ROIC problems did not see significant improvements.

Question 72

What does the evidence suggest about low-ROIC companies pursuing growth without fixing their ROIC problems?

Answer 72

Low-ROIC companies should not grow until their ROIC problems are resolved, as faster growth rarely fixes a company’s ROIC problem.

Question 73

Define ROIC and its significance in evaluating company performance.

Answer 73

ROIC stands for Return on Invested Capital and is a key metric used to assess how effectively a company uses its capital to generate profits.

Question 74

How do companies with low returns often justify pursuing growth despite their low ROIC?

Answer 74

Companies with low returns may assume that growth will improve profit margins and returns by spreading fixed costs across more revenues.

Question 75

Describe the relationship between growth, ROIC, and value creation for companies according to the provided content.

Answer 75

Companies that grew fastest while maintaining high ROICs created the most value. Those that grew fast despite moderate ROIC declines also created significant value.

Question 76

Do high-ROIC companies that grew fastest always outperform those that increased their ROIC but grew slowly?

Answer 76

No, the content suggests that companies that grew fastest while maintaining high ROICs created the most value, even outperforming those that increased their ROIC but grew slowly.

Question 77

How should companies with ROIC problems approach growth according to the content?

Answer 77

Companies with ROIC problems should not pursue growth until the underlying ROIC issues are resolved.

Question 78

Define TSR and its relevance in evaluating company performance.

Answer 78

TSR stands for Total Shareholder Return and is a measure that includes stock price appreciation and dividends. It reflects the total return received by shareholders.

Question 79

Describe the common reasons for low returns in companies as mentioned in the content.

Answer 79

Low returns in companies can be due to poor industry structure, flawed business models, or weak execution, rather than solely a lack of growth.

Question 80

Describe the impact on value of improvingIC through margin improvement vs. capital productivity improvement.

Answer 80

Improving ROIC through margin improvement tends to have a higher impact on value relative to improving capital productivity, especially at high levels of ROIC.

Question 81

What is the significance of improving ROIC for companies with low growth?

Answer 81

Companies with low growth that increase their ROICs tend to outperform faster-growing companies that do not improve their ROICs.

Question 82

Define economic profit in the context of value creation for a company.

Answer 82

Economic profit is a measure that combines ROIC and size into a currency metric to assess a company’s value creation.

Question 83

How does a company increase its ROIC through margin improvement?

Answer 83

A company can increase its ROIC through margin improvement by increasing profit margins, leading to higher profits and value.

Question 84

Describe the impact of improving ROIC through margin improvement at moderate ROIC levels.

Answer 84

At moderate ROIC levels, a one-percentage-point increase in ROIC through margin improvement will have a moderately higher impact on value compared to improving capital productivity.

Question 85

Explain the relationship between ROIC improvement through margin enhancement and capital productivity improvement.

Answer 85

Improving ROIC through margin enhancement tends to create more value at high levels of ROIC compared to an equivalent increase through capital productivity improvement.

Question 86

Describe economic profit in the context of a company’s value creation.

Answer 86

Economic profit measures the value created by a company in a single period, calculated as the spread between the return on invested capital (ROIC) and the cost of capital, multiplied by the amount of invested capital.

Question 87

How is economic profit calculated for a company?

Answer 87

Economic profit is calculated by multiplying the invested capital by the difference between the ROIC and the cost of capital.

Question 88

Define ROIC in the context of economic profit calculation.

Answer 88

ROIC stands for Return on Invested Capital and is a key metric used to assess how effectively a company uses its capital to generate profits.

Question 89

How can economic profit be used to value a company?

Answer 89

Economic profit can be discounted at the cost of capital and added to the starting invested capital to determine the value of a company.

Question 90

Describe the relationship between economic profit and the discounted-cash-flow (DCF) approach in valuing a company.

Answer 90

The value of a company using the economic-profit approach is often the same as with the discounted-cash-flow (DCF) approach, as both methods aim to assess the company’s value.

Question 91

How can economic profit be utilized to compare the value creation of different companies or business units?

Answer 91

Economic profit allows for the comparison of value creation among companies by analyzing the difference in economic profits generated based on their invested capital and returns.

Question 92

Describe the principle of economic profit in value creation.

Answer 92

Economic profit is the difference between a company’s total revenue and the total opportunity cost of all resources used in production, including the cost of capital.

Question 93

Define conservation of value in the context of business finance.

Answer 93

Conservation of value means that anything that does not increase cash flows does not create value, emphasizing that changing ownership of claims to cash flows or altering appearance of cash flows without changing actual cash flows does not change a company’s value.

Question 94

How does measuring performance in terms of economic profit influence investment decisions?

Answer 94

Measuring performance in terms of economic profit encourages companies to undertake investments that earn more than their cost of capital, even if the return is lower than the current average return.

Question 95

Describe the battle over accounting for executive stock options as an illustration of the conservation of value principle.

Answer 95

The battle over accounting for executive stock options shows how executives sometimes overlook the conservation of value principle, mistakenly believing that certain financial structures or accounting treatments can increase a company’s value without affecting cash flows.

Question 96

How did the Financial Accounting Standards Board (FASB) propose to change accounting rules regarding executive stock options in the early 1990s?

Answer 96

The FASB proposed a change that would require companies to record an expense for the value of options when they are issued, as opposed to excluding the implicit cost of executive stock options from income statements as was done under previous accounting rules.

Question 97

Describe the conservation of value principle in.

