Key value drivers of enterprise and their assessment

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Dnipro state agrarian and economic university

Key value drivers of enterprise and their assessment

Kozenkova V., C. Econ. Sci.

Annotation

This article is devoted to the concept of key value drivers in the system of formation and implementation of the enterprise value management policy. It is determined that a significant advantage of using key value drivers is the ability to assess the sensitivity of any factor and its contribution to the enterprise value creation process.

Keywords: value management, sources of value creation, key value drivers, intangible assets.

To carry out economic activities, each enterprise must have at its disposal certain property that belongs to it by right of ownership, i.e., assets of an enterprise, which represent the economic resources of an enterprise in the form of total property values used in economic activities for the purpose of making a profit.

The need to estimate the value of an enterprise arises in the following cases:

- in the course of making a decision on the advisability of investing funds in an enterprise;

- during enterprise reorganization;

- in case of bankruptcy and liquidation of an enterprise;

- in case of sale of an enterprise as a complete property complex;

- in case of property pledge and when determining the creditworthiness of an enterprise;

- during the remedial audit process when determining the possibility of correction;

- during the privatization of state-owned enterprises.

Thus, the purpose of estimating the value of an enterprise is to determine the basis for drawing up a transfer or distribution balance sheet, to establish the proportions of the exchange of corporate rights, including in the implementation of takeover and merger operations, to determine the value of the liquidation mass, to determine the real sale price of property, to determine the real value of credit collateral, to calculate the effectiveness of rehabilitation, to determine the initial sale price of the object of privatization.

Considering an enterprise as a property complex, it should be noted that the complex includes all types of property intended for its activities: land plots, buildings and structures, machines and equipment, raw materials and products, intangible assets, property liabilities. Assessing the market value of an enterprise's property complex means determining in monetary terms the value of the enterprise's tangible assets as a commodity, i.e., their utility for a potential buyer and the costs necessary to obtain this utility.

It is the presence of intangible assets that can explain the market attractiveness of some enterprises with negative equity capital. In addition, the efficiency of the enterprise, its past, present and future income, development prospects and competitive environment in this market are evaluated. As a result of this approach, the real value of the business and its ability to generate profit are determined.

Determining key value factors, that is, those operating parameters that actually determine the value of a business, is the most important stage in the implementation of the concept of value management.

It is necessary to identify the main parameters that determine the value of an enterprise, their specificity due to their nature and other characteristic features, highlight the features of their implementation, and also study the change in value factors over time, the degree of interdependence and relationship between them. In its most general form, a value factor is any variable that affects the value of an enterprise.

A system of value factors can include many variables, the management of which requires large costs, so the first priority is to determine the most significant of them, on which the main efforts should be directed.

Following the well-known Pareto principle, it can be assumed that only 20% of factors determine 80% of the company's value. These factors are called key value drivers (KVDs). It is with their help that the main results of the enterprise's activities that form its value are determined.

The determination of these factors requires compliance with a number of principles:

- KVDs must be directly tied to the creation of value and brought to all levels of the enterprise with the necessary detail;

- when setting target standards and when evaluating performance results, KVDs should be expressed as financial and operational key performance indicators;

- KVDs should reflect both current operations and long-term growth prospects.

It is necessary to form such a system of KVDs, in which their subordination will be established, key indicators will be determined for each unit separately, and the responsibility of a specific employee for these parameters will be established. Detailing is necessary to link the KVDs with those indicators on the basis of which decisions are directly made at the functional and operational level.

The definition of KVDs is possible by applying the elasticity indicator, which shows the effect of a change in the value of the factor on the value of the enterprise, which allows ranking the identified factors according to the degree of their importance. At the same time, such a composition of the KVDs should be chosen that would maximally take into account various economic and organizational, financial and other features of various elements of the enterprise (enterprise as a whole, business units, branches, functional divisions, business processes, etc.). Each unit of the enterprise must clearly imagine which value factors it can have a direct influence on and what contribution it can make to value creation [1]. key factor cost enterprise corporate rights

The value of the enterprise is affected by a number of factors that can be grouped as follows:

- by the sphere of influence on external factors that are not subject to the influence of company managers and internal factors that are subject to the management of the enterprise (the system of internal value factors is a set of indicators of the enterprise and its individual units, which include revenue, profit, profitability, quality of manufactured products, technical equipment of production, etc.);

- by the nature of the influence on the cost - managed, that is, accessible to purposeful influence and unmanaged, on which the influence of management is minimized;

- by the nature of the assessment - quantitative, which can be measured numerically, and qualitative, which cannot be measured numerically);

- according to the nature of inclusion in the reporting - financial, which are measured in monetary terms and non-financial, which do not have a monetary expression);

- by level of detail - strategic, cost factors of the general level, business units, structural divisions, applied operational cost factors.

There is ambiguity in approaches to the selection of KVDs. Emphasis is placed on the dependence of factors of a higher level on factors of a lower level. Thus, in [2], the classification of the system of KVDs is presented as follows:

- general factors (primarily - profitability of invested capital);

- indicators of operating profit and the amount of invested capital;

- factors that determine profit, capital investment directions;

- the level of specific (customer base, efficiency of resource use) and operational factors (prices for certain types of resources, payment policy, availability of suppliers, shortage of resources, cost of repairing fixed assets, etc.).

From the standpoint of the complex influence of factors on the formation of value, a classification was formed based on the environment of influence with the selection of two groups of factors - external and internal.

The first group includes macroeconomic and industry factors, as well as the general state and conjuncture of stock markets.

The second includes the organizational and legal form, market value of assets, production potential and production volumes, level of control and principles of internal corporate management.

