Читать книгу Corporate Value Creation - Karlson Lawrence C. - Страница 17

In Chapter 1 the basic relationships between the Income, Balance Sheet, and Cash Flow statements were explored. The concepts and equations that were developed are basic to understanding what drives Cash Flow and Value. However, there are other ways of looking at what drives Cash Flow in a company and one of these involves a set of equations called the Envelope Equations. These equations enable the user to make quick estimates of Net Income and Cash Flow, in a sense on the “back of an envelope,” hence the name.

In this chapter, the study of the Envelope Equations begins by defining and discussing Net Investments (NetInvest) and the Investment Rate (IR). These concepts are then incorporated into the equation developed in Chapter 1 for CFaIA. This is followed by the development of a more general form of the Cash Flow equation incorporating the concept of Net Income Return on Capital Employed (NiROCE). Then, based on the observation that the IR and NiROCE vary little from year to year for many companies, the equations are simplified and then abridged further by focusing on Operational Cash Flows. Next, equations for the Cash Flow and Net Income growth rates, CFaIAg and NIg, respectively, are discussed. Finally, the growth equations are simplified by assuming constant IR's and NiROCE's, and included in the family of Envelope Equations, which are then used in a series of examples and a case study that illustrate how they can be used.