Book Review: Value, the four cornerstones of corporate finance
My Rating: 🚀🚀🚀🚀🚀, the bible for understanding the true meaning of value creation in the corporate environment
Overall: A wonderful overview of the levers for value creation in corporations, the book gives vivid examples and doesn’t baffle the reader with technical terms. It keeps rules simple and concise, reminding us that whilst performance can be achieved through financial wizardry, the core of value creation is very simple, cash improving outcomes = value creation.
Cautions: There is a lot to digest in this bible of corporate value creation, don’t try and tackle it in one sitting. Read, revisit, look up terms and reflect — it is definitely a book that improves with each visit.
Recommended readers: Anyone who works for a private company and wants to really understand what the term “value creation” means.
When I came to this book in 2016, I didn’t initially start it thinking I was going to enjoy it. It seemed like a good refresher on corporate finance principles and having read the accompanying “Valuation” book I thought it would help flesh out my understanding of company valuation. So, fairly boring motives.
BUT, what I got from this book was a re-schooling on how companies should be run and a hammering home of the key fundamentals of business. I unashamedly geek out and love this book for its clean take on value creation.
This is in stark contrast to the current business environment where we have endless books on Lean Startup, blitzscaling, growth hacking- all designed for startups in this liquid market. I’m yet to see, in one of these methodologies, a writer hammer home the point that without Return on Invested Capital, it’s maybe been a fun ride but in a corporate setting value hasn’t been created.
Value tells the story of four principles, that work in-tandem to generate value within any private [listed] corporate:
It’s not a new story, these are not new principles, its a solid retelling of the fundamentals: Cash is King, Cashflows are how you survive, the world will expect more from you the minute you succeed and part of the company you own right now might not achieve it’s potential with you as it’s owner.
In the corporate venture context, this is, this should be the backbone of a venture. Companies create corporate ventures because, through analysis or feel, an opportunity has been spotted for growth. To make them truly successful, they have to outperform putting the same investment in an index tracker [stocks and shares growing at market levels]. Understanding the demand for return, cash outcomes and the flexibility to assess when to sell a venture is a great skillset for any organisation executing corporate ventures.
This book doesn’t deal with intangibles and the potential strategic return of activities but it does reinforce that if your actions don’t lead you down a path to value creation, why are you doing them?