Answer 97

The conservation value principle in finance emphasizes focusing on increasing cash flows rather than engaging in activities that redistribute value among investors or create illusions of value.

Question 98

Define the value conservation principle.

Answer 98

The value conservation principle states that changes in a company’s capital structure should not affect its overall value unless there are changes in the cash flows generated by the company.

Question 99

How did Modigliani and Miller contribute to the understanding of the conservation of value principle?

Answer 99

Modigliani and Miller showed in the late 1950s that changes in a company’s debt and equity structure should not impact its value unless there are changes in the cash flows.

Question 100

Do changes in stock option accounting rules typically affect stock prices immediately?

Answer 100

No, changes in stock option accounting rules may not immediately impact stock prices as the market often already factors in such information in its valuations.

Question 101

Describe the importance of focusing on tangible sources of value creation for executives.

Answer 101

Executives should focus on tangible sources of value creation to avoid engaging in activities that create illusions of value, ensuring sustainable growth.

Question 102

How can executives ensure they are creating real value for their company according to the conservation of value principle?

Answer 102

Executives can ensure they are creating real value by focusing on increasing cash flows rather than resorting to gimmicks or financial engineering that do not materially increase the size of the pie.

Question 103

Describe the impact of borrowing money on cash flows in terms of tax deductions and managerial diligence.

Answer 103

Borrowing money can lower total taxes paid by a company, increasing cash flow for shareholders and creditors. Debt may also incentivize managers to be more diligent to ensure timely debt repayment.

Question 104

Define efficient markets and explain one implication of efficient-market theory related to stock market reactions.

Answer 104

Efficient markets suggest that stock markets are not easily fooled by actions that increase reported accounting profit without increasing cash flows.

Question 105

How does the conservation of value principle guide managers in analyzing actions that create value?

Answer 105

The conservation of value principle focuses on analyzing the cash flow impact of actions to determine if they create value, disregarding other factors.

Question 106

Do changes in accounting policies, like eliminating goodwill amortization, always lead to increased stock prices?

Answer 106

No, changes in accounting policies may lead to increased reported profits but may not affect underlying values or stock prices if they do not impact cash flows.

Question 107

Describe three business decisions where applying the conservation of value principle can be beneficial.

Answer 107

Applying the conservation of value principle can be useful in decisions related to share repurchases, acquisitions, and capital structure.

Question 108

How can debt impact a company’s ability to raise capital for attractive investment opportunities?

Answer 108

Having debt may make it more difficult for managers to raise capital for attractive investment opportunities, potentially reducing cash flow.

Question 109

Explain the significance of the conservation of value principle in corporate decision-making processes.

Answer 109

The conservation of value principle is crucial in guiding decisions related to accounting policy, acquisitions, corporate portfolio, dividend payout, and capital structure by focusing on cash flow impact.

Question 110

Describe the common fallacy related to share repurchases and value creation.

Answer 110

The common fallacy is that share repurchases create value simply because they increase earnings per share (EPS).

Question 111

Define conservation of value in the context of share repurchases.

Answer 111

Conservation of value means that the total cash flow of a business should increase when considering financial decisions like share repurchases.

Question 112

How does share repurchasing impact a company’s earnings per share (EPS)?

Answer 112

Share repurchasing can increase EPS by reducing the number of outstanding shares, leading to a higher EPS.

Question 113

Do share repurchases always lead to an increase in a company’s market value per share?

Answer 113

No, share repurchases may not always increase market value per share as the increase in EPS may be offset by factors like higher leverage and investor demands.

Question 114

Describe the potential impact of share repurchases on a company’s long-term earnings.

Answer 114

Share repurchases may lead to immediate EPS increase but could potentially result in lower long-term earnings if the cash could have been invested elsewhere for higher returns.

Question 115

How can share repurchases be a tactic for avoiding value destruction in a company?

Answer 115

Share repurchases can be a tactic to avoid value destruction by reducing the likelihood of management investing cash at low returns, thus potentially increasing operating cash flows.

Question 116

Explain the argument for management to consider share repurchases.

Answer 116

Some argue that management should consider share repurchases to prevent investing cash at low returns, which could lead to increased operating cash flows and potentially create value.

Question 117

What is the potential issue with companies buying back shares when their prices are high?

Answer 117

Value may not be created as companies often buy back shares at high prices, not low, shifting value from selling shareholders to holding shareholders.

Question 118

Describe the caution executives should exercise when considering share repurchases to boost EPS.

Answer 118

Executives should question where the source of value creation lies, as actions like share repurchases may not always create value but rather shift it.

Question 119

Define how acquisitions can create value for companies.

Answer 119

Acquisitions create value when the combined cash flows of the two companies increase due to cost reductions, accelerated revenue growth, or better use of fixed and working capital.

Question 120

How did United Rentals’ purchase of RSC demonstrate value creation through acquisitions?

Answer 120

United Rentals achieved over $250 million in annual cost savings after purchasing RSC, equivalent to about 80% of the purchase price.

Question 121

Describe how Johnson & Johnson’s acquisition of Neutrogena led to revenue acceleration.

Answer 121

Johnson & Johnson introduced new products, expanded product categories, launched a men’s care line, and expanded Neutrogena’s global presence, increasing sales significantly.

Question 122

Do share repurchases always create value for shareholders as a whole?

Answer 122

No, share repurchases may benefit holding shareholders but not necessarily shareholders as a whole, as value can be shifted rather than created.

Question 123

What is NOPAT?

Answer 123

Net operating profit after tax (NOPAT)