M. Porter's model has become widespread, according to which there are five main forces that determine the company's position in the industry: three forces of horizontal competition - the risk of the appearance of substitute goods, the threat of the appearance of new players, the existing level of competition; and the two forces of vertical competition - pressure from consumers and market power of suppliers [3].

P. Fernandez [4] singled out three general variables: expected future cash flows, required return on capital and connection with the market. In turn, each of these indicators can be detailed and include: rate of return on investments, company growth rates, risk-free interest rate, risk premium, operational and financial risks, etc.

Summarizing these approaches, the following groups of factors can be identified that affect the value of the enterprise.

From the external environment, these are: the macro environment (inflation rate; taxation policy; interest rate; stability of the stock market; political stability); competitive positions (advantages of leaders in the industry; competitive position in the market; changes in the number of competitors; sensitivity to substitute goods); market characteristics (industry growth rate; price level and dynamics; sizes of key segments; structure and dynamics of demand; cyclicality of the market).

On the part of the internal environment, these are: production (supply of basic production assets; inventory turnover; growth in product sales; income and operating expenses); marketing (target market share; diversification of activities; access to adjacent market segments); finance (capital structure; dividend policy; tax benefits; profit growth rate; loan structure); investments (investment opportunities; share of R&D expenditures; takeover; investment in current assets).

When identifying the sources of value creation, one cannot avoid the aspect that investments in physical assets, which not so long ago determined the competitive advantages of enterprises, now cannot always be considered as key competencies for future success. As mentioned earlier, the value of the business exceeds the value of the property complex by the amount of intangible assets that do not have a physical natural form, but are endowed with "intangible value" and therefore bring additional income to the enterprise.

Traditionally, the following groups of intangible components of enterprise value are distinguished:

- market (competitive advantages; market share; brands and trademarks; business reputation; licenses and franchises, publishing rights or copyright; business cooperation);

- human (qualification, skills and abilities of personnel; inventiveness; possibilities of adaptation of personnel);

- creative possibilities (personal connections; trust in management; experience of managers);

- technological (recipes, formulas, models; patented technologies and know-how; technical and software);

- internal (organizational culture; corporate culture; values and social norms; management strategy; adaptability of management systems; financial and managerial transparency; databases).

Business reputation occupies a special place in this list. It is formed in the process of carrying out economic activity and represents a number of advantages inherent in a specific enterprise and inseparable from it (for example, a favorable geographical location, an established sales and supply system, the quality of manufactured goods, popularity on the market, availability of know-how, etc.).

In the international business community, parameters are used that can be used as KVDs. So, for example, you can use the parameters according to which Fortune magazine's reputation rating is conducted: quality of management; product quality; the ability to attract and retain qualified personnel; financial strength; efficient use of assets; increase in investment attractiveness; tendency to attract new technologies; social responsibility and environmental protection.

The value management system involves not only the structuring of KVDs, but also a certain subordination of indicators among themselves in order to obtain a consolidated rating of cost components.

In the financial literature, there are already attempts to create an end-to-end rating system of the main financial factors of the company's value. At the same time, the selection of the KVDs here is carried out on the basis of four criteria:

- the company's strategy and life cycle;

- the sensitivity of the resulting financial indicator to various cost factors;

- the potential for improving indicators;

- volatility (variability) indicators [5].

It should be noted that such rating systems of indicators, as a rule, take into account only financial factors of value, which reflect exclusively the results of activities, but do not fully disclose the ways of their achievement.

With the help of financial indicators alone, it is impossible to control the effectiveness of investments in intangible assets (business reputation, brand, personnel), which largely depends on the success of the enterprise on the market. At the same time, similar ratings, despite their artificiality, can be useful for evaluating the management's contribution to the development of the enterprise, in creating a system of incentives and rewards for employees for increasing business capitalization.

Determining the degree of influence of each factor on the value of the enterprise should be an important task of the assessment. At the same time, it is impractical to consider the cost factors in isolation from each other. It makes sense to test the system of factors on the basis of both normal current activities and possible critical situations, such as price wars, shortage of raw materials, negative changes in legislation, etc. However, it is possible to use simplified models of the company's activity and for testing resort to, for example, electronic spreadsheets, the use of elasticity formulas, etc.

To study the directionality and intensity of connections between factors and the result, it is also possible to use mathematical and statistical methods of stochastic modeling, such as grouping of multidimensional observations, correlation analysis, regression analysis, taxonomic method, dispersion analysis, component analysis.

The main limitation when choosing these methods is the sufficient size (number) of the set of observations, which allows to reveal with sufficient accuracy the nature, tightness and form of the analyzed connections between the key factors of cost and the result.

Thus, it can be noted that in the system of formation and implementation of the enterprise value management policy, the undoubted value of the concept of KVDs is the ability to assess the sensitivity of any factor and its contribution to the enterprise value creation process with a certain accuracy.

Moreover, the analysis of KVDs can be a powerful tool that allows, on the one hand, to focus the attention of operational managers on those activities that will have the greatest impact on business value, and on the other hand, to control and stimulate the maximum financial efficiency of operational activities.

Sources

1. Scott, M. (2000). Value Factors: A Guide for Managers to Identify Leverages of Value Creation.

2. Gryaznova A. and Fedotova M. (2014). Business assessment. Finances and statistics.

3. Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy, Harvard Business Review, January 2008.

4. Fernandez P. Valuation Methods and Shareholder Value Creation, 2002 Academic Press, San Diego, CA.

5. Samokhvalov V. (2004). How to determine the key financial factors of cost? Company management. No. 5.

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